Wednesday's Brew Dc 6

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 are indicating a lower open this morning after two days of rally and on news of a management shakeup at Yahoo.

OVERSEAS MARKETS

Asian markets were mixed on Tuesday. The NIKKEI 225 rose 0.65% on the strength of a Japanese government report showing signs of positive economic health. Specifically, Japan's leading economic index, which includes measures such as machinery orders and stock prices, rose to 50 percent in October. The measure above 50 is viewed by some as an indicator that the economy could grow in three to six months.

The Hang Seng Index was up 0.43% while most of mainland China's indices were lower. After rising approximately 9% over a five-day period, Chinese stocks were due for a breather. Speculation is offered that capital is being prepared for new offerings through the sale of existing shares. Several share offerings are scheduled in the near term, including China's third largest electricity producer (Datang International Power Generation Co.) and its biggest steel manufacturer (Sansteel Minguang Co. Ltd.). Also notable, HSBC Holdings Plc, the world's third-largest bank by market value, dropped 1.7 percent to HK$142.10 in Hong Kong Tuesday, after reporting that Q3 revenue growth eased due to a rise in bad loans within the U.S. We expect risk-taking loan providers will begin to show signs of overindulgence within the U.S. housing market, and this is an important reason why we have recommended an underweight rating for the financial sector.

The U.K. and Europe's markets are mixed this morning, with the FTSE 100 nearly unchanged while the CAC 40 is down roughly 0.32%.

ECONOMIC DATA & NEWS

Wednesday is a quiet news day on the economic front. U.S. mortgage applications increased strongly last week compared to the immediately preceding week, as interest rates dropped to their lowest level in over a year. The Mortgage Banker's Association said its seasonally adjusted index of mortgage application activity rose 8.1% in the week ended December 1st, on a sequential basis. However, application activity was still down versus the prior year period. The decrease in interest rates led to a 13.7% rise in refinancing mortgage applications. Still, new applications or the purchase index rose 4.9% on a sequential basis.

COMMODITY MARKETS

Today is crude oil and distillates inventory reporting day, and analysts will be closely watching usage and build as a cold front takes over the Northeastern United States. Focus has most recently been on a counter warm front that is expected to follow. Crude is currently down about a half of a percentage point.

As the dollar steadies, gold is weakening and is currently 1.2% lower. Natural gas is down over 2% on news of the warm front about to overtake the U.S. With so much discussion of seasonal factors, we feel it necessary to redirect investor attention toward the secular trends driving these important markets.

As Europe and the U.S. debate with Russia and China about the degree of sanctions to impose on Iran, and Iran counters that discussion with threats of dire repercussion should sanctions be agreed to by Europe, it seems clear to us of the secular trend oil will likely follow. China today reported a trade surplus not far off its record, and the Indian market continues to expand. While alternative energy sources have their place and are becoming economically feasible, many markets are not prepared to adopt them as yet. In our view, energy remains a long-term secular buy with the potential of a near-term catalyst due to event risk surrounding the Iranian nuclear issue. Israel and possibly the U.S. or NATO seem destined for collision with the Persian nation, as Israel and George W. Bush have declared Iran's potential possession of nuclear weapons capability unacceptable.

We continue to believe the repercussions of such conflict would be far reaching and wider than anticipated by the Pentagon and global stock and commodity markets. We believe Mahmoud Ahmadinejad is a much more shrewd strategist than was Saddam Hussein. We see him traveling and drumming up wide Islamic and non-aligned nation support for his cause, and we anticipate unexpected alliances and collateral damage should conflict spark. As a result, we believe gold and energy commodity prices will be clear beneficiaries. In the long term, if China feels necessary to protect its energy source, we see food and grain commodity pricing benefiting as well. We may dedicate a special report to this topic in the near future, so stay tuned.

STOCKS IN THE NEWS

Yahoo's management shakeup is taking the headline today, with CFO Susan Decker taking on more important operational responsibilities as the current COO Dan Rosensweig moves on in March. Metlife executives will address the New York insurer's annual investor conference, and Mark McClellan, the former head of Medicare and the Food and Drug Administration, will speak at BMO Capital's New York conference on drug and medical-device firms.

Seismic data and other oil-exploration data processor Veritas DGC is expected to post quarterly growth in its fiscal Q1 report. Others reporting earnings Wednesday are Porsche AG, Blyth Inc., Quanex Corp., NCI Building Systems, Universal Tech Institute and Korn/Ferry International. We hope you enjoyed "Today's Morning Coffee" and wish you a good day trading. (disclosure)

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