- Rajoy Says Spain Future at Stake as Debt Crisis Persists. Prime Minister Mariano Rajoy said Spain’s future is at stake in its battle to tame surging bond yields, as the head of the nation’s second-largest region proposed handing back powers to the government to cut costs. With Spanish bonds trading closer to levels that prompted Greece, Ireland and Portugal to seek European bailouts, Rajoy will address lawmakers of his People’s Party today to explain the deepest budget cuts in three decades. The prime minister will speak at 1 p.m. in Madrid. “Without a doubt, a good part of Spain’s future is at stake,” Rajoy told senators yesterday, as he urged regional governments to contribute to spending cuts. “The problem is that the markets can lend or decide not to lend.” Rajoy has stepped up his rhetoric in the past week as he seeks to persuade Spaniards to accept spending reductions and tax increases as a less painful alternative to a bailout. His three-month-old government is struggling to convince investors it can reduce the deficit by a third this year and crack down on overspending by regional administrations.
- Top Forecasters See Euro Weakness Returning on Spain. The most-accurate foreign-exchange forecasters say the euro will slide as austerity-driven spending cuts from Spain to Italy reignite debt turmoil and drag the region into recession. Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., who topped the list for the fourth time out of the past six quarters according to data compiled by Bloomberg, expects the euro to drop more than 5 percent to $1.24 at the end of 2012. Westpac Banking Corp., which had the second-lowest margin of error, predicts $1.26.
- Japanese Investors Shun Spain as Crisis Resurfaces: Euro Credit. Japan's biggest investors say it's too early to buy bonds from Europe's most indebted nations as rising Spanish yields spark concern that the region's fiscal crisis has further to run. Kokusai Asset Management Co., which runs Asia's largest mutual fund, Mitsubishi UFJ Asset Management Co., a unit of Japan's biggest publicly traded bank, and Diam Co., part of the nation's second-biggest life insurer, are all shunning Spanish debt. Japanese investors sold a net $43.8 billion of euro-denominated bonds in the 12 months ended Feb. 29, according to figures from the Ministry of Finance in Tokyo. "I'm not planning to add Spanish or Italian bonds anytime soon," said Masataka Horii, who runs the $21.2 billion Kokusai Global Sovereign Open Fund in Tokyo.
- Chinese Exports to Major Trading Partners Showing Signs of Slowing. (graph)
- IMF Said Ready to Cut Forecast for China Current-Account Surplus. The International Monetary Fund is set to lower its forecasts for China’s medium-term current- account surplus, according to two officials who have seen the draft report. The Washington-based IMF in September estimated surpluses of more than 7 percent of gross domestic product for 2015 and 2016. The new forecasts for the broadest measure of trade will be published April 17 in the IMF’s World Economic Outlook, according to the officials, who spoke on condition they wouldn’t be named because the figures haven’t been made public.
- N.Y. Renews Opposition to BofA $8.5 Billion Mortgage Accord. New York Attorney General Eric Schneiderman renewed his opposition to Bank of America Corp. (BAC)’s proposed $8.5 billion mortgage-bond settlement, saying the deal covers “a small fraction” of investor losses. Schneiderman’s office asked a New York state judge today to allow it to intervene in the case, saying in a court filing that there are “serious questions about the fairness and adequacy of the proposed settlement.” “The proposed cash payment represents only a tiny percentage of the losses investors have faced and will continue to face,” the attorney general said.
- Credit-Default Swaps in U.S. Jump as Spain Borrowing Costs Rise. A benchmark gauge of U.S. company credit risk touched the highest level in more than two months and the cost to protect U.S. bank debt against losses climbed as a surge in Spanish and Italian bond yields stoked concern that Europe’s debt crisis is worsening. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed for a fifth day, adding 2.6 basis points to a mid-price of 104.7 basis points at 1:27 p.m. in New York, according to Markit Group Ltd. The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, touched 105 basis points, the highest level since Jan. 25. The widening of credit-default swaps tied to bank bonds is “really a reflection of the macro environment and the concerns the market has over Europe,” said Adam Steer, an analyst at Brookfield Investment Management Inc., whose parent Brookfield Asset Management Inc. oversees about $150 billion in assets. “They’ve been very correlated with U.S. macro news as well as Europe macro news it seems for a while now, and that’s what we’re seeing today.” Credit-default swaps on Charlotte, North Carolina-based Bank of America Corp. added 18.1 basis points to 287.8 basis points, the highest level since Feb. 15, and those on JPMorgan Chase & Co. increased 6.3 basis points to 116.1 as of 12 p.m. in New York, according to data provider CMA. Contracts tied to Citigroup Inc., based in New York, climbed 14.2 basis points to 264.7, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Yesterday the average of the six biggest U.S. banks reached the most since Feb. 15, according to CMA data. The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, climbed 2.05 basis points to 30.88 basis points, the widest since February.
