- Rising Italy-to-Spain Yields Keep Banks on Life Support. European lenders, more reliant than ever on emergency aid after borrowing $1.3 trillion from their central bank, may need additional cash infusions until policy makers stem the crisis engulfing Spain and Italy. After more than 30 bond sales in the first quarter, no bank has sold unsecured debt this month, and the cost of insuring against default has soared to levels last seen in January. Financial stocks, which rallied 20 percent following the European Central Bank’s December decision to provide unlimited three-year loans, are now 2 percent lower since then. Investors are balking after some lenders used the ECB cash to boost holdings of sovereign debt and governments struggled to rein in deficits. Because banks post collateral in exchange for the ECB loans, the amount unsecured bondholders would get back in a default has shrunk. That has raised funding costs for what Morgan Stanley estimates is about 700 billion euros ($924 billion) of debt lenders must refinance by the end of 2013.
- Spain Lowers Central Budget Deficit as Montoro Threatens Regions. Spain’s central-government budget deficit narrowed in the first quarter, Budget Minister Cristobal Montoro said, as he threatened to intervene in regional governments that fail to cut spending. In comparable terms, the central government budget shortfall was 0.83 percent of gross domestic product, compared with 0.93 percent last year, the Budget Ministry said yesterday. Including the impact of transfers to regions that were paid early this year, the deficit was 1.85 percent, compared with 1.06 percent a year earlier.
- German Shipping Funds Die as Investors See Losses Rise: Freight. When Germany’s Container Flotten- Fonds filed for insolvency last year, more than 1,000 investors who had been promised annual returns of as much as 15 percent instead lost 37.5 million euros ($49 million). The collapse of the fund, which was raised in 2005 and used a mix of private capital and bank loans to finance four vessels, is just one of at least 10 shipping funds that have become insolvent in Germany in the past two years, according to the Association of Non-Tradable Closed-End Funds, as the maritime industry was beset by rising fuel prices, excess capacity and falling freight rates.
- Solar Silicon Falling 9% Widens Slump That Hit Solyndra. Polysilicon, the raw material used to make most solar panels, is forecast to fall another 9 percent from its lowest in a decade as a supply glut narrows margins throughout the industry. The average spot price of the material will finish this year at about $22.10 a kilogram, according to the median of seven analysts surveyed by Bloomberg News. The price, which four years ago topped $475, tumbled about 70 percent in the 12 months to $24.27 on April 16, the lowest since at least 2002.
- South Korea Halts Customs Clearance of U.S. Beef. South Korea will halt customs clearance of U.S. beef imports after the first U.S. case of mad cow disease in six years was found in a dairy cow in central California, an agriculture ministry official said. The government will release details of inspections “soon,” Park Sang Ho, an official at South Korea’s agricultural ministry, said by phone. The agriculture office shortly after issued a statement saying it will take the “necessary measures.”
- Syrian Army Presses Attack Amid UN Cease-Fire Monitoring. Syrian security forces attacked anti-government neighborhoods with sniper fire and heavy machine guns yesterday, as United Nations special envoy Kofi Annan said the regime has “severely” tested the UN’s patience.
- Moody's Hears It From Banks on Potential Downgrades. In the latest sign that U.S. banks are bridling at tighter oversight that began after the financial crisis, a handful of big lenders have been jawboning Moody's Investors Service ahead of potential downgrades expected this spring. Bank of America Corp.(BAC) Chief Executive Brian Moynihan and Citigroup Inc.(C) CEO Vikram Pandit have argued against downgrades in person, people familiar with the talks said. An executive at Goldman Sachs Group Inc.(GS) last week publicly questioned Moody's methods on a conference call with analysts and investors.
- China Escalates Crackdown On Internet Amid Scandal. China has stepped up its campaign to clamp down on the Internet, which has emerged as a virtual town square for exchanging information about the Bo Xilai scandal and the nation's biggest political upheaval in years.
- Apple(AAPL) Rides iPhone Frenzy. Apple Inc.'s AAPL -2.00% quarterly profit nearly doubled as iPhones and iPads continued to fly off shelves, putting to rest recent worries that the company can't maintain its momentum. Shares gained more than 7%, or $40.55, to $600.83 in after-hours trading Tuesday—after falling in 10 of the past 11 regular trading sessions amid concerns about a potential iPhone slowdown. Instead, iPhone shipments jumped 88% in the quarter, as Apple continued to penetrate new markets like China.
- Romney Marches Toward GOP Nomination. Mitt Romney claimed victory in the Republican presidential nominating contest Tuesday after decisively sweeping five East Coast primaries, saying his triumph marked "the beginning of the end of the disappointments of the Obama years.'' Mr. Romney gave what amounted to an acceptance speech for the nomination after sweeping to primary victories in New York, Pennsylvania, Connecticut, Delaware and Rhode Island.
- Head of Bundesbank: No Apologies. Germany's central-bank chief rejected calls for the European Central Bank to back off from its push for fiscal austerity, batting down mounting concern that the strategy is causing deep economic pain and escalating political upheaval across Europe. In an interview with The Wall Street Journal, Bundesbank President Jens Weidmann also made no apologies for his repeated warnings that some ECB anticrisis policies, including government-bond buying and looser collateral rules, threaten financial stability and may generate inflation. "The crisis can only be solved by embarking on often-painful structural reforms and following up on fiscal consolidation," Mr. Weidmann said.
