Breaking News: Pakistan Bombing & Korean War Threat Drive Trade

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While we can prepare for scheduled economic reports and corporate earnings news, the market must handle whatever comes its way. Often times, unanticipated events like today's breaking news dictate the pace of trading.

(Tickers: KEF, KF, MAKOX, DLTR, CBRL, DIA, SPY, QQQQ, NYX, DOG, SDS, QLD, TTWO, AEO, AZO, BWS, CHS, DSW, ZLC, TIVO, JAS).

Breaking News: Pakistan Bombing & Korean War Threat

While the impact of these two events will undoubtedly prove more important to Asian markets than the US in the near-term, our market will not overlook it either as it considers long-term global factors. After all, green shoots have an awful hard time growing within a forest fire.

Geopolitical Factors

Pakistan Ablaze

A suicide bomber employed the use of a vehicle to explode a massive bomb in Lahore, Pakistan. The bomb was strategically detonated outside Lahore's police headquarters and Pakistan's spy agency, the ISI. Four gunmen reportedly exited the vehicle before the explosion and began shooting, before finally being subdued. It is suspected that the attack was in response to the Pakistani government's initiative against Taliban in the Swat Valley. At least 23 people are reported dead, but the fear this terror induces, and the concern it raises, will undoubtedly do more damage to the stability of Pakistan's government and its economy. Tensions will also likely heighten between it and India as speculation runs wild. Terrorists know exactly what they do when they light brush fires near powder kegs.

North Korea Threatens War

The renewed belligerence from North Korea appears well-planned, and its commitment to peace highly questionable. The North's reversion from negotiations, and subsequent aggressive progression seem like logical sequence of events, had the latter been planned before the former was initiated. The schedule of events allowed the North to test a more powerful nuclear weapon successfully without pressure from the west. Since the test, it has guarded itself with shows of strength, launching missiles of all sorts, and it now threatens to respond to ship boarding with broad war against its Southern brother. This nonsense must end, and that is best accomplished from inside North Korea.

Asian Market Reaction

Asian market reaction was locally contained. South Korea's KOSPI Index fell 0.73%, while its KRX 100 declined 0.54%. Pakistan's Karachi 100 Index improved modestly, rising 0.17%. We're unclear still as to whether the exchange was closed or not on terror concern or market panic. Reaction was so well contained that shares across broader Asia enjoyed a superb trading day. India's BSE Sensex 30 climbed 3.83%; Hong Kong's Hang Seng soared 5.26%; and Japan's NIKKEI 225 rose 1.37%. What happens in the days ahead, as the world contemplates longer term concerns in the Korean Peninsula and within volatile Pakistan, is another story.

Scheduled Economic Data

ICSC Weekly Same-Store Sales

We got one right when we said in this week's copy of "Week Ahead" that weekly sales seem to have reached a critical point, where stabilization is near inevitable. Population growth and the consuming nature of our economy set a floor that we seem to have finally reached. Same-store sales rose again this week, recovering from last week's modest dip.

Week Ending

Weekly Change

Yearly Change

May 23

+0.8%

+0.5%

May 16

-1.2%

-0.3%

May 9

+0.3%

+0.5%

May 2

+0.3%

+0.5%

April 25

-0.7%

-1.7%

April 18

-0.4%

-0.1%

April 11

+0.8%

-0.4%

April 4

+0.6%

-0.3%

Mortgage Activity

Thanks to a sharp bump in contracted 30-year fixed rate mortgages, to 4.81%, from 4.69% the week before, mortgage activity fell off. The Market Composite Index produced by the Mortgage Bankers Association dropped by 14.2% on a seasonally adjusted basis. Refinance activity especially suffered, as the refi index dropped 18.9%. There was a bit of good news for the optimists to chew on, however, as Purchase Applications increased 1.0% despite the rate rise.

Existing Home Sales

April's Existing Home Sales Report is due at 10:00 a.m. The chart for existing sales resembles many others, and the common message seems to point toward stabilization. Bloomberg's survey of economists shows a consensus forecast for an annual pace of 4.67 million sales in April, matching against a rate of 4.57 million in March.

We expect the EIA's Petroleum Status Report will be pushed to Thursday at 10:00 AM. Jim Chanos, of short hedge fund fame, will key the Ira Sohn Research Conference in New York.

Sharp is scheduled to update shareholders on its mobile phone plans, while Sanyo releases its new digital camera lines. The EPS schedule highlights news from American Eagle (NYSE: AEO), AutoZone (NYSE: AZO), Brown Shoe (NYSE: BWS), Charming Shoppes (Nasdaq: CHRS), Chico's FAS (NYSE: CHS), Coldwater Creek (Nasdaq: CWTR), Cracker Barrel (Nasdaq: CBRL), Dollar Tree (Nasdaq: DLTR), DSW, Inc. (NYSE: DSW), Jo-Ann Stores (NYSE: JAS), Polo Ralph Lauren (NYSE: RL), Staples (Nasdaq: SPLS), Star Bulk Carriers (Nasdaq: SBLK), TIVO (Nasdaq: TIVO), Zale Corp. (NYSE: ZLC) and more.

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