- S&P 500 Put Demand Exceeds Europe by Most Since 2008: Options. Demand to protect U.S. stocks from losses is exceeding levels seen in Europe by the most since 2008 on renewed concern that slowing global economic growth will undo the recent US stock rally. The ratio of puts to sell the S&P 500 Index versus calls to buy climbed to 1.97-to-1 on March 28. That was 73% higher than the 1.14-to-1 open-interest ratio for the Euro Stoxx 50 Index, the biggest difference in more than three years, according to data compiled by Bloomberg.
- Profit Drop at U.S. Banks Imperils Rally as Loans Lag Behind GDP. The six largest U.S. lenders, including JPMorgan Chase & Co. and Wells Fargo & Co., may post an 11 percent drop in first-quarter profit, threatening a rally that has pushed bank stocks 19 percent higher this year. The banks will post $15.3 billion in net income when adjusted for one-time items, down from $17.3 billion in last year’s first quarter, according to a Bloomberg survey of analysts. Trading revenue at the biggest lenders is projected to fall 23 percent to $18.3 billion, according to Morgan Stanley analysts, who didn’t include their firm or Wells Fargo.“You can’t expect bank stocks to go straight to the moon,” said Peter Kovalski, a money manager at Alpine Woods Capital Investors LLC in Purchase, New York, which manages about $5 billion. “You have to expect fundamentals to catch up, and there are some headwinds facing the industry. There is a little too much optimism going into this quarter.” U.S. lenders, struggling to expand in commercial banking years after the housing collapse, haven’t matched last year’s overall results, even as bond and equity markets strengthened. Making matters worse, loan balances increased less than the economy, bucking a trend in previous recoveries, said Brian Foran, a New York-based analyst at Nomura Holdings Inc. Loans at the top 25 domestically chartered commercial banks rose 0.4 percent in the quarter through March 28, slowing from 1 percent growth in the previous three months, according to the Federal Reserve. Loans fell to $4.04 trillion from a peak of $4.24 trillion in the fourth quarter of 2008, according to the Fed.
- Apple(AAPL), Macmillan Said to Prepare for U.S. Suit Over eBook. Apple Inc. and the publisher Macmillan are preparing to be sued as soon as tomorrow by the U.S. Justice Department over alleged collusion in the pricing of e-books, according to two people familiar with the matter.
- Carlyle Is Said to Seek Value of Up to $8 Billion in IPO. Carlyle Group, the second-biggest U.S. private-equity firm, will seek a valuation of $7.5 billion to $8 billion in its initial public offering, according to people with knowledge of its plans. Carlyle plans to sell a stake of about 10 percent in the IPO and will start marketing the deal to investors as early as next week, said the people, who asked not to be identified because the information is private. The Washington-based firm, which has been gauging public interest since last year, is targeting an IPO in early May, said another person.
- Emerging Asia Can Refrain From More Stimulus, ADB Says. Policy makers in developing Asia can refrain from further monetary and fiscal stimulus because growth will remain robust, while oil-price spikes can revive the threat of inflation, the Asian Development Bank said.
- Mumbai Is The World's Least Affordable Home Market. (graph) The average Indian would need to work for three centuries to pay for a luxury home in Mumbai, making that city the least affordable in the world for locals, according to an analysis of real estate and wages.
- Romney Campaign Focuses on General Election. After weeks of training its message on President Barack Obama, the Romney team will turn its attention to the logistics of trying to defeat him.
- Philippine Warship in Standoff With China Vessels. The Philippine government Wednesday said its newest warship is locked in a standoff with two Chinese surveillance vessels in a fresh dispute over fishing rights in the resource-rich South China Sea, potentially escalating an already-tense security environment in the contested region.
- The Obama Rule. Forget Warren Buffett, or whatever other political prop the White House wants to use for its tax agenda. This week the Administration officially endorsed what in essence is the Obama Rule: Taxes must be high simply to spread the wealth, never mind the impact on the economy or government revenue. It's all about "fairness," baby.
- The Real Threat is Spain, Not Greece: Sullivan. Here’s the fear: Banco Santander, BBVA and the third largest bank in Spain, La Caixa, have combined assets of about $2.7 trillion. Spain’s GDP is just about $1.4 trillion. In other words: Spain’s three biggest banks are nearly twice as big as the entire Spanish economy.
- Andy Busch: Health Care Is The Driver of US Long Term Spending Problems.
- The Other MF Global Money Mystery: Trustee's Fees. Former MF Global customers will have to wait a little longer than expected to learn how lucrative the broker's liquidation has been for trustee James Giddens and his law firm. A bankruptcy judge on Monday approved a June 8 deadline requested by Giddens for reporting fees and expenses to the court, meaning the bankruptcy could be in its eighth month before fees are made public.
NY Times:Absolute Return:
- Hedge Funds Dive Below High Watermarks Again. Fewer funds were above their high watermarks last year than even in 2008, according to a recent analysis of returns from Americas-based hedge funds reported to the HedgeFund Intelligence database.
