Friday Watch

Evening Headlines 
Bloomberg: 

• Cyprus Set to Debate Bailout Bill as ECB Deadline Looms. Cypriot lawmakers will begin debate today on legislation to unlock bailout funds and prevent a financial collapse with a European Central Bank deadline to cut off funding for its lenders in three days. Euro-area finance ministers expect a proposal from Cyprus “as rapidly as possible” to raise the 5.8 billion euros ($7.5 billion) needed to trigger the emergency loans, they said in a statement late yesterday after meeting in a teleconference. “Cyprus has it in its own hands to prevent the state’s bankruptcy but time is running out,” said Hans Michelbach, a German lawmaker and ally of Chancellor Angela Merkel. 
• Cyprus Rescue Offers Stopgap to Restructuring Risk: Euro Credit. The aid package Cyprus is seeking would only provide temporary relief as it risks triggering a capital flight that would push the nation closer to needing to restructure its debts. As government officials struggle to lock in a 10 billion euro bailout agreement, aimed mainly at safeguarding the nation's banks, money managers at Aletti Gestielle SGR SpA, Fidelity Investments and Sanlam Private Investments said Cyprus will need more support. "Even with a deal, it's still very likely that Cyprus will restructure its debt in the next few years," said Nick Eisinger, a London-based sovereign analyst at Fidelity Investments, which oversees $1.6 trillion. "The underlying macro conditions are very challenging and you may see some capital flight. It will leave a bad taster in people's mouths for a long time."
• EU Fumbling Cyprus Makes Rehn Scapegoat for German-IMF Austerity. European Union Economic and Monetary Affairs Commissioner Olli Rehn has emerged as the frontman for crisis-management policies driven out of Berlin that are spreading economic pain as debt turmoil reignites. Rehn faced a torrent of criticism and a call to resign after helping broker a rescue package from Cyprus that fell apart on March 19 over a demand to raid bank deposits. He has become the defender of German-inspired austerity that helped deepen the 17-nation euro region’s recession. Almost two years after Rehn announced the “beginning of the end” of the debt crisis, the euro area is headed for a back-to-back annual economic contraction for the first time. Now, Rehn has become a scapegoat as Germany and the International Monetary Fund let the commissioner take the rap for the Cyprus bailout that hangs in limbo, said an EU official who declined to be named. “As soon as things go wrong, people start looking around for who to blame,” William White, former head of economic analysis at the Bank of International Settlements, said in a March 19 telephone interview. “Everybody will be pointing the finger.” 
• Spain Softens Austerity for Regions Anticipating EU Leeway. Spain is preparing to ease austerity for its most cash-strapped regions in anticipation that European Union peers will grant the government more time to reorder public finances in the second year of a recession. “All options have to be studied given how much the range of regional deficits has widened,” Budget Minister Cristobal Montoro told reporters in Madrid following a three-hour meeting with regional budget chiefs last night. A task force has been created to study how individual debt and deficit goals could be set for the 17 semi-autonomous regions, Montoro said.
• Europe’s Bonus Clampdown Hits Two-Thirds of Fund Managers. The European Parliament’s vote to cap bonuses in the asset-management industry could affect two- thirds of senior fund managers in the U.K., U.S. funds in Europe and hedge funds open to small investors. “If the final rules are even close to what has been agreed today, then this will fundamentally change the way asset managers are paid,” said Jon Terry, a partner at PricewaterhouseCoopers LLC. Asset managers “are now facing the toughest pay rules across the whole of the financial-services sector.”
• Hong Kong Homes Face 20% Price Drop as Banks Raise Rates. Hong Kong officials, who have struggled in vain for three years to slow the growth in home prices, are about to get their wish as the city’s biggest banks raise mortgage rates. Prices could fall as much as 20 percent over the next two years, according to Deutsche Bank AG, after lenders including HSBC Holdings Plc, Hong Kong’s biggest by assets, and Standard Chartered Plc raise their home loan rates by 25 basis points in response to tighter risk rules. “You have this pile of measures plus higher interest rates; this will be a big challenge for the market,” said Buggle Lau, chief analyst at Midland Holdings Ltd. (1200), the city’s biggest publicly traded realtor, which predicted as many as a third of real estate agent branches in Hong Kong will close. 
