Monday's Brew - Oct 9
North Korea rattled markets this morning with its announcement and evidence from global sources that the Stalinist nation successfully conducted its first nuclear test. U.S. stock futures were down sharply on the news, but have recovered some as the morning has progressed. However, stock futures at this hour remain significantly impacted by the nuclear test.
In overseas trading, the FTSE 100 index in London defiantly rose on Monday, outperforming other European indexes. However, stocks in Asia fell, with South Korea's main stock index tumbling 2.4 percent and Hong Kong's Hang Seng index losing more than 1 percent. Japan's Nikkei stock index was closed for a holiday, but the Japanese yen fell to an eight-month low against the dollar.
Oil climbed above $60 a barrel on Monday as OPEC continued to discuss a production cut. Mining outpaced all sectors in the FTSE 100 gainers, boosted by gold prices rising 1.5 percent as safe-haven buying intensified following news of the nuclear test in North Korea.
This week, and certainly today, we see a combination of the OPEC move to reduce oil supply and the Korean nuclear test, driving capital out of equities and back into gold and energy. We advised investors last week to consider taking positions in the two sectors, and we have taken a position ourselves in gold equity call options. Gold has slumped 10 percent the past month, compared with a 3.8 percent gain in the Standard and Poor's 500 Index. A global Bloomberg survey of 39 traders, investors and analysts contacted on Oct. 5th and 6th showed 46% expected gold to trade lower, an increase from 6.5% just a week earlier. The herd mentality persists in our view, and is a trait of human nature that is a hard kill. We view this sudden change in sentiment as a contrary indicator, especially near-term with today's news. Gold was up roughly 1.5% overseas, compared to Friday's U.S. close. Today, we advise investors to take positions in natural gas related issues. The weather in the Northeast is expect to change dramatically toward the end of the week, and this typically aids the sensitive natural gas markets. Temperatures are expect to reach significantly lower levels by the weekend. Names like Nabors Industries Ltd. (NBR) and Encana Corp. (ECA) are likely to benefit.
Besides the North Korean concerns, other geopolitical risks take the spotlight this week. The U.N. Security Council has its hands full, convening today in an emergency meeting to discuss serious action against North Korea. The council hopes to convince the rebellious nation to halt its threatening activity, and to send a message to other nuclear hopefuls like Iran. The big six members of the council were already scheduled to meet today to discuss sanctions for Iran. You can find further information on geopolitical insight at www.GeopoliticalFactor.com.
We anticipate equity markets to give back much of their recent gains this week and this month. Although the Korean test has passed, there is already talk of a second test possibility, as North Korea has consistently ignored the rhetoric of the global community. The chief of South Korea's intelligence agency told lawmakers on Monday it was possible North Korea would carry out a second nuclear test, Seoul's Yonhap news agency quoted one MP as saying.
The lawmaker also quoted Kim Seung-gyu, head of the National Intelligence Service, as telling a closed-door parliamentary committee meeting that unusual signs had been detected at a North Korean town in the afternoon. However, we believe it is more likely this activity was related to yesterday's test.
The world media will now focus attention on the depth of the Security Council's response. Already, Don Rumsfeld has called out the council, so to speak, saying that the response of the world community to this action would be telling regarding its effectiveness. Other U.S. officials have spoken harshly, but it is yet to be seen what punitive actions will be taken. President Bush will address the media this morning. A hand-slap would effectively cause this issue to be overlooked by markets, but serious action that could lead the North to a drastic step, would cause ongoing concerns for global markets. In our opinion, further isolation is only likely to push North Korea into closer ties with other rebel nations, and could drive the North to supply Iran with its first nuclear weapon in exchange for necessary resources.
