Today's Headlines

Bloomberg:

• Spanish Borrowing Costs Rise as Rajoy Denies Bailout Need. Spain borrowing costs rose at a sale of one-year and 18-month bills for the first time since November as Prime Minister Mariano Rajoy battles to convince investors the country won't need a bailout. Spain sold 12-month bills at 2.623 percent, up from 1.418 percent at the last auction on March 20, the Bank of Spain said in Madrid today. The Treasury also sold 18-month bills at 3.11 percent, compared with 1.711 percent last month. The total amount sold was more than the 3 billion-euro maximum target set for the auction. Spanish bonds extended gains after the auction with the yield the 10-year benchmark bond falling 15 basis points to 5.92 percent. That yield rose as high as 6.156 percent yesterday, the most since Dec. 1. The cost of insuring Spain's securities against default fell almost 5 basis points to 506.3 after record close of 511.2 basis points yesterday. Demand for the 12-month bills was 2.9 times the amount sold, compared with 2.14 times last month. Demand for the longer maturity notes rose to 3.77 times from 2.93. Spain's 10-year borrowing costs have jumped more than one percentage point since Rajoy said on March 2 that the nation won't meet a budget deficit target of 4.4 percent of gross domestic product set by the European Union this year.
  
• Bank of Spain Questions Budget Forecasts, Calls for Prudence. Spain's central bank chief said the country risks missing deficit estimates unveiled last month just hours after a successful bill sale dissipated some concerns that the government may have to seek a bailout. "The projected course of total revenues in the budget is subject to downside risks," Bank of Spain Governor Miguel Angel Fernandez Ordonez told a parliamentary committee today in Madrid. The comments may undermine the optimism sparked by Spain's successful bill auction just two hours previously. While 10-year bonds rose today, the yield is still close to 6 percent amid concern that Prime Minister Mariano Rajoy's government will struggle to rein in the budget deficit and shore up a banking industry facing additional charges of 50 billion euros ($66 billion.) Ordonez said revenue estimates should be "prudent" as the country suffers its second recession since 2009. The government's plan to raise 2.5 billion euros from a tax amnesty is "particularly uncertain," he told lawmakers in a session to discuss the budget, which was approved by the Cabinet on March 30 and is making its way through parliament. Spending linked to unemployment benefits may also be more than forecast as the nation suffers the highest jobless rate in the European Union, at almost 24 percent. If additional measures are needed, indirect taxes should be increased and temporary tax measures may have to be replaced by permanent ones, said Ordonez, who was appointed by the former Socialist government for a six-year term that ends this year.
• Merkel Gives Spain No Respite, Says Debt Cuts Key to Yields. Chancellor Angela Merkel opened her campaign to win back Germany's most populous state in May 13 elections by appealing to voters to endorse her message of austerity as the prime means to tackle Europe's debt crisis. "It's partly about still being able to shape our own future," Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt "are so tightly in the hands of the financial markets that they can't make independent decisions anymore. We have to watch out that high interest rates on our debt don't lead to the point where we can't decide and shape anything anymore" in Germany. Merkel's comments underscore a focus on her government's record of pressing for deficit cuts as a core campaign theme for the state elections next month even as investors and economists call for Germany to step up its response to the debt crisis now marauding Spain.
  
