Thursday's Brew - Jan 4

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. U.S. equity markets indicate a continuation of yesterday's turmoil, as all three major market indices have opened lower. Wednesday's released Fed meeting minutes highlighted increasing Fed concern about economic health, keying on inflation, and that led American shares to a sharp turn lower during the day. Slumping oil prices were not enough to encourage investors through the entire trading period.

OVERSEAS MARKETS

Mainland Chinese shares continued strong today, benefiting again from a recent report showing strong capital inflow expectations for 2007. China is on fire, and the Shanghai-Shenzhen 300 Index climbed 1.28% on the day. The more developed Hang Seng Index fell 1.9%, and it may be that capital is flowing out of Hong Kong and into mainland Chinese shares. Logic points to an easier capital decision to do so for investors in Hong Kong traded shares. A strengthening of the U.S. dollar may have also impacted shares in Hong Kong. The NIKKEI 225 climbed 0.74% on the day.

Thailand's SET Index slipped for a second day, after its government warned citizens to brace for terrorism similar to the blasts that shook Bangkok over the New Year's weekend. The SET Index fell 1.67%, but as it became clear that the terrorism was localized to Thailand, Vietnam's Ho Chi Minh Index rebounded sharply after a decline yesterday. The index rose 4.11% in today's trading.

Across the pond, European and U.K. indices were mostly lower after a report showed that European service sector growth had slowed. The Royal Bank of Scotland Group Plc noted that its services index fell to 57.2 in December, from 57.6 in November. The result measured below economists' expectations for no change, based on a poll by NTC Economics Ltd. Although the measure reflects a healthy economy, it has spurred concerns that a forecast slowing of growth is proving true, and that would cause concern that growth may slow beyond expectations. Thus, the DJ STOXX 50 Index is down 0.24% through midday activity, while the FTSE 100 is lower by 0.6%.

ECONOMIC DATA & ANALYSIS

Important jobs data takes the spotlight on this day, with Challenger, Gray & Christmas' issuance of its reading on December and year-end job cuts. Weekly initial jobless claims were reported for the week ended December 30th. Merrill Lynch expected the data to show a jobless claim number of 321,000, and the actual measure was 329,000, worse than expectations and along the same line as the data from ADP Employer Services released yesterday.

Perhaps more important than the ISM manufacturing data and regional manufacturing metrics of the past two weeks, factory orders for November will be posted today. Bloomberg's poll shows expectations for a 1.3% rise, compared to a 4.7% decrease in October. A better metric for the service-sector-driven American economy is likely ISM's non-manufacturing index, also to be released today. Merrill Lynch sees a slowing of growth, but a positive reading of 56.5.

COMMODITY MARKETS

Well, I believe it's safe to say that copper is crashing, dropping 7.7% yesterday. We outlined the factors in yesterday's article, but briefly, we believe slowing global economic growth especially within Europe and the United States, combined with increased production capacity and a price bubble in the commodity are behind the drive downward.

Crude oil is reportedly testing $57 in electronic trading this morning, after dropping to just above $58 yesterday. Warmer weather trends are leading traders to speculate that today's inventory report could show an unseasonable build in inventory. We remind investors that Iran looms on the horizon in 2007, so we would find a settle point to buy into oil. At the same time, beware the falling knife.

Gold rose in London this morning, as the secular trends of a weakening dollar and broad global governments' reserve transition into gold and the euro and out of dollars continues, in our view. Cocoa has opened lower 1.6% today, after rising sharply yesterday on dry weather concerns in the Ivory Coast.

STOCKS IN THE NEWS
The International Council of Shopping Centers reported yesterday that December sales likely rose 2.5%, a lower increase than in the 2005 period. Retailers are flooding the market today with their December same-store sales results:

Federated Department Stores +4.4%

WalMart +1.6%

Target +4.1%

Costco +9%

J.C. Penney +2.6%

Nordstrom +9%

Pier 1 Imports -10.7%

Limited Brands +4%

Gap -8%

Most of the blame went to the weather, as retailers reported lighter sales of winter apparel. Reporting earnings on Thursday, Constellation Brands, Texas Industries, Robbins & Myers Inc., Acuity Brands and Monsanto. We hope you found value in "Today's Morning Coffee," and we wish you a good day trading. (disclosure)