Friday's Brew - Oct 13

Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. Moving markets today, more earnings, hawkish inflationary commentary from the Fed, retail sales weakness, oil rising, and the U.N. close to agreement on sanctions for North Korea. In early market activity, the Dow futures are down 9 points, S&P 500 futures down 1.1 points, while the NASDAQ is up slightly.

OVERSEAS

Following its recent setback on North Korean concern, the Nikkei average rose 1.02 percent on Friday, ending at a five-month closing high. The index likely also benefited from solid earnings reports and an upgrade of Sony Corp. by Morgan Stanley. Britain's FTSE 100 index was down fractionally on Friday on what appears to be shaping up as a light trading day.

COMMODITIES

In early trading, crude for November delivery was up over a dollar from the year low touched yesterday. The U.S. Energy Department reported fuel consumption increased last week, the first rise in seven weeks. In other news, Statoil ASA and Royal Dutch Shell Plc announced they would halt output at two platforms after Norway's Petroleum Safety Authority said some lifeboats would split apart in an emergency. The temporary shutdown of the platforms is expected to reduce global output by 280,000 barrels a day. Yesterday's inventory data produced a surprise as well, revealing that U.S. inventories of distillates, including heating oil, fell last week to 1.5 million barrels.

Gold is up $9 in early trading, as inflationary concerns, weaker retail sales data and a sanctioned and illogical North Korea threaten world stability. Gold has been tracking energy prices in its recent trend downward, and inversely tracking the dollar. It has recently benefited from renewed inflationary concerns and from safe-haven seekers, with the rise of intensity regarding the Korean and Iranian issues on the global plate.

GEOPOLITICAL ISSUES

Japan has passed sanctions and the U.S. has softened sanctions overnight making them more palatable for the Chinese and Russians. The U.S. has adjusted wording so that if military action were to take place, it would have to be supported by a second set of U.N. passed resolutions. Also, the Chinese were concerned that the boarding of North Korean ships in search of weapons payloads might lead the North to a military response. The U.S. is hopeful to strike quickly with sanctions while the iron is hot on the issue and while Chinese support exists. A vote is anticipated for Saturday, or possibly as early as today. We expect further hard-line rhetoric from North Korea today to worry markets ahead of the weekend. For this reason, equities are likely to be negatively impacted, while gold should benefit.

ECONOMIC & OTHER MARKET MOVING NEWS

The Commerce Department reported that retail sales decreased 0.4 percent in September, versus expectations for a 0.2 percent decline. The slip was impacted by a 9.3 percent drop in gasoline sales. Excluding gasoline sales, retail sales rose 0.6 percent, perhaps benefiting from lower gas prices. We interpret the news as positive for the U.S. economy, but markets appear to view it differently this morning. Excluding autos, consumer spending fell 0.5 percent, further than expected.

Last night, Chicago Fed Chief Mike Moskow indicated that further rate hikes might be necessary to curb inflation. He is now the fifth Fed representative on record downplaying the likelihood of a near-term Fed rate cut.

STOCKS

General Electric speaks loudest to the market this morning, as its third quarter revenues came in a billion dollars more than expected to $40.9 billion and total orders and backlog rose 15% and 21%, respectively. Organic growth showed a gain of 10%. EPS from continuing operations measured $0.49 per share, up 14%, and in line with expectations for the sixth consecutive quarter. However, GE looks to trade lower today, as its forward guidance range positioned analysts' estimates toward the top end.

Health insurer Aetna Inc. will streamline corporate and business operations in an effort to further reduce administrative expenses. About 2%, or approximately 650, of the company's total workforce of 30,000 will be affected, including nearly 200 employees in management positions. The actions will result in a fourth quarter charge of approximately $20 million, after tax, related to severance costs. We hope you enjoyed your Morning Coffee, and wish you a good day trading and a pleasant weekend. (disclosure)