Today's Headlines

Bloomberg:

• Spain, Italy Set for Downgrade Amid Slump, Citigroup Says. Spain and Italy will be downgraded by Moody’s Investors Service and Standard & Poor’s this year as the recession and debt crisis worsen, economists and strategists at Citigroup Inc. said. Their credit ratings, along with those of Ireland and Portugal, will be lowered at least one level over the next two to three quarters, Citigroup said in a report published late yesterday. “Deficits will overshoot official forecasts in all the peripheral Economic Monetary Union countries this year and in 2013,” according to the report. “Spain will need to enter some form of a Troika program” this year, Citigroup economists including London-based Juergen Michels wrote, referring to the aid package for Greece monitored by the European Union, the European Central Bank and the International Monetary Fund. Prime Minister Mariano Rajoy has repeatedly said that Spain won’t need a bailout. The warning comes amid a flare-up of Europe’s debt crisis. Investor confidence in the debt of Europe’s so-called peripheral countries has eroded since Spain’s announcement on March 2 that it won’t meet its deficit target this year, helping to push up bond yields. Yesterday, Italy also delayed its goal to balance the budget by one year to 2014.
• Spain, France Bonds Fall Amid Renewed Debt Crisis Concern. Italian and Spanish bonds led declines among Europe’s higher-yielding government securities amid concern the regional debt crisis is worsening. Italy’s 10-year yields climbed for a second day after a government report showed industrial orders fell more than economists forecast and the Finance Ministry said debt-servicing costs will increase. French bonds dropped after Citigroup Inc. said it expects the nation’s credit rating to be cut over the next two to three years. German bunds advanced as investors sought the safest assets. Spain and France both raised the amounts they targeted at debt auctions today. “There is a quite significant widening” of Italian and Spanish yields relative to German bunds, said Peter Schaffrik, head of European interest-rate strategy at Royal Bank of Canada in London. “Those two economies have low growth and widening budgets. For euro-investors bunds are the natural safe haven.”The Italian 10-year bond yield rose 11 basis points, or 0.11 percentage point, to 5.59 percent at 4:18 p.m. London time. The 5 percent bond maturing in March 2022 fell 0.795, or 7.95 euros per 1,000-euro ($1,312) face amount, to 96.10. The extra yield investors demand to hold the securities instead of German bunds expanded 14 basis points to 390 basis points, after reaching 409 basis points on April 11, the widest since Feb. 16. Spain’s 10-year yield advanced eight basis points to 5.91 percent, increasing the spread over bunds by 11 basis points to 421 basis points.
  
• Bank Funding at Risk From Rules Considered by EU Lawmakers. European Union lawmakers are considering rules to protect bank depositors that may stymie two of the main funding sources for the region’s lenders. The proposals risk limiting how much banks can raise from covered bond sales and European Central Bank loans by placing curbs on the assets they can use for security.
  
• Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, reversing an earlier decline, according to BNP Paribas SA. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 10.5 basis points to 683.5 at 3:32 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.5 basis points to 144.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 4.5 basis points to 254.5 and the subordinated index rose 1.5 to 411.5.
• European LBO Loans Fall Most Since 2009 as Debt Crisis Extends. Loans used to fund buyouts in Europe fell 44 percent in the first quarter, the biggest decline in three years, as the number of banks willing to underwrite the debt shrank because of tighter capital rules and a smoldering fiscal crisis. Private-equity firms raised $7.9 billion of loans for purchases in the region, down from $14.2 billion a year earlier and the largest drop since the comparable period in 2009 when $465 million of leveraged buyout loans were issued, according to data compiled by Bloomberg.
• Hollande Vows Minimum Wage Rise as Sarkozy Warns on Deficit. Socialist candidate Francois Hollande promised to raise France’s minimum wage if he wins next month’s presidential vote as incumbent Nicolas Sarkozy stepped up warnings his opponent’s policies risk punishment by markets. Hollande, who is extending his lead in polls of voter intentions for the May 6 runoff, said he’ll organize a meeting of unions and employers to set an increase that would be implemented in July. “Everyone in France is aware of what’s happening to Spain,” Sarkozy said in an interview on Europe 1 radio. “It’s the result of seven years of Socialism with the same policies that Mr. Hollande is promoting.”
• More Americans Than Forecast Filed Jobless Claims. More Americans than forecast filed claims for jobless benefits and sales of previously owned homes unexpectedly dropped, indicating the almost three-year-old economic expansion may be moderating. “The economy has slowed a notch,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who is the most accurate forecaster of existing- home sales for the two years through February, according to data compiled by Bloomberg. “We’re just not going to be able to duplicate the growth we saw in the first quarter.”
• U.S. Previously Owned Home Sales Unexpectedly Fell in March. Sales of previously owned U.S. homes in March unexpectedly fell for the third time in the last four months, showing an uneven recovery in the housing market. Purchases dropped 2.6 percent to a 4.48 million annual rate from 4.6 million in February, the National Association of Realtors reported today in Washington. The median forecast of economists in a Bloomberg News survey called for an increase to 4.61 million. Residential real estate remains the economy’s soft spot, challenged by stricter lending standards, lower home values and the threat of more foreclosures. The number of previously owned homes on the market fell to 2.37 million in March from 2.4 million the month before, today’s report showed. At the current sales pace, it would take 6.3 months to sell those houses, the same as in February. Purchases declined in three of four U.S. regions, led by a 7.4 percent drop in the West. They declined 1.7 percent in the Northeast and 1.1 percent in the South. Sales were unchanged in the Midwest. Foreclosure filings, including notices of defaults and bank repossessions, fell 16 percent in the first quarter from a year earlier after lenders under legal scrutiny slowed actions against delinquent homeowners, RealtyTrac Inc. reported this month.
• Manufacturing in the Philadelphia Fed Region Cooled in April. Manufacturing in the Philadelphia region expanded at a slower pace in April as orders and sales cooled, showing the industry that led the U.S. out of the recession is decelerating. The Federal Reserve Bank of Philadelphia’s general economic index decreased to 8.5, the lowest level since January, from 12.5 in March. Economists forecast the gauge would dip to 12, according to the median estimate in a Bloomberg News survey. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The Philadelphia Fed’s new orders measure fell to 2.7, the lowest level since September, from 3.3 in March, and the shipments gauge dropped to 2.8 from 3.5.
• CPI Conspiracy Theories Fail to Die With Banana-to-Haircut Check.
• Record Gold Seen by Top Analysts as Fund Retreat. Gold, in the 12th year of a bull market, will reach a record in the fourth quarter as central banks maintain record-low interest rates, even with hedge funds the least bullish since 2009, the most accurate analysts said. Bullion will average $1,900 an ounce in the fourth quarter, 16 percent more than now, according to the median estimate of the top five precious-metals analysts in Bloomberg Rankings in the past two years.
• IRS Inspector General Warns of Alarming Rate of Identity Theft. Criminals are continuing to file falsified tax returns using other people’s identities to receive tax refunds, Russell George, the inspector general for the Internal Revenue Service, told a U.S. House of Representatives subcommittee. “Unscrupulous individuals are stealing identities at an alarming rate,” he said today in Washington.

Wall Street Journal:

• TARP Watchdog: 'We Are Letting Our Guard Down'. U.S. regulators and the American public have become complacent toward the dangers of another financial crisis, leaving taxpayers at risk of another bailout, a top watchdog said. "We are letting our guard down against things like moral hazard and 'too big to fail' banks," Christy Romero, the special inspector general for the financial-system bailout, said in an interview. "And that causes me great concern."
• Bombings Across Iraq Kill 30.
  

MarketWatch:

• Pair of Top Democrats Lament ObamaCare. With polls showing President Obama in a tight race vs. Mitt Romney, several prominent Democrats are lamenting the White House push to pass health-care reform three years ago. In the past few days, Massachusetts Rep. Barney Frank and Virginia Sen. James Webb have both said the bitter battle over the health-care law severely wounded Democrats. Frank, a staunch liberal, and Webb, a moderate, are both retiring at the end of the year. Read Frank interview. In an interview with New York magazine, Frank said the president probably should have focused on financial reform instead, especially after Republican Scott Brown captured Ted Kennedy’s old Senate seat in January 2010 in a shocking upset in traditionally Democratic Massachusetts. “I think we paid a terrible price for health care,” lamented Frank, who nonetheless said he strongly supported the goals of the president’s plan. Webb, at a Washington breakfast event this week, also said the health-care push was costly to the Democrats.