- Europe's Phony Growth Debate. Growth or austerity? That's the choice facing Europe these days—or so the Keynesian consensus keeps saying. According to this view, which has dominated world economic councils since the 2008 crisis began, "growth" is mainly a function of government spending. Spend more and you're for growth, even if a country raises taxes to pay for the spending. But dare to cut spending as the Germans suggest, and you're for austerity and thus opposed to growth. This is a nonsense debate that misconstrues the real sources of economic prosperity and helps explain Europe's current mess. The real debate ought to be over which policies best produce growth.
- Apple(AAPL) Earnings Surprise: Why Was Wall Street So Wrong? Apple posted quarterly results that blew past expectations Tuesday, silencing numerous skeptics and making investors wonder how Wall Street could have been so wrong on the tech giant.
- Bank Stocks to Have 'Long, Hot Summer': Bove. Though he has been telling investors to buy bank stocks with all their might, analyst Dick Bove says this summer could require a strong stomach for those who followed the advice.
- Daily Presidential Tracking Poll. (graph) The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that Mitt Romney earns 48% of the vote, while President Obama attracts support from 44%. Four percent (4%) would vote for a third party candidate, while another 4% are undecided.
- Exclusive: SEC Probes Movie Studios Over Dealings in China. U.S. regulators are investigating major U.S. movie studios' dealings with China as the entertainment companies try to get a greater foothold in one of the fastest-growing movie markets in the world. The letters ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China, said the person, who was not authorized to speak publicly about the letters. The Chinese film market is seen as one of the largest potential markets for Hollywood, but it has also historically been tightly controlled by the state-owned China Film Group.
- FINRA to propose fee hike due to "significant loss". The Financial Industry Regulatory Authority plans to increase certain fees it charges to brokerages due to a "significant loss" it suffered last year, the regulator's chief wrote in an email to brokerages. A "broader economic downturn" continues to affect the securities industry's trading volumes revenues, which "has led to a decrease in FINRA's revenues and resulted in a significant loss for fiscal year 2011," Richard Ketchum, FINRA's chairman and chief executive, wrote in an email on Monday that was also posted on the regulator's website.
- Baidu(BIDU) Revenue Forecast at Low-End of Street View. Baidu Inc shares slid more than 10 percent on Tuesday after the Chinese Internet search company forecast a second-quarter revenue range at the low end of Wall Street expectations. The disappointing guidance raised questions about whether Baidu's business is being affected by economic conditions in China or whether company-specific issues are to blame, analysts said. Baidu shares fell more than 10 percent in after-hours trading to $121.50 from a close on the Nasdaq of $135.83.
- Nightmare Week for Angela Merkel as Austerity Bloc Crumbles. Europe's political centre is starting to crumble, replicating the pattern of the early 1930s as the crisis ground into its third year under a similar mix of fiscal and monetary contraction.
- German Chancellor Angela Merkel defends austerity in face of open rebellion in Europe. Angela Merkel launched a staunch defence of Europe's fiscal pact as politicians from the Netherlands, Spain and Greece scrambled to keep their own austerity measures on track.
- Hamish McRae: 'Austerity fatigue' is spreading from Europe's fringes to its very core. Can the centre hold? We are used to worrying about the fringe of Europe, but now "austerity fatigue" seems to be striking the core. The Netherlands retains its AAA credit rating, but its government has just fallen because it could not agree on its budget programme. And France, recently downgraded by Standard & Poor's, has had an election with a massive protest vote and the prospect of a new president who has promised to fight the financial markets. What I find interesting about both countries is that they are seeing a push-back against austerity before it has really been imposed, or at least while it is still in the early stages. So re-establishing fiscal discipline is no longer just a political problem for the fringe; it has moved closer to the core. Only Germany remains committed to reaching fiscal balance and also has the political support to achieve it.
- The budgetary committee of Germany's parliament asked Bundesbank President Jens Weidmann to explain the role of his institute in the IMF's planned trillion-dollar rescue fund, citing an invitation letter.
- The European Banking Authority is asking individual euro-zone banks to show how they plan to refinance themselves without access to additional funds from central banks, citing a person familiar with the process.
Economic Information Daily:
- China will improve measures to curb the expansion of industries with overcapacity. Punitive power prices and restricted energy use will be among the measures.
- None of note
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 166.0 -3.0 basis points.
- Asia Pacific Sovereign CDS Index 135.75 +.25 basis point.
- FTSE-100 futures +.09%.
- S&P 500 futures +.39%.
- NASDAQ 100 futures +1.38%.
Earnings of Note
8:30 am EST
- Durable Goods Orders for March are estimated to fall -1.7% versus a +2.2% gain in February.
- Durables Ex Transports for March are estimated to rise +.5% versus a +1.6% gain in February.
- Cap Goods Orders Non-def Ex Air for March are estimated to rise +1.0% versus a +1.2% gain in February.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,800,000 barrels versus a +3,856,000 barrel gain the prior week. Distillate inventories are estimated to rise by +500,000 barrels versus a -2,908,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,500,000 barrels versus a -3,671,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +.8% gain the prior week.
12:30 pm EST
- The FOMC is expected to leave the benchmark fed funds rate at .25%.
- None of note
Other Potential Market Movers
- The Fed's Bernanke speaking, German 3Bln EUR 30Y Bund Auction, 5Y T-Note Auction and the weekly MBA mortgage applications report could also impact trading today.