Today's Headlines

Bloomberg:

• Services Expand at Slowest Pace in Eight Months. Service industries in the U.S. expanded in April at the slowest pace in eight months as companies cut back in response to higher energy costs. The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March. The ISM’s measure of new orders at service providers decreased to 52.7, the lowest since December 2009, from 64.1 in March. The 11.4-point drop was the biggest since record-keeping began in 1997. A gauge of business activity, which reflects sentiment among purchasers, also declined. The group’s employment gauge dropped to 51.9 from 53.7 a month earlier. Fueled by spreading unrest in the Middle East, the average price of a gallon of regular gasoline at the pump advanced to $3.98 on May 3, the highest since July 2008, according to data from AAA, the nation’s biggest motoring group. Forced to spend more for food and fuel, household purchases have cooled. Consumer spending adjusted for inflation rose at a 2.7 percent annual pace in the first quarter, down from 4 percent in the last three months of 2010, the Commerce Department said last week.
  
• ADP Estimates U.S. Companies Added 179,000 Jobs in April. Companies in the U.S. added workers in April, signaling the labor market is strengthening, data from a private report based on payrolls showed today. Employment increased by 179,000 in April from a revised 207,000 the prior month, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 198,000 advance this month.
• U.S. May Pursue More Lenders After Suing Deutsche Bank(DB) on Faulty Mortgages. The U.S. Department of Justice may pursue claims against other lenders after suing Deutsche Bank AG for more than $1 billion, alleging the firm lied while arranging federal insurance on faulty mortgages. The Housing and Urban Development Department is examining loans insured through the Federal Housing Administration and may refer additional cases to the Justice Department, HUD’s general counsel, Helen Kanovsky, said yesterday in an interview. “We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” Kanovsky said. “We could see another potential big negative for the industry out of this,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst with FBR Capital Markets in Arlington, Virginia. “It’s going to be a continued earnings drag on the industry.”
• China's Stocks Fall Most in Two Months on 'Critical' Inflation. China’s stocks fell the most in two months after the government said taming inflation is “critical,” signaling to investors that more policy tightening measures may be ahead even as economic growth slows. China Shenhua Energy Co., the nation’s biggest coal company, and Yanzhou Coal Mining Co. plunged more than 5 percent after Goldman Sachs Group Inc. said the government may cap thermal coal prices to help power producers. Jiangxi Copper Co. and PetroChina Co. led a drop for commodity producers as metal and oil prices extended declines. China Citic Bank Corp. fell the most in six months after the China Securities Journal said the central bank will raise lenders’ reserve requirements this month. “Curbing inflation is the top priority for the government,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “China’s economic growth has shown signs of a slowdown but that won’t change the government’s intention to cool inflation with more monetary measures.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 66.2 points, or 2.3 percent, to 2,866.02 at the 3 p.m. close, the most since Feb. 22. “A moderate growth slowdown in 2011 could be taken as a signal of a hard landing going forward,” Bank of America- Merrill Lynch economists led by Ting Lu said in a report today. Growth indicators such as industrial production and fixed- asset investment will likely moderate in April from March, they said. “Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first- quarter monetary policy report published yesterday. Bank reserve requirements have no “absolute ceiling,” the report said, restating Governor Zhou Xiaochuan’s comment on April 16.
• Qaddafi's Forces Bombard Rebel Cities as Allies Prepare for Rome Meeting. Libyan forces loyal to Muammar Qaddafi bombarded rebel-held cities in the west of the country as ministers from 22 nations prepared to meet in Rome to discuss ways to end the fighting. “The nature of the conflict has changed significantly in a month, but what has not changed and will not change is the resolve of NATO and our partners,” NATO Secretary-General Anders Fogh Rasmussen told reporters today in Brussels. “It is hard to imagine that the attacks against civilians in Libya will cease as long as Qaddafi remains in power.”
• Russia's Micex Falls More Than 10% From High; Enters Correction. Russia’s Micex Index fell more than 10 percent from this year’s peak, the world’s first major benchmark stock gauge to enter a correction in six weeks. The Micex sank 2 percent to 1,657.54 by the 6:45 p.m. close in Moscow, its lowest level since Dec. 10. The 30-stock gauge has retreated from an April 6 high of 1,859.99 as commodities slipped and concern deepened that tighter monetary policy will curb economic growth.
• Crude Oil Falls in New York After U.S. Supplies Climb to a Six-Month High. Crude oil dropped to a two-week low as a U.S. government report showed supplies surged, and on signals that U.S. economic growth is slowing. Oil fell as much as 2 percent after the Energy Department said stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October.“The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.” Crude oil for June delivery fell $2.07, or 1.9 percent, to $108.98 a barrel at 11:21 a.m. on the New York Mercantile Exchange.
• Applied Materials(AMAT) Agrees to Buy Varian(VSEA) for $4.9 Billion. Applied Materials Inc. (AMAT), the world’s largest producer of chipmaking equipment, agreed to buy Varian Semiconductor Equipment Associates Inc. (VSEA) for $4.9 billion in cash to add technology for chips used in mobile devices. The company will pay $63 a share, 55 percent more than yesterday’s closing price, Santa Clara, California-based Applied Materials said in a statement today.
• Deutsche Bank(DB) Sued by Los Angeles Over Foreclosed Properties, Evictions. Deutsche Bank AG (DBK) was sued by the City of Los Angeles for allegedly failing to maintain foreclosed properties and illegally evicting low-income tenants. The lawsuit comes a day after the U.S. Department of Justice sued the German bank for more than $1 billion, claiming it lied while arranging federal insurance on faulty mortgages. Deutsche Bank’s MortgageIT unit falsely certified that it was examining default risks while qualifying loans for Federal Housing Administration insurance, according to the government.
• Goldman Sachs(GS) May Make 'Near-Term' Management Changes, UBS Says. Goldman Sachs Group Inc. (GS), accused of misleading clients by a U.S. Senate inquiry, is likely to make management changes in the “near-term,” said William Tanona, an analyst at UBS AG. “Any turnover will concern investors despite the firm’s deep bench,” Tanona, who worked at Goldman Sachs from 2005 to 2008, wrote today in a note to investors. “GS’s management team is very strong; however, missteps on the public relations front have further tarnished the firm’s reputation.” Managers will remain under strain after lawmakers sent findings to the Justice Department and Securities and Exchange Commission, he said.
• Intel(INTC) Develops '3-D' Chipmaking Approach in Bid to Widen Lead Over Rivals. Intel Corp. (INTC), the world’s largest semiconductor maker, unveiled a processor made with a “3-D” manufacturing technique that increases chip performance as much as 37 percent while using less power.
• ConAgra(CAG) Sweetens Ralcorp(RAH) Offer to $4.9 Billion to Spur Talks. ConAgra Foods Inc. (CAG) offered to buy Ralcorp Holdings Inc. (RAH) for about $4.9 billion, sweetening its bid to lure the largest U.S. store-brand foods maker into takeover negotiations. The unsolicited cash offer is $86 a share, 32 percent more than Ralcorp’s closing price before the initial bid, ConAgra said today.

