Tuesday Watch

Evening Headlines
Bloomberg:

• Euro Declines Before Spanish Sales, German Confidence. The euro fell versus most of its 16 major counterparts before Spain sells securities after borrowing costs climbed to the highest level this year, boosting concern Europe’s debt crisis is spreading. The euro lost 0.2 percent to $1.3118 at 12:44 p.m. in Tokyo after reaching $1.2995 yesterday, the lowest level since Feb. 16. Spain will sell 12-month and 18-month bills today, followed by auctions of debt due in 2014 and 2022 on April 19. Yields on the nation’s 10-year notes soared as much as 18 basis points, or 0.18 percentage point, to 6.16 percent yesterday. That’s the highest level since Dec. 1 and is edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues. The cost of insuring against a Spanish default rose eight basis points to 511 yesterday, the highest on record, according to CMA.
• Italians Brace for More Austerity as Targets Dim: Euro Credit. Italians may have to swallow more austerity measures to meet Prime Minister Mario Monti's budget-gap goals as the government braces for a deeper-than-forecast recession. After predicting in December that GDP will fall as much as .5% this year, Monti's Cabinet may tomorrow align its forecasts closer to those of the European Commission, which has projected a 1.3% contraction. Monti pushed through $26 billion of spending cuts and tax increases in December to help balance next year's budget. "Unless Monti's measures bring in more revenue than forecast, this government will be forced to pass a new package to respect its 2013 deficit target," Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said.
  
