Wednesday's Brew Dc 27
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. Overseas market optimism that drove Asian markets higher and is sending European markets broadly upward this morning, seems to be spreading to the U.S. market. U.S. equity market futures are broadly and sharply higher this morning. We attribute the optimism to post holiday euphoria and, more critically, to Tuesday's decline in oil prices.
OVERSEAS MARKETS
News that Chinese lender, Industrial & Commercial Bank of China Ltd., anticipated a decrease in its bad loan ratio, helped boost Chinese shares. However, the key driver of Chinese stocks on Wednesday was a story originated from state-run Xinhua News Agency. The article reported that China's top lawmaking body had begun discussing a law that could lower taxes for domestic companies. The Hang Seng Index climbed 1.5% higher Wednesday and mainland Chinese stocks were broadly higher as well. In Japan, the NIKKEI 225 inched higher 0.31%.
European shares were broadly higher Wednesday, with the DJ STOXX 50 Index up 0.73%. National benchmarks rose in all 18 western European markets except Belgium. The broad rise could be attributed to a multitude of factors. We can only speculate that post holiday euphoria related to the merger and acquisition boom in Europe, and yesterday's decline in oil prices played a role. If a sustainable oil price decline were to occur, an important factor driving inflation would be weakened. However, as we pointed out in "Your Wake Up Call," we view yesterday's oil drop as a short-term phenomenon, despite favorable weather trends.
ECONOMIC DATA & ANALYSIS
Today, we will get a better look into how the holiday shopping season went for American retailers. The International Council of Shopping Centers will post its survey of chain-store sales for the week before Christmas. The prior week's data showed sales behind schedule, but due to the extra shopping weekend just before the holiday, it's possible that retailers made up the lost ground.
Regional economic data continues to reach the market Wednesday, with the Chicago Federal Reserve's release of its Midwest manufacturing index. Also, Moody's Economy.com will publish its survey of global business confidence. At its last reading in mid-December, global business sentiment was at its lowest level since October 2003.
Wednesday is a busy day for the housing sector, with two key releases set for the day. November new home sales data will be reported at 10:00 AM, with the consensus view for 1.02 million sales, compared to 1.0 million in the last period, according to a Bloomberg News survey. Also, the Mortgage Banker's Association will report weekly mortgage applications and its weekly refinance index today.
COMMODITY MARKETS
Natural gas continues to tumble, down 2.5% today, on mild weather trends in North America. We reiterate our statement of yesterday that natural gas is increasingly a substitute for crude oil distillates. Natural gas already efficiently produces electricity at conventional generation facilities and creates heat for homes. It is making inroads into other areas, including as a key driver of fuel cell engines. In many instances, hydrogen is created for fuel cell driven engines through the input of natural gas. It is the key fuel source, and if fuel cell technology were to take hold in its current state, natural gas would be in great demand. Also, as a mostly domestically sourced energy commodity, it has critical strategic importance for America.
We believe natural gas will be less sensitive to developments overseas, but it will be positively and highly correlated to changes in the price of oil. As the price of oil rises, the demand for gas increases and thus the price of gas rises. For example, it becomes a more economically viable heating source, when compared to heating oil.
Crude declined precipitously yesterday, and is relatively unchanged this morning at approximately $61.13 per barrel. We believe a combination of warm weather trends and a perceived ineptness of Iranian retributive ability led traders to take the price down. However, as we stated in "Your Wake Up Call" and in recent issues of "Today's Morning Coffee," we do not view Iran as inept in will or in ability.
We believe Iran will make the next move in the chess match, asking IAEA inspectors to leave, or in some way limiting inspectors from access to sites. As cargo is inevitably intercepted on its way to Iranian ports, we believe Iran may move a step further, possibly withdrawing from the NPT, or Nuclear Nonproliferation Treaty. Behind the scenes, we expect Iran to maintain its disruptive positioning in Iraq, Lebanon and Palestine. Our first issue of "The Geopolitical Factor" will detail our expectations, forecasts and scenarios we view possible for the year ahead.
Gold is higher as a result of escalating tensions with Iran and due to other factors working against the dollar. The United Arab Emirates announced it is transitioning a portion of its reserves to gold from dollars. This trend, seen in China as well, is a sign of weakening expectations for the dollar. Some of this is likely due to sharp economists' understanding that in a global environment, the playing field will level, and the strong dollar should weaken against strengthening currencies of emerging nations and groups of nations. However, some of it is likely related to a growing view that America is going too far in a geopolitical sense; that it is risking its position atop the world order. Stay tuned for our detailed thoughts near the beginning of the year.