Q3 earnings season officially kicks off this week with the Tuesday report from Alcoa. Potential market moving news includes Wednesday's release of the minutes from the last Fed meeting. Then on Thursday and Friday, we will receive reports including the Fed's beige book survey of economic activity, the September read on retail sales and the October read on consumer sentiment from the University of Michigan. Next Sunday, you can look forward to our first issue of "The Week Ahead," within which we will preview the trading week for U.S. equity markets. We hope you enjoyed your "Morning Coffee" and wish you a good day trading. (disclosure)
In overseas trading, the FTSE 100 index in London defiantly rose on Monday, outperforming other European indexes. However, stocks in Asia fell, with South Korea's main stock index tumbling 2.4 percent and Hong Kong's Hang Seng index losing more than 1 percent. Japan's Nikkei stock index was closed for a holiday, but the Japanese yen fell to an eight-month low against the dollar.
Oil climbed above $60 a barrel on Monday as OPEC continued to discuss a production cut. Mining outpaced all sectors in the FTSE 100 gainers, boosted by gold prices rising 1.5 percent as safe-haven buying intensified following news of the nuclear test in North Korea.
This week, and certainly today, we see a combination of the OPEC move to reduce oil supply and the Korean nuclear test, driving capital out of equities and back into gold and energy. We advised investors last week to consider taking positions in the two sectors, and we have taken a position ourselves in gold equity call options. Gold has slumped 10 percent the past month, compared with a 3.8 percent gain in the Standard and Poor's 500 Index. A global Bloomberg survey of 39 traders, investors and analysts contacted on Oct. 5th and 6th showed 46% expected gold to trade lower, an increase from 6.5% just a week earlier. The herd mentality persists in our view, and is a trait of human nature that is a hard kill. We view this sudden change in sentiment as a contrary indicator, especially near-term with today's news. Gold was up roughly 1.5% overseas, compared to Friday's U.S. close. Today, we advise investors to take positions in natural gas related issues. The weather in the Northeast is expect to change dramatically toward the end of the week, and this typically aids the sensitive natural gas markets. Temperatures are expect to reach significantly lower levels by the weekend. Names like Nabors Industries Ltd. (NBR) and Encana Corp. (ECA) are likely to benefit.
Besides the North Korean concerns, other geopolitical risks take the spotlight this week. The U.N. Security Council has its hands full, convening today in an emergency meeting to discuss serious action against North Korea. The council hopes to convince the rebellious nation to halt its threatening activity, and to send a message to other nuclear hopefuls like Iran. The big six members of the council were already scheduled to meet today to discuss sanctions for Iran. You can find further information on geopolitical insight at www.GeopoliticalFactor.com.
We anticipate equity markets to give back much of their recent gains this week and this month. Although the Korean test has passed, there is already talk of a second test possibility, as North Korea has consistently ignored the rhetoric of the global community. The chief of South Korea's intelligence agency told lawmakers on Monday it was possible North Korea would carry out a second nuclear test, Seoul's Yonhap news agency quoted one MP as saying.
The lawmaker also quoted Kim Seung-gyu, head of the National Intelligence Service, as telling a closed-door parliamentary committee meeting that unusual signs had been detected at a North Korean town in the afternoon. However, we believe it is more likely this activity was related to yesterday's test.
The world media will now focus attention on the depth of the Security Council's response. Already, Don Rumsfeld has called out the council, so to speak, saying that the response of the world community to this action would be telling regarding its effectiveness. Other U.S. officials have spoken harshly, but it is yet to be seen what punitive actions will be taken. President Bush will address the media this morning. A hand-slap would effectively cause this issue to be overlooked by markets, but serious action that could lead the North to a drastic step, would cause ongoing concerns for global markets. In our opinion, further isolation is only likely to push North Korea into closer ties with other rebel nations, and could drive the North to supply Iran with its first nuclear weapon in exchange for necessary resources.
Q3 earnings season officially kicks off this week with the Tuesday report from Alcoa. Potential market moving news includes Wednesday's release of the minutes from the last Fed meeting. Then on Thursday and Friday, we will receive reports including the Fed's beige book survey of economic activity, the September read on retail sales and the October read on consumer sentiment from the University of Michigan. Next Sunday, you can look forward to our first issue of "The Week Ahead," within which we will preview the trading week for U.S. equity markets. We hope you enjoyed your "Morning Coffee" and wish you a good day trading. (disclosure)
posted by The Greek | 8:02 AM
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