• Paulson Said to Short Europe Bonds. John Paulson, the billionaire hedge-fund manager seeking to reverse record losses in 2011, told investors he is shorting European sovereign bonds, according to a person familiar with the matter. Paulson, 56, said during a call with investors that he is also buying credit-default swaps on European debt, or protection against the chance of default, said the person, who asked not to be identified because the information is private. Spanish banks are of particular concern as their holdings of the country’s debt and client withdrawals make them overly dependent on European Central Bank financing, Paulson told investors. In February, he said that the euro is “structurally flawed,” and will eventually fall apart, according to a letter sent to investors. Concerns that Spain’s position will deteriorate amid the sovereign-debt crisis in Europe have spurred a surge in the nation’s borrowing costs this year. Credit-default swaps insuring Spanish government debt rose today to a record in London, according to CMA, a market information firm in London, signaling deterioration in investor perceptions of credit quality. Yields on the country’s 10-year bonds climbed to the highest level since Dec. 1 earlier today.
• Singapore Exports Unexpectedly Drop as Electronics Cool. Singapore’s exports unexpectedly dropped in March as shipments of electronics eased and petrochemical sales fell amid a decline in demand from China. Non-oil domestic exports fell 4.3 percent from a year earlier, after a revised 30.4 percent increase in February, the trade promotion agency said in a statement today. The median of 12 estimates in a Bloomberg News survey was for a 7.1 percent gain. Singapore’s electronics shipments by companies such as contract manufacturer Venture Corp. rose 2.8 percent in March from a year earlier, after climbing 23.3 percent the previous month. Non-electronics shipments, which include petrochemicals and pharmaceuticals, fell 7.8 percent.
• China to Slow Growth, Avoid Aggressive Policy Moves, Pimco Says. China will curb economic growth to address over-investment and bad loans that built up after policy makers used stimulus to combat the 2008 crisis, according to PIMCO, which runs the world's biggest mutual fund. "Aside from some cuts in the reserve requirement ratio, we do not expect to see aggressively expansionary policy to combat the incremental economic slowdown that is unfolding right now in China, Ramin Toloui, the Singapore-based co-head of the global emerging markets portfolio management team, wrote in a report.
• OptionsXpress(OXPS) Accused by SEC of Violations. OptionsXpress Inc. (OXPS), the Chicago brokerage acquired by Charles Schwab Corp. (SCHW) last year, was accused by U.S. regulators of using sham “reset” transactions as part of an abusive naked short-selling scheme. The company and four executives violated Securities and Exchange Commission rules in conducting trades from at least October 2008 to March 2010 designed to give the illusion of compliance with rules governing short sales, the SEC said in a statement today. An OptionsXpress customer was also accused by the SEC of participating in the alleged violations.
• Spain Pledges Decisive Action Against Argentina Over YPF Seizure. The Spanish government pledged to take “decisive” action against Argentina within days, after President Cristina Fernandez de Kirchner seized YPF SA (YPFD), the Argentine oil company majority-owned by Repsol YPF SA. (REP) “The Spanish government is working on measures that will be announced in the coming days,” Industry Minister Jose Manuel Soria said at a press conference in Madrid last night. “They will be clear and decisive.” Fernandez seized control of Argentina’s largest crude producer yesterday, ousting Spain’s Repsol, after a dispute over slumping oil output and investments. She replaced Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido and plans to send a bill to Argentina’s Congress to take a 51 percent stake in the company. Repsol’s 57.4 percent stake in YPF was worth 4.1 billion euros ($5.4 billion) at the end of last year, the Madrid-based company said in a regulatory statement yesterday. The unit accounted for 21 percent of profit and 34 percent of investment in 2011. Repsol also said it is owed 1.54 billion euros by Grupo Petersen, which was YPF’s second-biggest shareholder. Repsol said the move is “manifestly illegal” and that it will take all legal measures to defend the value of its assets and the interests of its shareholders.
• Fed's Bullard Says U.S. Growth May Reach 3% This Year. The economy is “on track” and Fed “policy can stay on hold for now,” Bullard said today to reporters after a speech in Logan, Utah. The central bank will probably need to tighten policy during the “last part of 2013,” he said.
• China's Foreign Direct Investment Declines for Fifth Month. Foreign direct investment in China dropped for a fifth straight month in March on a slowing economy, limited prospects for gains in the yuan and renewed concerns that Europe’s debt crisis will worsen. Inbound investment fell 6.1 percent from a year earlier to $11.76 billion, the Ministry of Commerce said today in Beijing, after a 0.9 percent decline the previous month and a 32.9 percent jump in March last year.
• RBI Signals Fastest BRIC Inflation Constrains Rate Cuts. India’s central bank said price pressures must be restrained even as policy needs to shift to help growth, signaling that elevated inflation will limit the magnitude of interest-rate cuts forecast to begin today. “Monetary policy has to recognize the need for keeping inflation expectations anchored in an environment of significant upside risks to inflation, while shifting the balance of policy to arrest the deceleration in growth momentum,” the Reserve Bank of India said yesterday in a review of the economy ahead of its rate decision in Mumbai due at 11 a.m. today. Costlier credit, policy gridlock and a weaker global recovery have sapped India’s expansion, spurring predictions of reductions in borrowing costs. At the same time, an increase in oil prices, rupee weakness and government spending may fan price pressures, with inflation slowing less than estimated in March to 6.89 percent. “They are still concerned about inflation,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “It kind of reinforces that the room for big cuts is not there,” while not ruling out a rate cut today, he said.
• China's Stocks Fall Most in a Week on Foreign Investment Slump. China’s stocks fell the most in more than a week as a report showing foreign direct investment dropping for a fifth month underscored concerns that Europe’s debt crisis is hurting the economy. China Vanke Co. and Poly Real Estate Group Co. led a gauge of property developers to the biggest loss among industry groups after the Xinhua News Agency reported Shanghai won’t loosen its property curbs. Tonghua Golden-Horse Pharmaceutical Industry Co. (000766) slumped 2.2 percent after the drug regulator suspended sales of its products. “Recent economic and industry data continue to point to a weakening economy and corporate earnings growth is expected to decelerate as well in the first quarter,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. The Shanghai Composite Index (SHCOMP) slipped 11.93 points, or 0.5 percent, to 2,345.10 at 10:20 a.m. local time, set for its biggest drop since April 9.
• Japan Will Provide $60 Billion to Expand IMF’s Resources. Japan said it will provide $60 billion to the International Monetary Fund’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis. Japan, the world’s third-largest economy, becomes the largest donor yet outside of Europe to IMF Managing Director Christine Lagarde’s campaign to bolster the fund’s resources for the second time in three years.

