Tuesday's Brew - Dec 26

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. The Dow, S&P 500 and NASDAQ indices are all up modestly in light trading. However, we view it likely that the market will take a decidedly negative direction in the near future, as tensions with oil giant Iran escalate.

OVERSEAS MARKETS

While markets are closed in Hong Kong, Australia, New Zealand and the Philippines today, trading continues in several key Asian nations. In Japan, supportive household spending and unemployment data helped to lift the NIKKEI 225 by 0.45%. Late last week, Toyota posted a forecast for 2007 that shows the firm is likely to overtake GM and Ford as the world's largest auto producer within a year's time. That news combined with a commitment from Japanese ship builders to accept a 5% price increase on steel, helped lift Nippon Steel Corporation's shares.

The U.K. market is closed for Boxing Day today, while the few European markets that are open in Italy and Switzerland are lower.

ECONOMIC DATA & ANALYSIS

As you might have expected, the economic calendar following the Christmas holiday is a rather light one. A bit of data will find its way to the market today, however, as the Federal Reserve Bank of Richmond releases its manufacturing index for November and the Dallas Federal Reserve releases its manufacturing-production index. The market will be hopeful for regional data that offsets the weak results from last week's Philly Fed Index, indicating a regional decline of manufacturing production versus an expectation for an increase.

COMMODITY MARKETS

Oil is where the action is today, as tension between Iran and the world escalate. After the U.N. Security Council passed sanctions against the oil producing giant, Iran vowed to continue enriching uranium and threatened to play its oil card as a weapon if necessary. Iran is also weighing its relationship with the International Atomic Energy Agency, and it is possible Iran will withdraw from the Nuclear Nonproliferation Treaty. Earlier this morning, crude oil futures for February delivery reacted sharply, rising 1.3%, but the futures have since settled to a rise of about 0.37%, or $62.64 per barrel.

Traders seem to be shrugging off forecast colder weather for North America, and paying attention to the long-term trend, warming winters. As a result, natural gas is falling 5.5% today. We believe this offers a buying opportunity for the oil substitute and domestically sourced energy commodity. Natural gas usage has expanded significantly over the years, and should continue to do so, especially if fuel cell technology grows in importance. As a domestically sourced commodity, we believe natural gas becomes a critical, strategic source of fuel in a conflict situation or oil shortage.

In our opinion, gold has regained its appeal as well, as currencies, especially the dollar, carry higher risk in an uncertain environment related to armed conflict and related gorilla warfare or terrorism. Imagine a scenario post an assault on Iran, where Iranian agents engage in terrorism upon American soil. Gold is up 1.3% today.

STOCKS IN THE NEWS

There are no earnings releases scheduled for today. Pinnacle Airline Corporation (PNCL) announced it would maintain its partnership with Northwest through 2017, and the stock was up 2.3% in morning trading.

Retail Sales data provider MasterCard Advisors released data indicating that holiday period sales appear to have risen a robust 6.6%, but that's less than last year's 8.7% increase. Still, in light of this year's housing decline and concerns about the American consumers' ability to maintain spending and continue to drive economic growth, we view the data positively. We hope you found value in "Today's Morning Coffee," and we wish you a good day trading. Look for "The Greek's Week Ahead" to be published shortly. (disclosure)