Friday's Brew Nov - 17

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. Stocks across the Dow, S&P 500 and NASDAQ indices are lower this morning after the release of housing start and permit data well below expectations.

OVERSEAS MARKETS

The NIKKEI dipped 0.47%, impacted by the decline of energy and metals shares, as capital flow shifted after Core CPI results in America came in lower than anticipated. Indian indices also declined today after Pakistan tested a nuclear capable missile with reach of 1,300 miles. The Vietnamese Ho Chi Minh Stock Index climbed 2.5%, as it continues to benefit from its entry into the WTO and a positive visit from President Bush.

In Europe, shares were mostly lower Friday after the weaker than expected U.S. housing starts data. The CAC 40 Index was down about 1.3% while the FTSE 100 was slipping roughly 0.9%.

ECONOMIC DATA & NEWS

Friday finished the week's economic data parade, with the release of October Housing Starts. A Bloomberg survey of economists forecast the number of housing starts at 1.68 million annual rate, versus 1.77 million in September. Actual results measured far below consensus, currently running at an annual rate of 1.486 million, welcoming investors back to the housing collapse. Perhaps just as important, new housing permits data, which were seen by Briefing.com's survey of economists as totaling 1.625 million, versus 1.619 million in September, actually came in at a 1.535 million annual pace. This number should not be taken as a sign that growth could ensue next month, as of the many permits signed into, a good deal are likely be defaulted upon.

We foresaw this weakness in "The Greek's Week Ahead" published on Monday morning. We said then that "the tone of large U.S. home builders provides concern, and we believe the data will fall below consensus estimates, driving down housing stocks that have risen from lows." Clearly concern will return to the market that the consumer may be impacted by debt costs and decreases in the value of equity held in homes. We believe financial markets may be on the verge of crisis, due to the indiscretion of mortgage brokers and lenders who have signed a great deal of unsavvy Americans to mortgages they do not understand and cannot afford. We fully expect foreclosures and mortgage defaults to increase, as well as other consumer debt defaults. We would underweight the financial sector, and especially the shares of impacted lenders and mortgage brokers. Many banks have already shown signs of trouble, with EPS estimates and guidance being adjusted lower as they face increasing bad debt and continued competition for deposits. Washington Mutual is a good example of what we are talking about.

Cleveland Fed President Sandra Pianalto speaks today at the Fed's Universities, Innovation and Economic Growth conference.

COMMODITY MARKETS

Crude is down 0.8% today, to $55.80, after experiencing a sharp decline on Thursday. Crude made a 17-month low today, as weather in the northern third of the United States is expected to be relatively warm this winter, due to an El Nino pattern. As important, consultant Oil Movements said yesterday that November OPEC shipments will rise, indicating that members are not sticking to their agreed upon production cut. This week, we predicted OPEC would not agree to further reductions at their December meeting. However, we maintain that rising tension surrounding the Iranian issue and other geopolitical risks, as well as a seemingly Fed satisfying economy in the U.S. (with inflation coming down and economic growth continuing) is supportive of oil prices at current levels.

STOCKS IN THE NEWS

Reporting earnings on Friday are Foot Locker, Smucker JM Company, and Anntaylor Stores. (disclosure)