• Corporate, Government Credit-Default Swaps Decline in Europe. The cost of insuring against default on European corporate and sovereign debt fell, according to BNP Paribas SA. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings fell 10.5 basis points to 669.5 at 10:20 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings dropped two basis points to 142 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 249 and the subordinated index dropped one to 406. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined three basis points to 277.9.
• European Car Sales Decline to 14-Year Low as Economy Stalls. European car sales fell to a 14- year low last month, with Fiat SpA, Renault SA and PSA Peugeot Citroen posting the biggest drops, as the region's sovereign- debt crisis caused economic growth to stall. Registrations in the 27-member European Union plus Switzerland, Norway and Iceland fell 6.6 percent from a year earlier to 1.5 million vehicles, the lowest figure for March since 1998, the Brussels-based European Automobile Manufacturers' Association said today in a statement. First- quarter sales dropped 7.3 percent to 3.43 million vehicles. France and Italy, Europe's second- and third-biggest auto markets, shrank by more than 20 percent. The regional drop was alleviated by growth at German carmakers, such as Volkswagen AG. Paris-based Peugeot is among auto manufacturers forecasting an industrywide contraction of 5 percent in Europe this year. "The extent of the beat for Germans is a bit surprising, as well as the extent of the downturn for the French," Adam Hull, a London-based analyst at WestLB AG, said by phone. French car sales plummeted 23 percent to 197,774 vehicles, while Italian registrations dropped 27 percent to 138,137, according to the association, or ACEA.
• Oil Rises to Three-Day High on Spain Debt, IMF Outlook. Crude oil for May delivery advanced $1.59, or 1.5 percent, to $104.52 a barrel at 11 a.m. on the New York Mercantile Exchange. Earlier, futures touched $105.07, the highest intraday price since April 3. Crude is up 5.8 percent this year. Brent oil for June settlement rose 11 cents to $118.79 a barrel on the London-based ICE Futures Europe exchange.
• Factories in U.S. Cool for First Time in Four Months: Economy. Production at U.S. factories dropped in March for the first time in four months as the industry cooled following the strongest surge in three decades. Manufacturing, which makes up about 75 percent of industrial output, decreased 0.2 percent last month as appliance and furniture makers cut back, data from the Federal Reserve showed today in Washington. Capacity utilization, which measures the amount of a plant in use, was little changed at 78.6 percent last month after 78.7 percent in February. It has averaged about 81 percent since records began in 1967.
• U.S. Housing Starts Unexpectedly Drop to Five-Month Low. Builders began work on fewer homes than forecast in March, signaling a sustained industry recovery will take time to get underway. Housing starts dropped 5.8 percent to a 654,000 annual rate, less than the lowest estimate of economists surveyed by Bloomberg News and the least since October, Commerce Department figures showed today in Washington. While warmer weather may have spurred home construction at the beginning of 2012, a competing supply of cheap existing properties may be steering potential buyers away from purchasing a new home. That means home construction may not help boost the economy in 2012. “Housing continues to bump along the bottom,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “The best we can hope from housing over the next couple years is that it won’t subtract from growth. The numbers in the past few months were decidedly impacted by a much milder winter, so a significant portion of construction was pulled forward.”
• Fed Priority of Rates Integrity Prompts Outlook Struggle. Federal Reserve officials are grappling with how they might eventually exit from their plan to keep interest rates low through late 2014 without jolting markets. Policy makers have relied on communications about their rate expectations to provide additional stimulus after cutting their benchmark rate to near zero in December 2008. Now, they’re seeking to link their commitment more closely to changes in the economic outlook.
• First Solar(FSLR) Will Cut 30% of Workforce, Shutter Plants. First Solar Inc. (FSLR), the largest thin- film panel maker, will cut 30 percent of its workforce, about 2,000 jobs, in response to a deteriorating European market. Most of the jobs to be eliminated will be at a factory it’s closing in Germany and in Malaysia, where it’s idling four production lines, Tempe, Arizona-based company said today in a statement. The company will pay $245 million to $370 million in severance and related costs. First Solar’s thin-film technology, which helped it become the lowest-cost panel manufacturer, generates less electricity than traditional polysilicon panels that are made mostly in China. That’s made it less popular for rooftop systems that are favored in the top solar markets in Europe, said Theodore O’Neill, an analyst at Wunderlich Securities in New York. “They don’t have a good product for the rooftop market and Europe doesn’t have the big open spaces where their panels make sense,” said O’Neill, who has a “hold” rating on the shares. “The factory closures provide some clarity going forward, but they have a lot of work to do to prevent margin erosion.”