• Li & Fung Says it Will Miss Three-Year Target for Profit. Li & Fung Ltd. (494), the world’s largest supplier of clothes and toys to retailers, said it will miss its 2013 profit target after net income dropped for the first time in four years as a sluggish U.S. economy damped demand. Li & Fung will “miss the three-year plan,” Bruce Rockowitz, chief executive officer, told reporters in Hong Kong yesterday. He had set a goal in 2010 of $1.5 billion operating profit for 2013. The supplier to Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) gets about 60 percent of its revenue from the U.S., where an increase in payroll taxes, higher fuel costs and federal spending cuts have hurt consumer confidence. Net income fell 9.4 percent from a year earlier to $617 million for 2012, missing the $671 million average of 17 analysts’ estimates compiled by Bloomberg. 
• Asian Stocks Head for Largest Weekly Drop Since October. Asian stocks fell, with the regional equities gauge heading for its biggest weekly decline since October, as scuffles on the streets of Nicosia underscored concern that Europe’s debt crisis is worsening. Bridgestone Corp. (5108), a tiremaker that gets more than 75 percent of its sales overseas, lost 3.2 percent in Tokyo after the yen strengthened. HSBC Holdings Plc, Europe’s largest bank, fell 1.4 percent in Hong Kong. “It seems that the downturn could intensify” in Europe, said Matthew Sherwood, head of investment markets research in Sydney at Perpetual Investments, which manages about $25 billion. “Its leadership keeps looking at the hole in the hull and wondering why they are waist deep in water, rather than fixing the damage.”
• Solar Glut Survives Suntech as Customers Seek Alternative. A day after Suntech Power Holdings (STP) Co. Ltd. became the solar industry’s biggest corporate failure, workers continued to load and unload trucks at its main factory in China, adding to the global oversupply of panels. 
• Rubber Heading for Bear Market on Dead Cross: Technical Analysis. Rubber is poised to enter a bear market in the next month as a dead-cross formation signals a further sell-off, according to Trading Central SA. Futures in Tokyo, the global benchmark, may tumble as much as 14 percent to 242 yen a kilogram ($2,550 a metric ton), said Ludwig Garric, a technical analyst at the Paris-based company, who correctly predicted the rally in soybeans to a record last year.
• Uncertainty Over Global Economic Recovery Remain: Posco's Chung. It is hard to expect a "meaningful recovery" in the Korean economy due to the global economic slowdown, Posco CEO Chung Joon Yang said at the annual shareholder meeting in Seoul. Competition among steelmakers will be more severe this year on weak demand, oversupply, he said. Economic growth in emerging markets may slow this year as the recovery in advanced economies is being delayed due to Europe's debt crisis and growing uncertainties over currencies and oil prices, the company said in prepared materials.
• Rebar Pares First Weekly Gain in Five as China Economy May Slow. Steel reinforcement-bar futures pared the first weekly gain in five on concern that growth in China will falter and Europe’s debt crisis may worsen. Rebar for delivery in October on the Shanghai Futures Exchange fell 0.2 percent to 3,895 yuan ($627) a metric ton at 9:57 a.m. local time, trimming this week’s gain to 0.9 percent. The Shanghai Composite Index has dropped 4.4 percent from its Feb. 6 peak on concern that an economic recovery will weaken as officials take steps to cool the property market and counter risks for banks from an expansion in credit.
• Copper Falls as Global Inventories Swell to Highest Since 2003. Copper futures fell for the fourth time in five sessions on signs of ample global supplies as a measure of inventory climbed to the highest in nine years. Stockpiles monitored by exchanges in the U.S., London and Shanghai have surged 45 percent this year to the highest since November 2003. Production of the refined metal exceeded demand by 168,600 metric tons in December, the biggest surplus in six years, the International Copper Study Group said today. “The supply story continues to weigh on the market,” Tim Evans, the chief market strategist at Long Leaf Trading Group in Chicago, said in a telephone interview. “There have been some solid economic numbers, but not enough to change the sentiment around supply, and that will continue to dominate.” Copper futures for May delivery fell 0.3 percent to settle $3.435 a pound at 1:08 p.m. on the Comex in New York. The metal has dropped about 6 percent this year. Refined copper supply will exceed demand this year by 92,000 tons, or 0.4 percent of global consumption, as mine production increases, Barclays Plc has forecast.
• Continued quantitative easing brings concerns of slowing growth and inflation in U.S. economy, John Lipsky, the IMF's former no. 2 official says at a Seoul forum today.
• When David Einhorn Talks, Markets Listen—Usually.
• Energy Drinks Boost Blood Pressure as Heartbeat Altered. Energy drinks, which have been linked to deaths and hospitalizations, may boost blood pressure and lead to an erratic heartbeat, a study found.
• Tibco(TIBX) shares sink on 1Q revenue miss. Tibco Software Inc. reported that its fiscal first-quarter profit fell by more than 50 percent on disappointing revenue. The news sent shares of the business software company down sharply in after-hours trading Thursday.

