Thursday's Brew - Feb 22

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. Fear that tensions surrounding the Iranian nuclear issue could escalate into something more threatening, seems to have a hold of stocks today. Energy futures are trading higher, as are gold stocks for a second day in a row, while the major U.S. equity indices are lower.

OVERSEAS MARKETS

The European Central Bank met today, but was not scheduled to make a decision on interest rates. Readings were taken on business confidence in France and Italy. Insee, the French national statistics office, produced its index measuring the confidence of French manufacturers. The index reached 107 this month, compared to 106 in the previous two months. The CAC 40 was 0.23% higher on the news.

In Italy, the Isae Institute reported its index on Italian business confidence, and it measured 95.4, up from a revised 94.7 in January. The Milan MIB 30 Index rose 0.52% on the news. Germany's DAX appreciated 0.46% today, after the country's budget deficit was reported down to 1.7% of GDP in 2006, compared to 3.2% in 2005. This was likely due to strong economic growth and lower unemployment.

Asian stocks were hot today, despite yesterday's CPI data out of the U.S., its most significant export market. We can only speculate that commentary from Fed governors yesterday, which was construed as indicative of a Fed that was not imminently expected to raise interest rates, helped Asian shares. The NIKKEI 225 jumped 1.09%, after just a weak move that followed the Bank of Japan decision yesterday. The Hang Seng Index climbed 0.76%, while Australia's S&P/ASX 200 rose above 6,000 for the first time.

On the day the IAEA reported that Iran has defied the United Nations resolution requiring it to stop nuclear fuel work, the Tel Aviv 25 Index edged up 0.08%, while Saudi Arabia's Tadawul All Share Index rose 1.23%, likley on oil strength.

ECONOMIC DATA & ANALYSIS

The Conference Board posted its Help-Wanted Advertising Index, but as we have noted in the past, the index is relatively useless these days as it does not include job postings on the net. The index measured 32 for those who have to know.

Weekly jobless claims were reported down 27,000 for the week ended February 17th, when compared to the week just prior. Still, claims at 332,000, were 7,000 above economists' expectations. The level continues to represent one of a healthy job market, in our view.

COMMODITY MARKETS & GEOPOLITICAL NEWS

Oil is once again the hot topic today, as the IAEA reported that Iran had not ceased uranium enrichment, but had in fact stepped up its efforts. Brent crude futures were 1.9% higher as we wrote this, despite a build in crude inventory reported today. As expected, rhetoric and tension surrounding the Iranian issue has built in intensity today.

As we predicted a few weeks ago, we believe refiners entered maintenance season earlier than usual due to the relatively mild winter, leading to a larger than anticipated draw in heating oil and gasoline reported today. Refineries operated at 85.2% of capacity in the week ended February 16th, versus analysts' median consensus for 86.9%, based on a Bloomberg survey. The low level of capacity usage is likely related to maintenance work, in our view. Heating oil futures are up 2.4%, while gasoline is up 2.3% at this hour.

The safe-haven gold offers investors has it down just 0.18% today, after rising sharply yesterday. Our favorite in the industry, Yamana Gold (AUY), has performed well when compared to the market since we recommended it months ago. Forgive my laziness to look up the price appreciation since that article, and please feel free to do so.

STOCK SPECIFIC NEWS
E*Trade Financial Corporation is holding its analysts day today, while separately, the Pacific Crest Digital Media and Entertainment Forum is taking place in New York. Reporting earnings, look for CMS Energy, Health Management Association, Keyspan, PG&E, Patterson Co., Safeway, Williams Co., Ensco International, Penney J.C., Newmont Mining, Sempra Energy, Chesapeake Energy, H&R Block and Intuit.

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