Wall Street Journal:

• U.S., Allies Discuss $4.5 Billion Fund to Help Libyan Rebels. The U.S. and its allies are discussing the creation of a fund to finance the operations of Libyan forces opposing the regime of Col. Moammar Gadhafi, according to people familiar with the matter. The potential €3 billion ($4.5 billion) fund, which will be on the agenda when Secretary of State Hillary Clinton and other top diplomats meet in Rome on Thursday—would be guaranteed by assets of the Gadhafi regime that were frozen in the wake of the dictator's violent crackdown on protesters this year, these people said.
• Galleon Deliberations to Start Anew After Juror Is Dismissed. Jurors were ordered to begin their deliberations from scratch Wednesday in the insider-trading trial of Galleon Group founder Raj Rajaratnam after a juror was dismissed.

Bloomberg Businessweek:

• Connecticut Senate Approves Democratic Budget Deal. The state Senate bucked a national trend of forgoing tax increases early Tuesday and instead passed a two-year, $40.1 billion budget that attempts to tackle the state's deficit with a combination of cuts, labor savings and wide-ranging tax hikes. Republican lawmakers warned the opposite will happen. They said the cornucopia of increased taxes -- about $1.4 billion in the first year and $1.2 billion in the second year -- on everything from personal and corporate income to diesel fuel, yoga studios, alcohol and pedicures hurts specific industries and everyday taxpayers still struggling from the recession. "Hold on to your hat. We're going to tax you from head to toe and everything in between," warned Sen. Andrew Roraback, R-Goshen, the ranking Republican senator on the tax committee. "It's the middle class that is taking it the hardest with the budget."

CNBC.com:

• Treasury Suggests $2 Trillion U.S. Debt Cap Raise: Sources. The Treasury has told lawmakers a roughly $2 trillion rise in the legal limit on federal debt would be needed to ensure the government can keep borrowing through the 2012 presidential election, sources with knowledge of the discussions said. Obama administration officials have repeatedly said that it is up to Congress to decide by how much the $14.3 trillion debt limit should be raised. But when lawmakers asked how much of an increase would be needed to meet the government's obligations into early 2013, Treasury officials floated the $2 trillion working figure, Senate and administration sources told Reuters.