- LDK(LDK) Pushes Back 4th-Quarter Earnings Release Date; Shares Fall 2%. LDK Solar, one of China’s largest integrated solar-related manufacturers, said yesterday it will reschedule the previously announced date for the release of first-quarter profit report.
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
- Alcoa(AA) Trims Its Aluminum Demand Outlook For China. Alcoa Inc. said on Tuesday it lowered by 1 percentage point its outlook for China's aluminum consumption growth in 2012.
- IMF Working With Egypt on Backing for Loans. The International Monetary Fund said on Tuesday it was staying in close touch with Egyptian authorities as they work out a budget and round up political support that would make an IMF financing package possible.
- Two Fed Officials Voice Worry On Easy Policy. Two Federal Reserve officials expressed concern about the central bank's ultra-loose policy on Tuesday, keeping pressure on their colleagues not to launch another round of monetary easing. Minneapolis Federal Reserve Bank President Narayana Kocherlakota said the U.S. central bank should start pulling back from its extraordinary support for the economy some time in the next six to nine months. "Conditions will warrant raising rates some time in 2013 or, possibly, late 2012," Kocherlakota said. Echoing his concerns, Dallas Fed President Richard Fisher said company leaders are peppering him with concerns about the central bank's aggressive monetary stimulus, which they believe is setting the stage for inflation. "To a person that I speak to, I am pleaded with, 'please no more liquidity'," Fisher told students at the University of Oklahoma's Price College of Business. There is "real concern that with our expanded balance sheet that we are just a little bit of an ember in what could become an inflationary fire," he said.
- Australians Fret on Finances, Shun Home Loans. A measure of Australian consumer confidence fell for a second month in April as people fretted about their finances. The survey of 1,200 people by Westpac Bank and the Melbourne Institute showed its index of consumer sentiment fell 1.6 percent in April to 94.5. That was the lowest reading since August last year and came on top of a 5 percent drop in March. The disappointing news came as government data showed new home loans slipped for a second straight month in February.
- North Korea Says Fuel Being Injected Into Rocket. North Korea said on Wednesday it was injecting fuel into a long-range rocket "as we speak" ahead of a launch condemned by its neighbors and the West. The launch is set to take place between Thursday and next Monday and has prompted neighbors such as the Philippines to re-route their air traffic just in case. Japan said it would shoot down the rocket if it crossed its airspace.
- Spain's 'Lose-Lose' Struggle Reignites Euro Crisis. The eurozone crisis has returned with a vengeance after Spain’s mounting woes pushed 10-year bonds yields back to the danger line of 6pc and the Madrid bourse crashed to its lowest level since the 2009. Mr de Guindos said Madrid faces a "lose-lose situation" since markets will punish excessive austerity as harshly as too little austerity. Tightening too fast risks pushing the economy into the sort of self-defeating spiral already seen in Greece, where the tax base shrivels. Central bank governor Miguel Ángel Fernández Ordóñez denied that Spain would become the fourth EMU state to need a rescue, but warned that Spanish banks are not yet in the clear. "If the Spanish economy deteriorates more than expected, they’ll have to keep boosting capital," he said.
- China plans to limit its population to under 1.39B during the five years through 2015, the State Council said in a statement posted on the central government website yesterday.
- The State-Owned Assets Supervision and Administration Commission "in principle" banned central government-owned companies from investing in non-core businesses abroad, citing rules from the agency that will take effect on May 1.
- China People's Daily Urges Cadres to Support Bo Xilai Suspension. The Chinese Communist Party's official People's Daily urged cadres support the decision to suspend Bo Xilai from his senior party posts after his wife's arrest on suspension of murdering a British citizen.
Citigroup Global Markets:
- Rated (NVDA) Outperform, target $19.
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 172.50 +7.0 basis points.
- Asia Pacific Sovereign CDS Index 140.0 +5.0 basis points.
- FTSE-100 futures -.76%.
- S&P 500 futures +.27%.
- NASDAQ 100 futures +.28%.
Earnings of Note
8:30 am EST
- The Import Price Index for March is estimated to rise +.8% versus a +.4% gain in February.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +9,009,000 barrel gain the prior week. Distillate inventories are estimated to fall by -250,000 barrels versus a +19,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,375,000 barrels versus a -1,457,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.3% versus a +1.2% gain the prior week.
2:00 pm EST
- Fed's Beige Book.
- The Monthly Budget Deficit for March is estimated to widen to -$196.0B versus -$188.2B in February.
- None of note
Other Potential Market Movers
- The Fed's Lockhart speaking, Fed's Yellen speaking, Fed's Bullard speaking, Fed's Rosengren speaking, Fed's George speaking, 10Y T-Note Auction, (IHS) Investor Day and the weekly MBA mortgage applications report could also impact trading today.