Tuesday's Brew - Feb 13

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful. U.S. markets are higher today, on the morning momentum of an upgrade of Dow component General Motors (GM) and the rumored acquisition of Alcoa (AA). Tomorrow's testimony of Fed Chief Ben Bernanke to the Senate Banking Committee looms overhead though, so the ground that stocks stand on today may be unstable.

OVERSEAS MARKETS

As expected, Ecuador will be unable to make a $135 million debt payment it was scheduled to make Thursday. The nation is reportedly offering to make the payment during its 30 day grace period, but much skepticism exists regarding its ability to do so. The reaction of South American markets today does not reflect concern for a regional problem, as Brazil's Bovespa Index rises 1.67%, Argentina's Merval Index is up 0.43% and Venezuela's Stock Market Index is 2.2% higher. It seems that higher oil and other commodity prices are driving the regions' shares more than anything today.

The Japanese market was closed yesterday, but over the weekend the G7, especially those members from Europe, warned investors betting against the yen that an improving Japanese economy would eventually uplift the currency. Treasury Secretary Paulson was less supportive of the argument, stating that the free market was deciding the value of the yen. Still, the NIKKEI 225 rose 0.67% suggesting an enthusiastic reaction.

The Hang Seng dropped 2.24% today, but there was divergence between Hong Kong and the mainland, as the Shanghai and Shenzhen 300 Index climbed 1.5%. Rumors are that Hong Kong investors are reflecting concern that U.S. Fed Chief Ben Bernanke might signal the potential for a Fed rate hike in the near future. The divergence of traded shares in Chinese markets might be reflective of the participants allowed to trade within them, and the degree of speculation that exists within the Chinese investor base.

European shares were modestly higher today, with the DJ STOXX 50 up 0.16%, while the CAC 40 climbed 0.69%. In London, the FTSE 100 rose 0.27%. European shares seemed to benefit in the afternoon from the positive morning move of American shares.

ECONOMIC DATA & ANALYSIS

December international trade data was reported at 8:30 a.m. this morning. The consensus of economists surveyed by Bloomberg expected the trade gap to widen to $59.7 billion in December, from $58.2 billion in November. The gap actually widened to $61.2 billion, largely due to an increase in oil import prices during the month. Record level foreign auto and consumer goods purchases also drove the expansion.

COMMODITY MARKETS

The International Energy Agency published its monthly oil-market report today, within which it raised its forecast for global oil demand in 2007. The agency indicated that daily demand would likely measure 1.55 million barrels per day, up 1.8% versus 2006, and increased from its previous estimate of 1.39 million barrels. At the same time, the IEA warned OPEC against future production cuts, indicating that it might dangerously tighten the supply/demand dynamics of the market. Near contract WTI crude futures are up 1.33% today as a result, recovering after yesterday decline on comments from OPEC regarding its comfort with current production. Now that the IEA has made it clear that future reductions might overly strain supply, the market has a different view of OPEC's bias.

Heating oil is up 1.5% and natural gas is 1.1% higher, as the winter storm approaching the Northeastern U.S. seems to be taking a more threatening route to the major New York market. There is a false tie between the storm and heating oil demand, however, but the market dictates what's important, not me or CNBC. We outlined a few weeks ago that it was possible that heating oil inventories and a late start to winter, could have enticed refiners to begin maintenance for the gasoline season sooner than normal, weakening the supply system for heating oil. If this were the case, and we would need to further verify it, than it's possible that the onset of seasonal winter conditions during the recent few weeks could have led to a greater net draw on supplies than what might have been considered normal. Again, we want you to know that this is a theory without verified facts to support it. Any information from readers that might be useful in this regard is welcomed.

STOCK SPECIFIC NEWS
Last week, HSBC and New Century Financial shook up the sub-prime market with bad news, and this week Capital One Financial has an opportunity to follow up, as it holds an investor conference call at 1 p.m. A conference I enjoy kicked off today, as the Wall Street Analysts Forum got started. The earnings report calendar for Tuesday includes UBS, Metlife, Marsh & McLennan, KIMCO Realty, KB Homes, XTO Energy, Applied Materials, Altera Corp. and NVIDIA Corp.

More news confirming continued housing weakness hit the market today, as KB Homes reported results. Its report shows a sharp 38% drop in net orders in the fourth quarter, but the market sent housing stocks higher today as the news was better than anticipated. In the trading week leading up to today, housing stocks had weakened significantly and today's move is not enough to recover the ground lost.

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