Thursday's Brew - Mar 1

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. What a day! Wow, take a breath and get some rest. The market showed amazing resilience, or was it naivete, as it turned a steep early downturn around, ending the day just slightly lower on most major broad indices. Tomorrow is Friday, the day before a weekend, with stomachs still shaky. Add to that the Chinese parliamentary meetings that could throw the Chinese markets into another downspiral again on Monday, and we expect our markets to decline again on Friday.

OVERSEAS MARKETS

In overseas trading activity today, mainland Chinese shares faltered. With parliament meetings to begin over the weekend, we view a serious catalyst in place to drive the unsavvy Chinese market into meltdown next week, depending on how the meeting develops. Depending on how naive the Asian markets are, we anticipate Asian shares will weaken again by the end of the day.

Today, the Shanghai and Shenzhen 300 Index fell 2.79%. The Hang Seng dipped 1.55% and the NIKKEI 225 declined 0.86%. In Japan, the yen rose to an approximate 11-week high against the dollar as investors exited the so called carry trade, borrowing in the yen to buy higher yielding assets elsewhere. With global markets in turmoil, the trade is reversing, and going long the yen here seems wise.

The Indian market went the wrong direction today, as the BSE SENSEX 30 actually climbed 1.7%. Maybe capital is exiting China and moving to India, but we wouldn't view the pricey Indian market as a safe-haven in a global collapse. Over the weekend, in our "Week Ahead" article, we will outline three significant risks our market faces this year. The scary thing is that we expect at least one of them to play out and drive the classic crash equities experience every four years or so on average, or maybe even one to compare to some of the real classics.

Europe, like the American market, had a bit of a roller coaster ride today, and the DJ STOXX 50 ended the day 0.83% lower.

ECONOMIC DATA & ANALYSIS

Thursday was an important one on the economic calendar, full of data and news. January personal income and consumption data hit the wires at 8:30 a.m. EST. Personal income, which was expected to rise 0.3%, compared to a 0.5% increase in December, actually increased a stronger 1.0%. Personal consumption, which was expected to increase 0.4% in January, versus a rise of 0.7% in December, grew a greater than expected 0.5%. Still, the report carried significant negative news for markets, as it showed that prices paid for goods other than food and energy (the PCE deflator), increased 2.3% year over year. In December, prices were up 2.2%, so inflation seems to be headed in the wrong direction, and this was the second such indicator, including the core CPI data reported in February. The Fed worries about this PCE figure most when it gets above the 2.0% level, and the Fed expects inflation to moderate and economic growth to slow this year. This news should intensify investor focus on next month's reading.

Challenger, Gray & Christmas reported layoff announcements for February, and we anticipated in our "Greek's Week Ahead" that the housing industry's weakness could start to show up in employment data soon, and within this report. Well, it did, as the report showed a 33% increase in planned layoffs in February, over January, despite the shorter month.

January construction spending came in down 0.8%, compared to the Bloomberg's consensus view for a decrease of 0.5%. In December, construction spending fell 0.4%. This is yet another indicator that housing activity is weakening further, and now that construction firms are likely reducing workforces and seeking to sell through inventory, we expect it to continue to decline.

The best positive news of the day, which coincidentally coincided with the turnaround upward in stocks this morning, was reported by the Institute for Supply Management. The ISM Index on national manufacturing activity for February was expected to read 49.7, according to Bloomberg, versus a reading of 49.3 in January. The actual reading of 52.3 eased concern raised yesterday by the NAPM- Chicago report, and showed expansion in national manufacturing activity.

February's domestic vehicle sales were reported at 4:00 p.m. EST today. With numerous articles published recently concerning Toyota's fear of the retribution it might receive from American car buyers should it surpass GM as the world's most important producer, and with the woes of domestic producers, today's data portended to be telling. Overall, domestic sales declined 0.5%. Individual details in our Stock Specific section below.

COMMODITY MARKETS
Energy prices were mostly higher today, led by gasoline up 1.5% as gasoline demand was up 3.6% year to year. Brent crude broke $62, rising 0.36%, as discussions about a new set of sanctions for Iran were stepped up today. Natural gas was relatively unchanged, as the weekly inventory report was about in line.

Corn, wheat and soybean prices fell today, as a government report showed export demand decreased recently. Speculation exists that perhaps prices finally reached the breakpoint where the agricultural products became undesirable to exporters. However, we view secular drivers still in place to continue to pressure prices higher. As the global population grows, China transforms from exporter to net importer, and corn is increasingly used to create ethanol, grain prices have significant long term drivers behind them.

STOCK SPECIFIC NEWS
Individual automobile producers reported their domestic sales results for February. Ford indicated that its sales fell 13% from a year earlier, and that it would reduce its second quarter production by 14%, on plans to reduce lower margin fleet sales, including those to car rental companies. Daimler/Chrysler also reported a February decline of 8.3% from the prior year. However, General Motors, Toyota, Honda and Nissan reported increased sales in February. General Motors' sales rose 3.4% in February, a surprising result, but GM shares fell as the company delayed its earnings report.

Capital One Financial addressed analysts and investors today, while Dell, Viacom, Kohls, Staples, Gap, Fluor and Pall Corp. reported earnings.

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