Wall Street Journal:

• EU Commission: Troika, Cyprus Must Work Intensively for Viable Alternative Plan. The European Union will assess Friday an alternative funding proposal by Cyprus in return for a EUR10 billion international bailout after the country rejected an original plan that called for a bank deposit levy, a spokesman for the European Commission said Thursday. In comments after euro-zone finance ministers held a teleconference to discuss developments in Cyprus, Simon O'Connor urged Cyprus to "work intensively" with the troika of international lenders--the EU, the European Central Bank and the International Monetary Fund--for a viable bailout plan. "We now need to move into top gear and work intensively with the Cypriot government and our Troika partners to design a viable alternative solution that can be acceptable to all euro area member states," said Mr. O'Connor who is spokesman for the EU's economics affairs chief, Olli Rehn. Mr. O'Connor said that Cyprus appears to show "an improved spirit of cooperation" after the government late Thursday rushed to parliament a range of draft bills regulating the unwinding of failed banks and introducing capital restrictions to minimize the risk of excess outflows when the country's banks reopen. "We are conditionally satisfied that the bills on bank resolution and restriction of capital movements are moving through the legislative process. Vice President Rehn has been calling for the immediate adoption of these laws, which are absolutely essential at the current juncture," the spokesman said. The bills are expected to be debated by Cyprus's parliament Friday to enable the country's banks to reopen. The banks have been closed since an original bailout agreement was struck Saturday. At the earliest, Cyprus's banks will reopen next Tuesday. 
• Peril for Euro Zone Hangs on Small Sum. The assumption of Cyprus not being a systemic risk rests on a single expectation: that it stays in the euro zone. Should it exit, all bets are off—and an exit becomes a real possibility if the European Central Bank pulls out the liquidity it has been pumping into Cypriot banks, which on Thursday it threatened to do if the Cypriot parliament doesn't pass legislation to implement its end of the bailout agreement. "Should Cyprus refuse to blink, I believe the ECB will carry out the threat—it would not have to put it in writing otherwise," said Marco Annunziata, chief economist of General Electric Co., in a note Thursday. "At that point, Cyprus might face a full-fledged banking crisis and be forced to leave the euro zone."
• Deaf, Blind Sue Over Web Shopping. Advocates for Disabled Say Netflix(NFLX), Target(TGT) Are Legally Obligated to Make Sites Easier to Navigate.
• Airlines Dispute Planned Air-Controller Cuts. FAA Says Sequester Forces Employee Furloughs, While Industry Argues Passengers Are Being Used as Political Pawns. Planned furloughs of air-traffic controllers that could cause major disruptions in air travel are sparking a dispute between the Federal Aviation Administration and airlines over how much discretion the agency has in making its sequester cuts. The FAA, which employs virtually all of the country's civilian air-traffic controllers, says the furloughs are unavoidable under mandatory federal budget cuts, and it predicts flights could be delayed by up to 90 minutes at busy airports as a result. The industry's leading trade group, Airlines for America, has sent a legal memo to federal officials arguing that the FAA can make the cuts without major furloughs. Representatives of several major airlines said they back the trade group's position, but declined to comment further. Two airline officials, who wouldn't be named, said in interviews they think the FAA is making fliers political pawns, as the Obama administration looks to use public backlash over flight delays to force Republicans into a budget deal.
• Health Insurers Warn on Premiums. Health insurers are privately warning brokers that premiums for many individuals and small businesses could increase sharply next year because of the health-care overhaul law, with the nation's biggest firm projecting that rates could more than double for some consumers buying their own plans. The projections, made in sessions with brokers and agents, provide some of the most concrete evidence yet of how much insurance companies might increase prices when major provisions of the law kick in next year—a subject of rigorous debate. The projected increases are at odds with what the Obama Administration says consumers should be expecting overall in terms of cost.
• Inside a Star Hedge Fund: Lots of Big Bets, Built Fast. SAC Capital Advisors LP bet big on a firm called Ardea Biosciences Inc. at the beginning of last year. Diving into a small stock it never before reported owning, the hedge-fund firm bought 1.2 million shares, which at the end of the first quarter were valued at $26.7 million.
• Lenders Are Warned on Risk. Regulators Act to Pop a Potential Bubble Caused by Surge in Leveraged Credits.
• Older Households Loading Up on Debt.