Wall Street Journal:

• Obama Calls for Stricter Oil-Market Curbs. President Barack Obama on Tuesday called for increasing penalties on oil speculators and boosting oversight of U.S. energy as part of a plan to crack down on an "irresponsible few" who he says rig oil markets.
• Goldman(GS) Beats Estimates, But Keeps to Cautious Tack. Goldman Sachs Group Inc. reined in its risk taking and focused on expense controls as its first-quarter profits beat expectations, though results showed the toll that choppy markets have taken on the company's main businesses. Revenue fell 16% from the first quarter last year to $9.95 billion—not as low as the $9.48 billion analysts had forecast—and profit fell 23% to $2.11 billion. The results were a strong rebound from the lackluster fourth quarter, but executives at the Wall Street company continued to emphasize caution about the near term, given the economic recovery's "fragility."
• Spain is Back in Recession, Central Banker Warns. Spain's economy is in recession and facing an "exceptional" situation, its central bank governor warned on Tuesday, as Madrid's borrowing costs nearly doubled from a month ago and the International Monetary Fund called on Madrid to review the pace of fiscal adjustment. Speaking before a parliamentary committee, Bank of Spain Gov. Miguel Ángel Fernández Ordóñez said the euro zone's fourth-largest economy was "back in recession" after a mild recovery in early 2011, "with only exports as a positive contributor to gross domestic product."

CNBC.com:

• PIMCO and the JPMorgan)JPM) Whale: CHIP-ing Away at a Scandal. Last week, I explained how the position taken in the CDX market by Burno Iskil, the so-called London Whale of JPMorgan’s chief investment office, could be an overlay hedge attempt to raise yields on Treasury Inflation Protected Securities, or TIPS.
• Fears Over the Health of Spanish Economy Persist. (video)
• Extreme Left and Right to Cause French Election Upset?
  

Business Insider:

• Check Out Nomura's Awesome Presentation: US In The Crosshairs.
• Traveling In Europe Has Become Absurdly Expensive - And You Know The Reason Why.
• If China Gave This Rocket Launcher To North Korea It Means The UN Has Been Getting Played.
• The Women of Bloomberg TV.
• The 101 Finance People You Have To Follow On Twitter.
• Chongqing Is A Perfect Illustration Of China's Unsustainable Growth Model.

Zero Hedge:

• The Delays Begin: Italy Pushes Back Balanced Budget Target By One Year.
• The European North-South Divide Is Exploding.
  

Real Clear Politics:

• Will We Defuse Our Debt Bomb? by Senator Tom Coburn.

Reuters:

• Exclusive: China's Bo Backed, Then Blocked Murder Probe Against His Wife: Sources. Chinese politician Bo Xilai initially agreed to a police probe of his wife's role in the murder of a British businessman before abruptly reversing course and demoting his police chief, causing upheavals that led to the downfall of both men, sources said.
• IMF Says Italy to Miss Deficit Targets in 2012, 2013. Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday. The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget. The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise. Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said. Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013. The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.
• World Economy Fragile, Faces 'Uneasy Calm' - IMF. Global growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund said on Tuesday. Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the euro zone have subsided, the IMF said. "An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard told reporters as he detailed the Fund's World Economic Outlook. "Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present," he said.

Financial Times:

• The debate about "firewalls" has become a distraction from the need to get Europe's economy growing again, said World Bank President Robert Zoellick. He said the euro area's survival depends on Italy and Spain, which are too big to fail and also too big to rescue.
• What 5 Years of Crisis History Tells Us. (graphs)
• IMF Urges Eurozone to Bolster Banks.
  

Telegraph:

• Debt Crisis: Live.
  

Der Spiegel:

• Belated Reforms Cut Deep in Southern Europe. Mired in ongoing crisis, several countries in southern Europe are seeking to rapidly push through German-style labor market reforms to breathe life into their struggling economies. Yet they may not be enough to save the region's lost generation.
  

YTN:

• The U.S. is considering all potential countermeasures against a possible North Korean nuclear test, including a precision strike, citing U.S. Pacific Commander Admiral Samuel J. Locklear.