STOCKS IN THE NEWS
Apple Computer (AAPL) is down sharply in pre-market activity, falling 4.3%. Federal prosecutors are reportedly investigating stock option administration documents that are rumored to be have been falsified. There are no earnings reports scheduled for today. We hope you found value in "Today's Morning Coffee" and we wish you a good day trading. (disclosure)
OVERSEAS MARKETS
News that Chinese lender, Industrial & Commercial Bank of China Ltd., anticipated a decrease in its bad loan ratio, helped boost Chinese shares. However, the key driver of Chinese stocks on Wednesday was a story originated from state-run Xinhua News Agency. The article reported that China's top lawmaking body had begun discussing a law that could lower taxes for domestic companies. The Hang Seng Index climbed 1.5% higher Wednesday and mainland Chinese stocks were broadly higher as well. In Japan, the NIKKEI 225 inched higher 0.31%.
European shares were broadly higher Wednesday, with the DJ STOXX 50 Index up 0.73%. National benchmarks rose in all 18 western European markets except Belgium. The broad rise could be attributed to a multitude of factors. We can only speculate that post holiday euphoria related to the merger and acquisition boom in Europe, and yesterday's decline in oil prices played a role. If a sustainable oil price decline were to occur, an important factor driving inflation would be weakened. However, as we pointed out in "Your Wake Up Call," we view yesterday's oil drop as a short-term phenomenon, despite favorable weather trends.
ECONOMIC DATA & ANALYSIS
Today, we will get a better look into how the holiday shopping season went for American retailers. The International Council of Shopping Centers will post its survey of chain-store sales for the week before Christmas. The prior week's data showed sales behind schedule, but due to the extra shopping weekend just before the holiday, it's possible that retailers made up the lost ground.
Regional economic data continues to reach the market Wednesday, with the Chicago Federal Reserve's release of its Midwest manufacturing index. Also, Moody's Economy.com will publish its survey of global business confidence. At its last reading in mid-December, global business sentiment was at its lowest level since October 2003.
Wednesday is a busy day for the housing sector, with two key releases set for the day. November new home sales data will be reported at 10:00 AM, with the consensus view for 1.02 million sales, compared to 1.0 million in the last period, according to a Bloomberg News survey. Also, the Mortgage Banker's Association will report weekly mortgage applications and its weekly refinance index today.
COMMODITY MARKETS
Natural gas continues to tumble, down 2.5% today, on mild weather trends in North America. We reiterate our statement of yesterday that natural gas is increasingly a substitute for crude oil distillates. Natural gas already efficiently produces electricity at conventional generation facilities and creates heat for homes. It is making inroads into other areas, including as a key driver of fuel cell engines. In many instances, hydrogen is created for fuel cell driven engines through the input of natural gas. It is the key fuel source, and if fuel cell technology were to take hold in its current state, natural gas would be in great demand. Also, as a mostly domestically sourced energy commodity, it has critical strategic importance for America.
We believe natural gas will be less sensitive to developments overseas, but it will be positively and highly correlated to changes in the price of oil. As the price of oil rises, the demand for gas increases and thus the price of gas rises. For example, it becomes a more economically viable heating source, when compared to heating oil.
Crude declined precipitously yesterday, and is relatively unchanged this morning at approximately $61.13 per barrel. We believe a combination of warm weather trends and a perceived ineptness of Iranian retributive ability led traders to take the price down. However, as we stated in "Your Wake Up Call" and in recent issues of "Today's Morning Coffee," we do not view Iran as inept in will or in ability.
We believe Iran will make the next move in the chess match, asking IAEA inspectors to leave, or in some way limiting inspectors from access to sites. As cargo is inevitably intercepted on its way to Iranian ports, we believe Iran may move a step further, possibly withdrawing from the NPT, or Nuclear Nonproliferation Treaty. Behind the scenes, we expect Iran to maintain its disruptive positioning in Iraq, Lebanon and Palestine. Our first issue of "The Geopolitical Factor" will detail our expectations, forecasts and scenarios we view possible for the year ahead.
Gold is higher as a result of escalating tensions with Iran and due to other factors working against the dollar. The United Arab Emirates announced it is transitioning a portion of its reserves to gold from dollars. This trend, seen in China as well, is a sign of weakening expectations for the dollar. Some of this is likely due to sharp economists' understanding that in a global environment, the playing field will level, and the strong dollar should weaken against strengthening currencies of emerging nations and groups of nations. However, some of it is likely related to a growing view that America is going too far in a geopolitical sense; that it is risking its position atop the world order. Stay tuned for our detailed thoughts near the beginning of the year.
STOCKS IN THE NEWS
Apple Computer (AAPL) is down sharply in pre-market activity, falling 4.3%. Federal prosecutors are reportedly investigating stock option administration documents that are rumored to be have been falsified. There are no earnings reports scheduled for today. We hope you found value in "Today's Morning Coffee" and we wish you a good day trading. (disclosure)
posted by The Greek | 7:52 AM
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