Friday's Brew - Dec 15

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. Stock futures indicate a higher open, after a week's worth of economic data that seems to point toward a resilient economy and not so bad inflationary outlook. Today's rather non-inflationary Core CPI data could act as icing on the cake and send the market into full Santa Claus rally mode.

OVERSEAS MARKETS

Asian markets closed higher, while European markets are also in the midst of rally. In Japan, the NIKKEI 225 closed 0.51% higher, while Hong Kong's Hang Seng Index ended 1% up today. The Chinese market is gearing up for 13 IPOs scheduled to reach market before the end of the year.

The Japanese market benefited from the release of the quarterly Tankan survey, Japan's most closely watched gauge of business sentiment. The Tankan indicated that confidence among large manufacturers climbed to 25 points from 24 in September, according to the Bank of Japan. The result was inline with the 25-point median estimate of 44 economists surveyed by Bloomberg News, but more importantly, it was the highest number since September 2004.

In Europe and the U.K., markets are building on the strength of the year's M&A activity and the apparent health of the American economy. The FTSE 100 Index and the broad European DJ STOXX 50 are both up approximately 0.45% through midday.

ECONOMIC DATA & NEWS

Friday keys up a powerhouse of economic data, with the November consumer price index release. Economist consensus saw November CPI rising 0.2%, as compared to a 0.5% decline in October, which was greatly impacted by a decrease in energy prices. The actual result showed a rise of 0.2%, in line with expectations, and Core CPI, excluding volatile food and energy costs, was unchanged. The data partially reflected a decrease in gasoline prices that is expected to reverse next period, but overall, we read the data as decidedly positive. American equity markets should strengthen on the week's data overall, and on this very important figure.

November industrial production is scheduled for release today as well, and the consensus sees a 0.1% increase versus a 0.2% rise in October. November capacity utilization is seen at 82.1%, compared to 82.2% in October. The Empire State Manufacturing Index is expected to decline to about 18.0 in December from a 26.66 level in November. Outside of all the economic data, but also noteworthy, Ben Bernanke is scheduled to speak in China. Markets will be tuned in to see if he has something to say about today's CPI data.

COMMODITY MARKETS

Metals are once again decidedly higher today, as economic data from Asia and the U.S. paints a picture of continued global economic growth, and widespread demand for aggregates. Nickel leads metals today, up 4.5%. Crude oil and distillates also continue higher on global economic health and continued secular supply/demand tightness and volatility. OPEC's announcement yesterday to cut production by another 500,000 barrels a day starting in February, following the 1.2 billion barrels already taken offline, shows OPEC's willingness to maintain prices near current levels.

The commodity we would look to exit or short in the near-term is gold. Though we believe gold should be held as a hedge and over the long-term, with an impending wide-scale conflict possible, in the short term, we expect capital to exit the asset class to find better returns in equity and fixed income investment. Gold is down fractionally today.

STOCKS IN THE NEWS

J2 Global Communications is the only firm scheduled to report earnings on Friday. In the near-term, we expect early cyclicals and technology stocks to benefit sharply from recent economic data. However, we would use near term strength in financial stocks including sub-prime lenders to exit them or take short positions in them. The housing weakness looks to continue building upon itself in the near term, and recent foreclosure and mortgage default data showed that many lenders have made poor loans at the peak of the housing boom. We hope you find value in "Today's Morning Coffee" and we wish you a good day trading. (disclosure)