Welcome to today’s Morning Coffee Break – U.S. markets are getting ready for the final session of a losing week.  Markets suffered on increasing focus and concern over the looming fiscal cliff.  Opinions surrounding the fiscal cliff differ from one extreme to the other. From if we go over the cliff we could fall into recession or worst yet a depression to Rep Barney Frank (democrat) said that going over the fiscal cliff for 1-2 months wouldn’t be a big deal.  It’s hard to believe Mr. Frank – even if the worst thing happen was the stock market loses value it’s a big deal.

People and the government have to realize the stock market drives many aspects of the economy and yes many people do not own stock out in the traditional sense but if you have a 401k, IRA or any kind of retirement account you’ll own some kind of asset in the stock market.

It this fear that is driving the stock market right as market participants take profit and reposition for worst case scenarios.  Hopefully when President Obama meets with Congressional leaders at the White House this morning about the fiscal cliff they will keep this in mind.

The S&P 500 was the only index to have one day in the green at the beginning of the week with Monday’s 0.18 (+0.01%) gain that was quickly wiped out very next session.

The economic calendar is basically empty today with only Capacity Utilization Rate and Industrial Production report due out at 9:15 a.m. EDT.  The report at best has a moderate impact on the market; however, another disappointment will just embolden the bears even more.

 

As traders start out their day – The Dow Jones  (DIA, quote) fair value is up by 25.62 to 12532.00, S&P 500 (SPY, quote) fair value is up by 3.32  to 1353.80 and the NASDAQ (QQQ, quote) fair value is coming in at 2522.81 up by 6.69  (as of 8:33 a.m.)

 

Morning Coffee Break Companies to Watch

Aruba Networks (ARUN, quote) posted fiscal Q1 earnings of $0.18 per share profit, excluding certain items.  The earnings beat by $0.01 compare to estimates of $01.7.  ARUN also reported revenues above analysts’ expectations.

Sears Holdings (SHLD, quote) is still struggling as evidence in its posting of a $1.99 per share lost albeit it was a smaller loss than analysts expected. The all-important “same store sales”  dropped 1.6% for  Sears stores and 4.8% Kmart stores.

Nike (NKE, quote) board authorized a two-for-one stock split as well as increasing its quarterly dividend by 17% to $0.21 per share after the split. Nike has increased its dividend for the 11th consecutive year.

 

Morning Coffee Break Global Markets Watch

Asian Markets and Emerging Markets

During overnight trading Japan was the clear winner by outdoing other regional markets in Asia.  The move comes when everywhere else is in a world of hurt but market participants are speculating on the weaker Yen in recent sessions that a profound change in Japan’s monetary policy very well could be on the imminent horizon.  The policy change should help boost exports.

In China Sina (SINA, quote) posted Q3 profits of $0.17 per share, $0.06 above analysts’ expectations, however, Sina’s revenues fell short of expectations. The China based internet service provider did cite that non-advertising revenue drop hurting overall performance.

European Markets

The Euro Zone markets are on track for a 3^rd trading session of losses today on increasing fears in the Middle East of wider chance of war in the region.  Coupling the fact the that the Euro Zone slid back into a recession and the fear of how deep the region could fall into recession if the U.S. goes over the fiscal cliff.

Futures and Commodities Corner

Crude Oil

Crude oil prices moved lower in the European session as traders in the region become more fearful of the U.S. fiscal cliff fears despite increasing Middle Eastern tensions.  The struggle between global tensions and a large decrease in demand has been pushing and pulling the commodity price.

Right now the fear of the U.S. falling off the fiscal cliff setting in motion the roughly $600 billion in automatic tax increases and spending cuts come January 1st is driving the crude oil market.

Be sure to check out the Daily Energy Report for a compressive look at the global energy markets including crude oil and natural gas by Tom Pawlicki.

U.S. Equity only readers can gain exposure to WTI Crude Oil through the United States Oil Fund (USO, quote) ETF that seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The USO will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil.

Gold

Gold prices moved lower during the overnight Asian session today as low as $1,705.60 for December’s contract. Currently at the time of this post gold is roughly trading around $1,711.70 (- 2.10)

The gold market somehow missed the key clues of from central banks as the Bank of Japan eased and the Yen fell.  Helping slightly to the weakness of the gold is the uptick in the U.S. dollar going into the weekend.

Equity only readers gain exposure to the gold through the SPDR Gold Shares Trust (GLD, quote) ETF that seeks to replicate the performance, net of expenses, of the price of gold bullion. The GLD trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets.

Crude Oil	$86.05	+0.60	+0.70%
Gold	$1,711.40	-2.40	-0.99%
Wheat	$842.75	-2.75	-0.33%
Corn	$716.00	-5.25	-0.73%
Live Cattle	$125.575	-0.025	-0.02%
Lean Hogs	$86.30	+0.15	+0.17%
Treasury Bond	152.0938	+0.0312	+0.02%
10yr Note	134.0625	+0.0312	+0.02%
2yr Note	110.25	-0.0078	-0.01%
U.S. Dollar Index	81.20	+0.06	+0.07%
			As of 8:22 a.m. ET

The Morning Coffee Break Bottom Line

Look for U.S. markets continue lower as the fiscal cliff remains center stage. U.S. markets are officially in correction mode once again.  Look for continue repositioning by the big funds and dividend plays to continue suffer. In our opinion its early to tell what will happen with fiscal cliff and the market direction.  For now we are making our shopping list and buying protection.