Wall Street Journal:

• Pressure on Spain Builds as Bonds Face Key Auction. Spain warned Monday it could seize control of finances in regional governments as the country struggles to cut its budget deficit, one of Europe's largest, and shore up investor confidence. The country faces an important test Tuesday during a planned auction of 12-month and 18-month treasury bills, with longer-term government bonds set for sale Thursday. Spain suffered weak demand at an earlier bond sale this month, followed by a sustained selloff of its debt in secondary markets.
• Fed Posts Redacted Transcripts From 2007-2010. The Federal Reserve has pledged to be more transparent, but it is only willing to go so far. The central bank normally releases comprehensive transcripts of its policy-making meetings five years after the sessions. But when news organizations requested transcripts of the meetings around the 2008 financial crisis, the Fed released redacted documents that revealed only pleasantries from the sessions and no substantive discussions.
• Green Light for Hedge-Fund Ads Means Caution on Main Street. Thanks to a little-noticed provision tucked into the just-signed jobs bill, hedge funds may soon be making a bold move into marketing—and the mainstream. The JOBS Act, signed by President Obama on April 5, lifted a decades-old restriction on how hedge funds can go after new investors, clearing the way for managers to speak more publicly about their strategies and performance and even to advertise. As private investment vehicles, hedge funds aren't required to meet the same disclosure requirements and risk restrictions as ordinary mutual funds. In return, they may deal only with experienced, high-net-worth investors, and have long been banned from marketing themselves to the general public.
• Odd Couple: China Meets Hollywood.
• Hollande Cites Risk to France's Rating. French Socialist presidential challenger François Hollande is using a new argument to underscore what he terms the economic legacy of President Nicolas Sarkozy: France's triple-A sovereign rating, or what's left of it. In an election campaign that is heating up with five days to the first round of voting, Mr. Sarkozy has repeatedly attacked Mr. Hollande recently by saying a socialist victory would herald financial doom for France, the euro zone's second largest economy.
• A Wisconsin Vindication. The public employee unions and other liberals are confident that Wisconsin voters will turn out Governor Scott Walker in a recall election later this year, but not so fast. That may turn out to be as wrong as some of their other predictions as Badger State taxpayers start to see tangible benefits from Mr. Walker's reforms—such as the first decline in statewide property taxes in a dozen years.

Business Insider:

• Check Out Pictures of Federal Workers Living It Up In Las Vegas.
• The Egyptian Transition Is Not Going To Plan.
• Watch: GSA Official Literally Runs Away From Reporters After Pleading The Fifth.
• A Quick Guide to Why Everyone is Worried Sick Over Spain. (video)
• First Gallup Tracking Poll: Mitt Romney is Shredding Obama Among Independent Voters. The first Gallup daily tracking poll of the general election season is out, and here's the key number: Mitt Romney leads Barack Obama 45 percent to 39 percent among Independents. That pushes him to a 47 to 45 percent lead overall.
  

Zero Hedge:

• European Chart Update.
• Eurocalypse Now: I Love The Smell Of Repatriation In The Afternoon.
  

CNBC:

• LME Eyes Renminbi Move for Metals. The London Metal Exchange is considering offering traders the chance to settle its contracts in the Chinese renminbi, a move that could lead to its dropping sterling after 135 years. The move, still at an early stage of discussion, would highlight the shift in power in global metals markets.
• Taxes Prompt More Americans to Renounce Citizenship.
  

