Thursday's Brew (Nov 9)

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. Cisco Systems' solid earnings report has NASDAQ futures indicating higher this morning, but Dow and S&P 500 futures indicate a lower open today following yesterday's rise.

Indeed, we believe the market will wake up with a hangover today after yesterday's going away party for Donald Rumsfeld. The market will open its eyes to the harsh reality that the Democrats control Congress. It will take more than two aspirin to subdue the pounding headache, as victorious Dems find microphones and audiences across the country, and announce "drug reform!" and "budget reform!", implying higher taxes. When they start proclaiming "Corporate reform! Down with big oil!", investors will begin to see clearer the environmental change in store for the stock market.

OVERSEAS MARKETS

The Bank of England raised the key repurchase rate to 5%, a five-year high. Bankers blamed strong economic growth, and warned that it could drive inflation above the Bank's target. Stocks are mixed in Europe, though mostly down. The FTSE 100 Index is down 0.28% in morning trading, driven by GlaxoSmithKline Plc and other drugmakers with sales sensitivity to the endangered U.S. market, following Democrat victory in the American elections. The OMX Stockholm 30 Index leads all markets across the pond, rising 0.47% so far today.

While the NIKKEI slipped fractionally Thursday, the Hang Seng Index climbed 0.75%. In Japan, a central bank report showed lending had declined for a third straight month, and bank stocks led market decliners as a group. In China, data showed the trade surplus increased to a record $23.8 billion in October, compared to $15.3 billion in September. Exports soared 29.6%, and this is expected to draw further criticism from Europe and the U.S. about the unfair trade environment that exists in China and Chinese violations of copyright laws and protectionism. Of course, this noise will fall on deaf Chinese ears, as China remains a critical partner to manufacturing across the world and offers great potential as an export market.

However, our own analysis indicates that Europe will increasingly turn to emerging markets within Ex-Soviet Republics in deep Eastern Europe for a competitive option to Chinese manufacturing costs. The World Bank recently ranked the Republic of Georgia as the fastest improving emerging market. Clearly, the Ex-Soviet states still hold much risk, as Russia seems to be regressing to old habits and pressuring rising democracies seeking to improve ties to the U.S. In Georgia for instance, Russia has ruled mineral water and wine from Georgia, imported for years, below health quality standards. As a result, it has closed Georgia's most important export market for the products. At the same time, indications are that Russian owned Gazprom will double the price of natural gas it sells into Georgia this winter. Georgia, the Ukraine, Armenia and others are increasingly working together to support their separation from their old rulers.

ECONOMIC DATA & ANALYSIS

Economic news will likely decide the day today, with a couple key indicators scheduled for release. Weekly jobless claims for the week of November 4 is expected to decline to roughly 315,000. Also, the University of Michigan is scheduled to make its November reading of the consumer sentiment index, and economists expect a reading of 93.0, little changed from October.

The September International Trade data will be released today, and economists see a large decline to a deficit of $66.0 billion from the all-time high of $69.9 billion measured in August. Also, the Bureau of Labor Statistics will release its import-price index. Expectations are for a 1% decrease in import prices in October, versus a 2.1% decrease in September.

Former Fed Chairman, Alan Greenspan, will speak at the AMR Research conference in Boston. At the White House, the second U.S.-EU Economic Ministerial will take place. Also on Thursday, President Bush will meet with Mexico's president-elect, Felipe Calderon.

COMMODITY MARKET NEWS

Sugar and corn continue to benefit from demand for ethanol stressing production capacity. Sugar leads all commodity futures today, up approximately 3.3% today. Nickel and aluminum lead all commodities on the downside, down approximately 4% and 3%, respectively. However, other metals are showing strength today, including copper, which is up 1% on speculation of production disruption impact to the supply/demand equation. Gold is also stronger by about 1% today, driven by inflation concerns, and long-term jewelry demand from markets like India. Gold continues to find support from geopolitical risk as well, with world and dollar stability fragile and perhaps one large terror event away from collapse.

Crude oil rose yesterday and is up roughly 1% today as distillate inventories declined 2.68 million barrels last week. Crude oil inventory continued to build 435,000 barrels last week, and currently stands 11% ahead of average levels. However, refinery maintenance season is over, and markets are anticipating stockpiles to begin to be pressured by winter demand for heating oil. However, a heat wave is sweeping the nation, as temperatures are above 100 degrees in Los Angeles and approaching 70 in New York today. Longer term, oil pricing could benefit from a Democratically controlled Congress. If the Democrats can put forth an electable presidential candidate, environmental concerns could limit certain U.S. production plans, constraining supply. With President Bush in office for the next two years, environmentalist lobbies should continue to prove weak.

STOCKS IN THE NEWS
Reporting earnings on Thursday, King Pharma, Viacom, J.C. Penney, Nvidia Corp., TXU Corp. Valor Communications, American International Group, Disney, and Kohls Corp. Cisco Systems (CSCO) leads all newsmakers today, posting sales growth of 25% and reporting fiscal Q1 profit before special items of $1.9 billion, or 31 cents per share, versus $1.6 billion, or 25 cents per share a year ago. CSCO's results exceeded consensus analyst expectations for 29 cents per share, according to Thomson Financial Network. Also boosting the shares, UBS analyst Nikos Theodosopoulos upgraded Cisco to "Buy" from "Neutral". We hope you enjoyed "Today's Morning Coffee" and wish you a good day trading. (disclosure)