CNBC.com:

• Cramer's Ultimate Growth Stocks for 2012.
• Hedge Fund Asserts Jump to Record Level: Report.
  

Business Insider:

• Obama Continues to Lose Independent Voters.
• Albert Edwards: Thanks to China's New Yuan Policy, A Hard Landing Is Almost Inevitable.
  

Zero Hedge:

• Complete 2012-2013 European Bond Issuance Calendar.
• Is The Real Indicator of the Global Economy in Africa? (graph)
• No Housing Recovery Until 2020 in 5 Simple Charts.

New York Times:

• For Europe, Scrutiny and Diminishing Influence. Europeans may discover this week that the debt crisis is not only threatening the euro zone economy and the integrity of the common currency, but also diminishing Europe’s influence in world affairs.
• India Struggles to Deliver Enough Electricity for Growth. The country cannot get enough fuel — principally coal — to run the plants. Clumsy policies, poor management and environmental concerns have hampered the country’s efforts to dig up fuel fast enough to keep up with its growing need for power.

Advanced Trading:

• Hedge Funds Short The Euro. Anyone else feeling a 2011 flashback? Once again Europe seems on the precipice as the Euro fell against the US dollar for the third straight day on the row. This happened despite some news that should be somewhat reassuring after a decent bond sale from Spain. According to Reuters, "Traders cited talk of hedge funds betting the euro will fall to $1.25 soon after the French poll concludes early next month." (France is holding its elections, which usually takes weeks to decide.) Reports Reuters:

Reuters:

• Hedge Funds Face "make or break" year - Allstate. Large institutional investors who have ploughed tens of billions of dollars into hedge funds may rethink their allocations if the industry performs poorly yet again this year, one large U.S.-based investor said. Christopher Vogt, global head of hedge funds at Allstate Investments, which has $95.6 billion (59.8 billion pounds) assets including around $1.5 billion in hedge funds, said the industry needed to deliver good returns in 2012 after several difficult years. "This is a make-or-break year for hedge funds," he told Reuters in a recent interview. "If they have another low-to-zero return year then you will have had a three-year cycle of very low absolute returns."
• SEC to Vote on Charges Against Egan Jones - Sources. The U.S. Securities and Exchange Commission is planning to vote on Thursday on whether or not to charge credit-rating firm Egan-Jones with making intentional misstatements to regulators when applying to be a "nationally recognized" rating agency, people familiar with the matter said.
• No Avoiding Credit Squeeze as Europe's Banks Shrink. Europe's banks are aggravating the region's economic woes by rapidly adopting tough new rules for capital, raising the risk they will have no money left to lend to companies and support economic recovery. Bloated with risky loans and bad debts, banks are slashing their assets, but this has so far failed to convince investors, hurting the banks' ability to source the capital they need to lend to credit-starved customers. "The genie is out of the bottle. Banks are hellbent on shrinking balance sheets so that they can then start to focus on running their businesses rather than spending time dealing with regulatory matters," said Chris Wheeler, analyst at Mediobanca.
• US Natural Gas Futures Hit 10-Year Low Despite Neutral Storage Data.

Financial Times:

• Bulging Chinese Inventories Undermine Copper. There is more copper in China than at any other time in history – and economic growth in the world’s largest consumer of the metal is slowing. The combination of those two facts has cast a pall over the usually bullish mood at Cesco week in Santiago, the largest annual gathering of the world’s copper miners, traders, consumers and investors. “We are definitely at the highest level of stocks in China ever,” says Paul Settles, principal copper consultant at CRU, a consultancy. He reckons there is just over 3m tonnes of copper in China, including the government’s strategic stocks, an increase of 918,000 tonnes in the past six months. That means Chinese imports of refined copper, or cathode, one of the most closely watched datapoints in the copper market, are likely to slow from the record 1m tonnes in the first quarter of the year as the country, which accounts for 40 per cent of global copper demand, works off inventories.

Telegraph:

• George Soros and the Bundesbank's Patriotic Putsch. George Soros has launched all-out war against the Bundesbank. In his latest Le Monde interview he said that if he were still an active investor, he would now "bet against the euro", at least until there is a change in European leadership or policy.

Xinhua:

• China Infrastructure Projects May Face Cash Shortage. This is due to the nation's tightened credit policy, citing He Jianzhong, spokesman for the Ministry of Transport.