Monday's Brew - Jan 22

Perhaps due to concern over what the president might say on Tuesday, or maybe due to geopolitical stresses like Iran's just announced war games or Venezuela's decision to take control of foreign owned assets with a plan to maybe pay later, U.S. equity markets are broadly lower today.

OVERSEAS MARKETS

It was a good day in Asia as the markets were broadly higher. The Hang Seng Index climbed 2.19%, the NIKKEI 225 inched higher 0.66%, the Shanghai-Shenzhen 300 Index jumped 3.97%, Korea's KRX 100 rose 0.32% and the BSE SENSEX 30 was up 0.19%. We believe Asian markets broadly benefited from the strong consumer confidence metric out of the University of Michigan on Friday. Spending Americans are a good thing for these net exporters into the huge North American market.

After starting the day well, following Asia, Europe weakened through afternoon trading in sympathy with troubled American shares. The DJ STOXX 50 dipped 0.65%, the CAC 40 fell 0.62%, the FTSE 100 slipped 0.3% and the DAX sank 0.89%. Shares in Germany suffered despite a lower than expected level of growth in producer prices. We can only speculate that investors in Germany may be concerned that the ECB's efforts to slow economic growth could impact Germany more than other European nations, but we note that this is pure speculation. If you have greater interest, we suggest you consider researching the topic further within the German press, using www.newspapers.com.

Hugo Chavez shook South American markets again today. Well, he had the whole weekend to grow his insane crooked ideas into theories. So, on his radio and television show, "Hello President," Chavez declared that he would move to nationalize strategic assets first, and pay later, if at all. The Venezuelan Stock Market Index is currently down another 7.7%, as it appears Mr. Chavez does not understand or care about the financial ramifications of his comments. He is effectively discouraging all foreign investment from his country and maybe some domestic as well. At the same time, he is pushing his finger into the nose of the greatest military power on the face of the earth. We believe that if American firms are damaged, and shareholders of those firms are impacted, the American government will act in an effective manner to sway Mr. Chavez to the side of logic. We had much to say about this topic in this morning's "Wake Up Call," and suggest you take a look.

ECONOMIC DATA & ANALYSIS

After good news from the Philly and New York Federal Reserve branches last week, the Chicago Fed chimed in with its monthly economic report on Monday. The index measured +0.04, compared to a revised lower -0.3 in November. The mild result should have little impact on equities in our view.

The Conference Board will report its December leading economic indicators index, with a consensus view for a 0.3% increase, according to a Bloomberg News poll, compared to a 0.1% rise in November. Barron's reported a consensus forecast for an increase of 0.2% in December. We think that with the Fed and the markets clearly focused on inflation now, any reading out of line on the high side is likely to spook the market, for fear of spurring a Fed rate hike. Speaking of the Fed, San Francisco Bank Chief Janet Yellen is scheduled to speak in Nevada on Monday, and might bring some light to the Fed's initial reaction to the leading indicators data.

For the week's complete economic data release and news schedule, your basic market-moving event planner, see our article, "The Greek's Week Ahead."

COMMODITY MARKETS

With a convincing cold sweeping over North America, traders are buying into the possibility that winter has finally arrived. Natural gas leads all commodities higher today as a result, up 2.4%. Crude started the day higher, with news that Iran was preparing military exercises and perhaps banning IAEA inspectors from crossing its borders. At the same time, oil producing Venezeula threatens the stability of oil flow under its radical leader. Finally, the market must be tense ahead of tomorrow evening's State of the Union Address.

Last year, President Bush made his famous "addicted to oil" statement, and acted to increase ethanol usage within the year. This year, I think you can expect more initiatives on the alternative energy front, but there is some risk that the president could provide indication of his plans for Iran. We expressed our views in Wake Up Call this morning, and suggest you read the article. We expect the reaction of the markets will greatly depend on if the president provides insight into potential military plans for Iran in the coming year, as we expect. If it becomes clear that Iran is threatened, we expect oil to start higher Wednesday, and to not look back.

STOCK SPECIFIC NEWS

Corporate news is likely to lead the market this week due to a slew of earnings reports on the slate, and today started the week off with Pfizer's report. Pfizer beat consensus expectations by a penny, but revenue growth was anything but stellar. The company announced a significant restructuring plan in its conference call today, and expects to cut 10,000 jobs. PFE shares are down 1.2% at this hour.

Intel cut a deal with Sun Microsystems, in which Sun will use chips from Intel in some of its servers. It's also been reported that Intel will endorse Sun's Solaris operating system. INTC shares were up fractionally, while SUNW was down slightly.

Look for reports from American Express and Texas Instruments today as well.

We hope you enjoyed today's issue. You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address. We respect your privacy, and never share your information with third parties. (disclosure)