Business Insider:

• Hedge Funds Go Long Asian Currencies At Record Levels. As of last Thursday, according to a senior Deutsche Bank currency strategist, "long positions in some of the Asian currencies had been close to a record high."
• India Had Warned The U.S. That Bin Laden Was Hiding Close to Islamabad.
• UBS Economist Explains Why China Is Zooming Towards a Gigantic Credit Collapse.
• Amazing Frontline Special Shows Everything Pakistan Does To Aid The Taliban.
  

Zero Hedge:

• Out Come The Big Gunz: Interactive Brokers Advises Traders Of Yet Unknown, But Certainly Scary, Silver Margin Increase.
• The Strategic Considerations In The Choice of Osama's Safe House by Stratfor. (video)
  

New York Times:

• China Establishes New Internet Regulator. A powerful arm of China’s government said Wednesday that it had created a new central agency to regulate every corner of the nation’s vast Internet community, a move that appeared to complement a continuing crackdown on political dissidents and other social critics.

LA Times:

• Boeing's(BA) Robotic Jet Phantom Ray Takes Maiden Test Flight. A sleek, delta-winged robotic jet took to the skies for the first time above the Mojave Desert at Edwards Air Force Base. Boeing Co.'s experimental drone, dubbed Phantom Ray, flew to 7,500 feet and reached speeds of 205 mph in its first flight. Unlike existing combat drones that are controlled remotely by a human pilot, the Phantom Ray could carry out a mission controlled almost entirely by a computer. A human pilot sitting miles away designs a flight path and sends it on its way, and a computer program guides it to the target and back.
• Obama Says White House Won't Release Osama Bin Laden Photos.
  

FINalternatives:

• Arizona Public Safety May Invest In Goldman Sachs(GS), Gracie Hedge Fund. The Arizona Public Safety Personnel Retirement System is set to consider investing more than $200 million in four hedge funds. The $6.1 billion public pension plan's board of trustees will consider a possible $60 million investment with Goldman Sachs Asset Management and $50 million with New York-based Gracie Capital, HFMWeek reports.

The Atlantic:

• Egypt's Muslim Brotherhood Sticks With Bin Laden. Most of yesterday's headlines proclaiming the death of Osama bin Laden used epithets like "terror mastermind" or "bastard" to refer to the internationally feared mass murderer. (That latter headline is from the New York Post.) But in its first public statement on the killing of bin Laden, Egypt's Muslim Brotherhood used the honorific term "sheikh" to refer to the al-Qaeda leader. It also accused Western governments of linking Islam and terrorism, and defended "resistance" against the U.S. presence in Iraq and Afghanistan as "legitimate." The Muslim Brotherhood's response to bin Laden's death may finally end the mythology -- espoused frequently in the U.S. -- that the organization is moderate or, at the very least, could moderate once in power.
  

Seeking Alpha:

• China Collapse Means Iron Ore Collapse. Can't read between the lines? Maybe you're missing the advanced warnings from the CEOs of these resource dependent companies? Allow me to throw in a quote: "These record-high levels are probably not sustainable," says Jan du Plessis, CEO of Rio Tinto (RIO), talking about base metals prices. While remaining confident of continuing strong demand from China and India, du Plessis, is prepping his firm's balance sheet for falls in copper and iron ore. It's my understanding that more than half of the iron ore in China goes into Real Estate. It ends up building negative return on investment style ghost towns. That said, right now everyone is pretending that this type of activity is adding long term economic value.

Reuters:

• Syria Charges Hundreds With "maligning the state". "Mass arrests are continuing across Syria in another violation of human rights and international conventions," said Rami Abdelrahman of the Syrian Observatory for Human Rights. Hundreds of Syrians have been charged with "maligning the prestige of the state," a Syrian rights group said, in President Bashar al-Assad's drive to crush pro-democracy protests against his 11-year autocratic rule. The charge, which carries a three-year prison sentence, was lodged Tuesday against hundreds of people detained this week before the Muslim day of prayer Friday, when the largest demonstrations calling for Assad's overthrow are typically seen. The campaign intensified after a tank-backed army unit, led by Assad's brother Maher, last week shelled and machinegunned into submission the old quarter of Deraa, cradle of the six-week-old uprising.
• Copper Falls on Fears of More China Tightening.
• Agrium(AGU) Shares Fall 5% on Weaker Forecast. Farm-products retailer and potash miner Agrium Inc offered a weaker than expected financial forecast on Wednesday, and its shares fell 5 percent despite strong first-quarter profit.

Financial Times:

• Corn Crop Delays Hit Hedge Funds. For the past few months hedge funds and other speculators have been buying Chicago’s July corn contract, which represents the old-crop, and simultaneously selling the December contract, which represents the new crop due to be harvested later this year. The wager was that old crop supplies were tight – and prices need to increase to ration domestic demand and exports – while new crop supplies were set to ease on the back of a near record planting and expectations of a big rebound in output.