Wake Up Call - Jan 17

Good Morning. This is your wake up call for Wednesday January 17, 2007. The time is 9:35 AM EST, and markets are broadly lower today on stronger than expected PPI data, raising inflation concern.

Asia:
Hang Seng Index +0.18%; Shanghai/Shenzhen 300 -1.91%; NIKKEI 225 +0.34%; BSE SENSEX 30 +0.12%; Ho Chi Minh -1.9%; SET -0.68%

U.K. & Europe:
DJ STOXX 50 Index -0.46%; FTSE 100 -0.67%; CAC 40 -0.53%; DAX -0.46%; Russian RTS Index -1.86%


KEY HEADLINE NEWS

• The December Core Producer Price Index, excluding food and energy prices, showed a rise of 0.2%, versus a consensus expectation for a 0.1% rise. The overall PPI number was up 0.9%, compared to the consensus view for a 0.5% increase. We view the information as a mild negative for the market today, as it indicates inflationary pressure remains and decreases the likelihood of a near-term Fed rate reduction, when taken in isolation.
• Foreclosure rates increased 35% in December, when compared to a year ago. As many ARM loans reset in 2007, and many homeowners lose the option of selling their homes at levels above the amount owed on them. Foreclosure rates are expected to increase, and a if the Fed's forecast for a slowing rate of economic growth in 2007 is realized, it portends higher unemployment and increasing pressure on homeowners. Sub-prime lenders are seeing pressure, as evidenced by Indymac's (NDE) earnings warning Tuesday. NDE fell 7% on the news. Today, CIT Group (CIT), which participates in many commercial and consumer lending segments, raised its guidance for 2007. However, it did note higher home loan charge-offs. CIT seems likely to recover some ground and possibly drive the shares of other lenders. We think this might offer other short opportunities. For instance, today, Washington Mutual (WM) reports on its most recent quarter and has experienced negative EPS estimate momentum in its recent past. Remember, a few months ago we recommended shorting the lenders that are susceptible to the weakening housing market.
• Mortgage applications for the week ended January 12th decreased 0.6%, on higher interest rates in the period. The four-week average rose 0.8%, as it is less reflective of the short-term interest rate sensitivity of refinancers and purchasers. In the weekly period, refinances increased as a percentage of total mortgage applications, reaching 49.9%, from 48.4% in the previous week.
• Intel warned that its margins were impacted by pricing competition, and at the same time, the EU is alleging that Intel is employing anti-competitive tactics, similar to its argument against Microsoft.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

(disclosure)