Monday's Brew - Feb 26

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. The excitement of merger Monday has helped the S&P 500 and Dow Industrials find higher ground near midday trading. The NASDAQ is lower at this hour, and we suspect equities will trend lower generally in the afternoon as we await a critical GDP revision later in the week and other important economic data. At the same time, the Iranian issue threatens to crush emerging markets whose valuation-to-risk status we compare to walking on the ledge of a skyscraper.

OVERSEAS MARKETS

In Asia, the Bank of Japan published the minutes from its January meeting today. The February meeting is the one within which they raised rates, so the NIKKEI 225 did not have much of a reaction, edging up 0.15%. Mainland Chinese and Taiwanese shares opened up after a week of new year's celebration. The euphoria continued in China, despite a scary week off that included inflation fright in the U.S. on the CPI data and an intensifying Iranian situation. To be quite honest, we were surprised that the Shanghai and Shenzhen 300 Index rose 1.16% today. The Taiwan TAIEX Index rose an equal degree, 1.16%, in its return to trading. The Hang Seng, which was open most of last week, dropped 0.98%. Pakistan's led all Asian markets on the downside today, as the Karachi 100 plunged 1.84%, as Dick Cheney landed to pressure the government into moving more aggressively on al Qaeda. The National Bank of Pakistan Ltd. contributed to the slide, as it fell after missing earnings estimates in its reporting period.

European shares were mostly positive into the afternoon, with the DJ STOXX 50 rising 0.28%. The FTSE 100 increased 0.48%, while the CAC 40 climbed 0.73% and the DAX rose 0.4%.

ECONOMIC DATA & ANALYSIS

Tomorrow starts a busy economic data week, but Monday is relatively light on news. In Washington, globalization and trade are the key topics under discussion at the National Governors Association meeting.

GEOPOLITICAL ISSUES

Monday's London meeting of United Nations Security Council members will shed first light on just how determined Russia and China are in avoiding an Iranian conflict. Iran was steadfast over the weekend, relating its program and nuclear efforts to a steaming train with no breaks and no reverse. Condoleezza Rice had a nice comeback, saying Iran needed something more like a "stop button." We published an article over the weekend focused on the topic of Iran, and how we expect things will play out. You may review it by clicking here.

COMMODITY MARKETS

Brent crude is up 0.79% at this hour, as the Iranian situation garners media spotlight. We suspect negative comments from China and Russia could cool energy commodities sometime soon. As we stated in our Geopolitical Factor article, China and Russia have significant interests in avoiding conflict with Iran. Thus, we suspect strong comments from the two to cool oil and gold speculation soon. Gold is up fractionally at this hour. Natural gas is 1.4% lower and this is worth noting. When the situation is truly serious, natural gas is likely to correlate positively with oil prices on a consistent basis.

STOCK SPECIFIC NEWS
On the corporate scene, Bank of America and Honeywell will hold investor conferences, while Nordstrom and DTE Energy Co. report fourth quarter earnings. There were a slew of deals announced today as well, including the buyouts of TXU and Station Casinos. We expect the deal activity is more reflective of a healthy liquidity situation than an undervalued equity market.

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