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David Moenning’s Daily State of the Markets: 6/11

June 11, 2008 10:02 AM EDT

Coming Soon: The Rate Hike Blues


Here’s a link to listen to an Audio Version of the report:

Although the DJIA once again managed to finish in the green, for the most part, the broad market failed to follow suit for a second straight day. Cutting to the chase, fears of higher inflation – and what the Fed plans to do about it – wound up being the focus of the session. As we opined yesterday, the problem here is that the Fed can’t do much of anything about rising commodity costs; well, other than slowing down the economy, that is.

And although the fear surrounding what might happen to a slowing economy when the Fed starts to raise rates isn’t exactly new, the concept of this becoming a global theme certainly is. You see, rising costs and the potential for higher rates is not just a U.S. problem anymore.

For example, by now everybody on the planet knows that the ECB’s Trichet appears to be determined to raise rates in Europe in an effort to keep inflation under control. And this week we have learned that Gentle Ben & Co. appears to be preparing to fight the good fight as well. In fact, the Fed Funds futures are now pricing in a 0.25% increase by November. However, did you know that much of Asia is in the same boat?

According to Ned Davis Research, inflation rates across emerging Asia have been soaring to new highs due to rising food and fuel costs. Taken as a group, the CPI rate for the emerging Asian countries is close to a 12-year high. Diving into the data, we find that India’s CPI is near the high end of its range since 1995; the rate in the Philippines is the highest in nine years; and the CPI in Thailand is close to a decade high. Next, India and Malaysia were forced last week to abandon their price controls on oil. Now toss in an inflation rate in China in excess of 7% and the picture becomes pretty clear.

Although very few countries are as open with their data as we are here in the U.S. it doesn’t take a Ph.D. in economics to see that inflation may soon become a global issue. And while the idea of the emerging markets being decoupled from the performance of the U.S. market and economy has been a good investment theme lately, if central bankers around the globe start to hike rates in unison, everything everywhere is going to slow down.

Our apologies for providing a report this morning that is NOT likely to help anybody make money trading in the near-term. However, the concept of rising global inflation may help define the big-picture outlook going forward.

Turning to this morning, we don’t have any economic data to review before the bell, but we will get the Fed's Beige book at 2:00pm along with a healthy dose of Fedspeak as we’ll hear from four FOMC members during the session.


Running through the rest of the pre-game indicators; the foreign markets are mixed. Crude futures are moving higher with the latest quote showing oil trading up by $2.62 to $133.93. Interest rates are moving down this morning as the yield on the 10-yr is currently trading at 4.08%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a quiet open. The Dow futures are currently ahead by about 3 points; the S&P’s are up by about a point, while the NASDAQ looks to be about 3 points above fair value at the moment.

Stocks :"In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Boyd Gaming (NYSE: BYD) – Upgraded at Bank of America
Boeing (NYSE: BA) – Target reduced at Bernstein
Corning (NYSE: GLW) – Target increased at Bernstein
Allegheny Technologies (NYSE: ATI) – Estimates reduced at Cowen
Banco de Chile (NYSE: BCH) – Upgraded at Deutsche Bank
Banco Santander (NYSE: SAN) – Downgraded at Deutsche Bank
Telefonos de Mexico (NYSE: TMX) – Upgraded at Deutsche Bank
State Street (NYSE: STT) – Added to Conviction Buy list at Goldman
CB Richard Ellis (CNYSE: BG) – Upgraded at Goldman
Annaly Capital (NYSE: NLY) – Downgraded at JP Morgan
Alcoa (NYSE: AA) – Downgraded at JP Morgan
PetSmart (Nasdaq: PETM) – Upgraded at JP Morgan
Merrill Lynch (NYSE: MER) – Estimates reduced at JP Morgan
Cameco Corp (NYSE: CCJ) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

Note: All earnings reports compared to Reuter’s consensus estimates


** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com


The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]


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