Thursday's Brew - Dec 14

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 lower open ahead of today's key OPEC meeting and following strong EPS reports from Lehman and Bear Stearns.

OVERSEAS MARKETS

Hong Kong's Hang Seng Index climbed 1.07%, while the NIKKEI 225 rose 0.82% today, after America's retail sales data enthused exporters into the market. Markets across Europe were mostly higher today, but mixed, after OPEC announced a further production cut. The FTSE 100 appreciated 0.21% through midday, while the broader European DJ STOXX 50 was up 0.33%.

COMMODITY MARKETS

Metals markets were rebounding today, supported by the apparent consumer strength in the American market. Metals traders are perhaps speculating that the American consumer can once again revive the U.S. market and bring about a soft landing. Copper was up 1.8% while nickel was 1.5% higher.

OPEC's last meeting of 2006 began today. Several OPEC members have recently voiced views in favor of further production cuts, mainly due to the decline of the dollar. Oil is generally traded in dollars. Venezuela's interests are suspect, however, as it cannot even meet its current quota. Another pusher for cuts, Iran, sells its oil in euros. It seems clear to us that the Iranian and Venezuelan views are strategically driven. We believe that Iran seeks to pressure the U.S. economy through oil prices, as it likely hopes a stressed American economy might be limited in its ability to launch a military offensive against Iranian nuclear facilities.

Perhaps more importantly, the Saudis are voicing an opinion that current supply exceeds demand. We believe a recent meeting between Vice President Cheney and Saudi officials, likely led to a cooperative agreement. In the event of war with Iran, oil supply from Iran may be disrupted. It's our expectation that Cheney has encouraged the Saudis to use this opportunity to stockpile oil reserves for later distribution should Iranian pipes stop flowing. The Saudis are seeking to cut supply to Asia by 8%, and we believe this is a U.S. attempt to sway the Chinese view that an Iranian strike is in their interests as well. Currently most of Iran's oil is sold to China and India. If China begins to fall short on energy, due to Saudi pressure, it might see things differently. However, Russian oil could ease that stress on China.

Crude oil is 1.4% higher this morning, to about $62.24, after OPEC agreed to reduce production by another 500,000 barrels a day starting February 1st. We believe that it is clear to traders that OPEC seeks to support the $60 price level of oil, and will likely reduce production earlier should the price weaken ahead of February. Also supporting the oil price today, an Imperial Oil Ltd. refinery exploded in Ontario Canada this morning. Imperial is Canada's largest oil company and 119,000 barrels are processed per day at the refinery. The explosion is more likely to impact the price of distillates, and gasoline is 0.93% higher while heating oil is 1.5% up today.

ECONOMIC DATA & NEWS

A high powered U.S. contingent, led by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson met with Chinese officials in Beijing on Thursday. Paulson was expected to push the Chinese to move more quickly on economic reforms. European leaders will further discuss the EU candidacy of Turkey, in light of Turkey's resistance to open its ports to commerce from Cyprus. Last week, Turkey made a gesture to ease some restrictions, but the EU is tiring of Turkey's vague offers and deceitful tactics, and Turkey's candidacy has been partially frozen as a result.

STOCKS IN THE NEWS

The FDA will confer on Sanofi-Aventis' antibiotic Ketek Thursday, while Proctor & Gamble, AMD and Citigroup are scheduled to meet with analysts. Bear Stearns and Lehman Brothers will report earnings after the market open, and reports are scheduled for Ciena Corp., Costco Wholesale, Multimedia Games, Pier 1 Imports, Quiksilver and Adobe Systems Inc. We hope you enjoyed "Today's Morning Coffee" and we wish you a good day trading. (disclosure)