NY Times:

• Central Bank Not Expected to Try to Ease Europe's Crisis. As the euro zone crisis shows signs of heating up again, political leaders are once more looking to the European Central Bank for help. But analysts say they do not expect the central bank, with its focus on fiscal discipline, to provide any quick remedies.

Forbes:

• Obamacare's Horseless Chariot. Doctors, no fans of health insurance, are openly rooting that Obamacare will be struck down by SCOTUS, as appears to be the direction of things after last month’s oral arguments. A recent poll by sermo.com, a physican’s website, revealed that 75 percent of doctors are against the health care law, and a survey by Deloitte, a major health consulting firm, found that 69 percent of physicians are “pessimistic about the future of medicine” because of the law. Why?
• The 25 U.S. Companies That Pay The Most In Taxes.
  

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 46%, Democrats 36%.

Reuters:

• China March Car Sales Growth Retreats to 4.5% on Year. Car sales in China in March climbed a modest 4.5 percent from a year earlier, pulling back sharply from a hefty gain in February, as a slowing economy and higher fuel prices kept customers away from showrooms.
• Brazil Faces Highest Skills Gap in Americas - Manpower. Nearly six in 10 Brazilian employers say they have trouble filling vacant posts due to a lack of available talent, the highest rate in the Americas, according to a survey by employment services company ManpowerGroup.
• Spain Debt Costs Set to Leap as Risk Aversion Grows. Spain will see its borrowing costs leap when it sells short-term debt on Tuesday, a day after investor concern over its deficit and banking sector pushed longer term risk premiums above 6 percent, threatening a new crisis in the euro zone. The auction of 12- and 18-month Treasury bills will test market nervousness, which has spread to Italy, ahead of a more challenging sale on Thursday of 2- year and 10-year bonds.
• Britain Gives Shale Gas Fracking Green Light. The UK government on Tuesday backed the exploration of shale gas nearly one year after it temporarily banned the drilling method which triggered two earthquakes in Britain but that has also revolutionised the U.S. energy market.
• US SEC, CFTC to finalize swap dealer definitions Wed. U.S. securities regulators announced late Monday they will vote on Wednesday to finalize rules that will define which companies will be dubbed swap dealers and face strict new regulations.

Telegraph:

• IMF Still Won't Admit Truth About The Euro. It is often said that travel broadens the mind. Not so for finance ministers gathering in Washington DC this week for the spring meeting of the International Monetary Fund and G20. For them, the agenda will seem wearily familiar. The underlying cause of the Europe's travails is much more fundamental – it is the euro itself, which is ripping the Continent apart in an uncorrected balance of payments and consequent debt crisis. European leaders have yet properly to face up to this inconvenient truth. Their project won't and cannot work in its present guise.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 167.50 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 139.50 +1.75 basis points.
  
• FTSE-100 futures -.21%.
  
• S&P 500 futures -.01%.
  
• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KO)/.87
• (USB)/.64
• (NTRS)/.65
• (CMA)/.56
• (JNJ)/1.35
• (GS)/3.55
• (GWW)/2.52
• (CREE)/.21
• (SYK)/.99
• (CSX)/.38
• (INTC)/.51
• (LLTC)/.41
• (URI)/.05
• (YHOO)/.18
• (IBM)/2.66
• (AMTD)/.25
• (STT)/.86
• (ISRG)/3.12
• (OMC)/.69
  

Economic Releases
8:30 am EST

• Housing Starts for March are estimated to rise to 705K versus 698K in February.
• Building Permits for March are estimated to fall to 710K versus 717K in February.

9:15 am EST

• Industrial Production for March is estimated to rise +.3% versus unch. in February.
• Capacity Utilization for March is estimated to fall to 78.5% versus 78.7% in February.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Spain Bond Auction, ECB's Draghi speaking, Bank of Italy Quarterly Bulletin, India rate decision, Bank of Canada rate decision and the weekly retail sales reports could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.