Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. Stock futures indicate higher open today, lifted by a more dovish tone from the Fed and better than expected retail sales data.
The Hang Seng Index declined 1% today, while Indian shares recovered from yesterday’s fall. Still, Credit Suisse and Citigroup strategists reacting to the slide yesterday, proclaimed that Indian shares appeared fundamentally overvalued. It is our view that if the shares are excessively valued, they are going to be more sensitive to negative news than positive until valuation normalizes. The NIKKEI 225 increased 0.33%, as the recently weakening Yen benefits Japanese exporters.
Across the pond, the DJ STOXX 50 PR and the FTSE 100 indices both skidded roughly a half a percent, benefiting from speculation for a continued healthy M&A market on the heels of Goldman Sachs’ strong quarterly earnings report.
ECONOMIC DATA & NEWS
November retail sales were announced at 8:30 AM EST Wednesday, with the consensus view seeing a 0.1% rise, compared to a 0.4% decrease in October. Actual results showed a greater increase of 1.0%, which was the first rise in retail sales since July. Auto sales were expected to negatively impact the result, but also showed improvement. This bit of positive news should be supportive to the stock market, however, as the result of the Fed statement of yesterday and recent mixed economic data, the market remains unsure as to the direction of the economy and the Fed. There remains some possibility that the Fed’s next move could even be an increase of interest rates, especially if inflation measures persist and the housing market recovers. However, we do not expect that to happen. Our view is that the housing market will continue to weaken, easing stress on inflation, but we expect commodity prices will rise, offsetting that relief. We believe the fate of the economy may rest on how the geopolitical issue with Iran plays out, and what stresses that may bring to the U.S. economy. Excluding that catalyst, we would anticipate the economic growth to slow, but to a soft landing unless a housing crash occurs. In that event, with the potential for war with Iran, the bottom is hard to see for the economy. Today, housing data showed that foreclosures and mortgage defaults rose in the third quarter as compared to the second.
October business inventories are seen equaling the 0.4% increase of September, according to Bloomberg News’ survey of economists. We believe indications of greater inventory growth poses threat to markets as well, as it might suggest corporate ill-preparedness for an economic slowdown. Finally, at its open meeting, the SEC is scheduled to review several issues, including changes to audit standards.
COMMODITY MARKETS
Crude oil is up 1.2%, while natural gas is 4.8% higher, after crude inventory was reported lower than expected Wednesday. This news combined with recent strength in the price of oil may lead OPEC to hold production steady as a result of their meeting scheduled to start tomorrow.
Metals continued a recent trend lower, with copper, lead and nickel all down today. Recent data out of the London Metal Exchange indicated inventories had increased in many metals, starting the price trend downward.
STOCKS IN THE NEWS
A stock we watch closely, Martek Biosciences reported earnings last night. We were somewhat concerned going into the report, as the timing of the company’s restructuring seemed ominous, just following the end of the quarter. However, we were enthused to hear that capacity could be back up in a matter of a couple months, and that significant food product deals appear likely in the first half of 2007. The stock is up approximately $1 today as a result, and we see a floor at the current level.
Over the next few weeks, we plan to provide “speculative trade” ideas much more regularly, and for free. Soon after, we will provide the information to subscribers only. We hope you enjoyed “Today’s Morning Coffee” and we wish you a good day trading. (disclosure)
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