Wednesday's Brew - Oct 25

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. All eyes are on the Fed today, as clammy hands await the news. The big question of the day is will they hike or will they continue the pause. A great majority of economists (all 106 surveyed by Bloomberg) expect the Fed pause to continue today.

Whether they hike or not, we expect very hawkish commentary regarding inflation in the near future to provide further warning to equity markets that a hike is not out of the question considering recently lofty Core PPI and Core CPI data. Remember, the Fed did itself tell us it would be data dependent going forward. Adding to the pressure, with recent housing data mixed, the Fed may be less cautious about hiking rates just a bit more should inflationary red flags persist.

Trading on the CBOT moved its implied expectations forward for a Fed rate cut, from March to August, but equity markets seem to have implied a more positive outlook. Dow futures are indicating a higher open this morning, while the S&P 500 indicates lower and NASDAQ is undecided. If the direction equities take a strong position today in the AM, we believe a reversal is likely after the Fed decision at 2:15 EDT. If stocks rise ahead of a Fed pause, they should become concerned with future hike possibility. If they slide lower on inflationary concern, a Fed pause would add support. Neutral activity will likely be impacted by the Fed's statement more than the rate decision, and when the minutes of the meeting are posted later on down the road, we anticipate markets will be even more wary.

OVERSEAS MARKETS & NEWS

The NIKKEI 225 Index fell 0.48% ahead of earnings reports, while the Hang Seng Index held steady Wednesday. The FTSE 100 Index was up about 0.39%, on mining stock strength versus bank weakness. Analysts overseas have pointed toward the deterioration of merger premium for U.K. banks, as foreign interest seems to have slowed near-term. Shares across Europe are higher this morning. We anticipate European shares to be undecided today, as they await direction from the American Federal Reserve.

ECONOMIC DATA & NEWS

Outside of the previously discussed FOMC meeting and rate decision, the National Association of Realtors will report September existing home sales data at 10 a.m. The market will compare the data with new home sales strength shown last week versus the weakness seen in new permits. We expect the data to show a further slowing of the pace of sales. Last month, the report showed the first year-over-year decline in the price of a home in 11 years. Also on tap for Wednesday, the Treasury will sell $14 billion of five-year notes.

COMMODITY MARKETS

Copper is down for the fourth day in a row, as supply rose to its highest level in six weeks. Nickel is down 1.1% on inventory growth as well. Gold futures are trading just slightly lower while crude oil is up about a half of a percentage point. Natural gas futures are down approximately 1.4%.

The U.S. Energy Department report at 10:30 AM EDT is expected to show crude oil supplies increased 3 million barrels last week, based on the median estimate from a Bloomberg News survey of 15 analysts. Recent readings showed that U.S. oil stockpiles held more than the five-year average. The market continues to weigh supply and demand along side the threat of Iranian, Venezuelan and Nigerian spurred supply disruption potential. With prices down nearly 25% from the peak, they have appeared to steady of late. Clearly, the trading range has shifted lower. Our view is that data and news will continue to sway prices from $55 to $65, until a definitive resolution to the Iranian issue is found.

STOCKS IN THE NEWS

ImClone Systems (IMCL) appointed Carl Icahn as its new Chairman, and posted quarterly EPS results of $0.65, compared to $0.45 consensus as compiled by Thomson Financial. However, IMCL shares were down about 1.4% in pre-market activity. General Motors (GM) shares were down about 1.9% in early trading, as GM posted quarterly EPS of $0.93 excluding charges, versus consensus estimate of $0.49 before charges. The decline in stock price might be related to a decrease in GM's global market share to 13.9% during the quarter, from 14.4% .

Websense Inc. (WBSN) was up after hours Tuesday, as it exceeded estimates for revenue, billings and EPS. EPS results for the quarter were $0.25 excluding stock-based compensation, versus a consensus estimate of $0.23 excluding stock-based compensation. Amazon.com Inc. (AMZN) shares were up 14% after hours Tuesday, after posting quarterly EPS of $0.05, compared to analyst consensus of $0.03.

We gave you "Speculative Trade" ideas in PETS and WBSN over the past few days, and we anticipate another today, so stay tuned. We hope you enjoyed "Today's Morning Coffee" and wish you a good day trading. (disclosure)