Thursday's Brew - Oct 12
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 today. Stock futures were bouncing higher this morning, after yesterday's market decline. Positive stock specific news has set a good early tone for trading. Yesterday, inflation concerns were renewed by the Fed September meeting minutes and continued concern about North Korean counter measures to pending sanctions. Also, a disappointing EPS report from Alcoa started the quarterly earnings season off poorly.
OVERSEAS
MSCI's index of stocks in Asia outside of Japan, moved 0.2 percent higher, while Tokyo shares slipped slightly. Japan moved ahead of the U.N. with a plan to impose new sanctions on North Korea that are expected to impact the North. Seafood shipments into Japan are expected to be turned away, as is all sea traffic. North Korea is dependent upon its neighbors for the well-being of its weak economy. The Stalinist nation has already responded with hard-line rhetoric, recalling Japan's annexing of Korea early this century. Korea announced that its response to Japan's sanctions would be enhanced by its actions of the past, and failure to make up for them. That potential retribution should continue to spook Asian markets. Just what will Korea do? If it were to sink a Japanese vessel, this would undoubtedly spark war. Less sensitive to these concerns, the FTSEurofirst 300 index edged up as much as 0.4 percent to 1,431 points, its highest since June 2001. M&A activity within Europe continues at a rapid pace, raising interest in the continent's shares.
COMMODITIES
Oil continues weak, as OPEC slowly progresses toward a production cut that appears to be useless in stemming the price decline. Today, natural gas inventory data will be released as usual, and we suspect the numbers will continue bearish for investors in the commodity, but we see near-term opportunity in natural gas shares as a cold wave sweeps across America. Trading in the commodity is typically sensitive to weather, but a recent report noted expectations of a warm winter and stemmed the commodity's advance earlier this week.
ECONOMIC & OTHER MARKET MOVING NEWS
The release of the September Meeting minutes from the Fed met investors with a slap in the face, as the information proved hawkish on inflation. The Fed remains hopeful that a downturn in housing and a slowing economy could help restrain inflation, but it is far from certain that this will occur. The words of Fed VP Donald Kohn earlier this month were telling as well. "Don't sell the Fed's concern about inflation short,'' Kohn told his audience. "Further upward movements in inflation would be very adverse to the economy and would, I think, require policy actions.'' The take away from traders surveyed was that the likelihood of a Fed rate cut by March 2007 has decreased. This was deflating to equity markets, and should continue to drive sideways trading, as we have mentioned previously. Until it becomes clear to the market that the Fed rate direction is headed lower, and the economy is not recession bound, stocks cannot rise with conviction. If lower energy prices hold, this could help to ease inflation.
The U.S. trade deficit unexpectedly widened to a record $69.9 billion in August as energy prices rose and the shortfall with China reached an all-time high. Initial jobless claims increased by 4,000 to 308,000 in the week that ended Oct. 7, the Labor Department said today in Washington. The rise was off of a two month low in the prior week, but still presents a resilient job market. Today the Fed's Beige Book is due out, measuring business conditions compiled from the 12 regional Fed banks. Traders will look for any indicators on how the U.S. economy is reacting to lower energy prices and for possible signs of recovery in the housing market.
STOCKS
Pepsi, Costco, McDonald's and Yum! Brands all exceeded or raised estimates last night and this morning, providing a positive tone for stocks this morning. We should get a better feel for how the quarter's earnings season is trending from today's data. We continue to favor investment in gold and energy shares, and see near-term rebound for each as uncertainty reenters the economic and geopolitical picture. We hope you enjoyed Today's Morning Coffee, and we wish you a good day trading. (disclosure)
OVERSEAS
MSCI's index of stocks in Asia outside of Japan, moved 0.2 percent higher, while Tokyo shares slipped slightly. Japan moved ahead of the U.N. with a plan to impose new sanctions on North Korea that are expected to impact the North. Seafood shipments into Japan are expected to be turned away, as is all sea traffic. North Korea is dependent upon its neighbors for the well-being of its weak economy. The Stalinist nation has already responded with hard-line rhetoric, recalling Japan's annexing of Korea early this century. Korea announced that its response to Japan's sanctions would be enhanced by its actions of the past, and failure to make up for them. That potential retribution should continue to spook Asian markets. Just what will Korea do? If it were to sink a Japanese vessel, this would undoubtedly spark war. Less sensitive to these concerns, the FTSEurofirst 300 index edged up as much as 0.4 percent to 1,431 points, its highest since June 2001. M&A activity within Europe continues at a rapid pace, raising interest in the continent's shares.
COMMODITIES
Oil continues weak, as OPEC slowly progresses toward a production cut that appears to be useless in stemming the price decline. Today, natural gas inventory data will be released as usual, and we suspect the numbers will continue bearish for investors in the commodity, but we see near-term opportunity in natural gas shares as a cold wave sweeps across America. Trading in the commodity is typically sensitive to weather, but a recent report noted expectations of a warm winter and stemmed the commodity's advance earlier this week.
ECONOMIC & OTHER MARKET MOVING NEWS
The release of the September Meeting minutes from the Fed met investors with a slap in the face, as the information proved hawkish on inflation. The Fed remains hopeful that a downturn in housing and a slowing economy could help restrain inflation, but it is far from certain that this will occur. The words of Fed VP Donald Kohn earlier this month were telling as well. "Don't sell the Fed's concern about inflation short,'' Kohn told his audience. "Further upward movements in inflation would be very adverse to the economy and would, I think, require policy actions.'' The take away from traders surveyed was that the likelihood of a Fed rate cut by March 2007 has decreased. This was deflating to equity markets, and should continue to drive sideways trading, as we have mentioned previously. Until it becomes clear to the market that the Fed rate direction is headed lower, and the economy is not recession bound, stocks cannot rise with conviction. If lower energy prices hold, this could help to ease inflation.
The U.S. trade deficit unexpectedly widened to a record $69.9 billion in August as energy prices rose and the shortfall with China reached an all-time high. Initial jobless claims increased by 4,000 to 308,000 in the week that ended Oct. 7, the Labor Department said today in Washington. The rise was off of a two month low in the prior week, but still presents a resilient job market. Today the Fed's Beige Book is due out, measuring business conditions compiled from the 12 regional Fed banks. Traders will look for any indicators on how the U.S. economy is reacting to lower energy prices and for possible signs of recovery in the housing market.
STOCKS
Pepsi, Costco, McDonald's and Yum! Brands all exceeded or raised estimates last night and this morning, providing a positive tone for stocks this morning. We should get a better feel for how the quarter's earnings season is trending from today's data. We continue to favor investment in gold and energy shares, and see near-term rebound for each as uncertainty reenters the economic and geopolitical picture. We hope you enjoyed Today's Morning Coffee, and we wish you a good day trading. (disclosure)
posted by The Greek | 8:13 AM
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