Barron's: 

• Tech Data(TECD) Drops 11%: Will Restate FY11, ’12, and ’13 for U.K. Subsidiary.

Fox News:

• Iran's leader threatens to level cities if Israel attacks, criticizes US nuclear talks. Iran's leader said in a speech that the country would annihilate the Israeli cities of Tel Aviv and Haifa if it were attacked by Israel, and criticized the U.S. over nuclear talks. The Supreme Leader Ayatollah Ali Khamenei, who has final say on all key decisions in Iran, says Israel is too small to be called an enemy, and that the United States is the "center of animosity" toward the Islamic republic. "Sometimes, leaders of the Zionist regime threaten us. They threaten to take military action. They are not in the size to be put in the list of Iranian nation's enemies," Khamenei said in comments broadcast live on state TV. In a strong warning to Israel, Khamenei said that if Israel attacked Iran, the "Islamic Republic will raze Tel Aviv and Haifa to the ground."

MarketWatch.com:

• Euro may be doomed whether Cyprus stays or goes. Commentary: No one can now trust Brussels, or Berlin. However the crisis in Cyprus is resolved, there will be lasting effects on the European Union that may well have sealed the fate of the euro.

CNBC: 

• Cyprus Risks Euro Exit After EU Bailout Ultimatum. The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the euro currency zone. In a sign it was at least preparing for the worst, the Cypriot government sought powers on Thursday to imptuose capital controls to stem a flood of funds leaving the island if there is no deal before banks reopen following this week's shutdown. Parliament will reconvene later on Friday to debate a raft of government crisis measures after lawmakers adjourned a late-Thursday sitting saying they needed more time for consultation.
• Nike(NKE) Shares Pop 8% After Earnings Beat. Nike on Thursday posted a quarterly profit that handily beat Wall Street's expectations and said future demand for its apparel and shoes rose.
• Chicago Announces Mass Closing of Elementary Schools. Chicago will close 54 schools and 61 school buildings by the beginning of the next academic year in the country's third-largest public school district, a move that union leaders called the largest mass closing in the nation. The district will shutter 53 elementary schools and one high school by August, primarily in Hispanic and African-American neighborhoods. The district, which has a $1 billion annual deficit, has said it needs to close underutilized schools to save money.

Zero Hedge: 

• Cyprus "Capital Control / Solidarity Fund" Plan 'C' Vote Tomorrow After Rumor Russia Rejects All Proposals.
• The Global Financial Pyramid Scheme By The Numbers.
• Whose Insured Deposits Will Be Plundered Next?
• HFT Reality: 70% Of Price Moves Are Disconnected From Fundamental Reality.
• The Fed Has Already Imposed A "Cyprus Tax" On U.S. Savers.
• Global Slowdown Accelerates Driven By Confidence / New Orders Plunge. (graph)
• US Begins Regulating BitCoin, Will Apply "Money Laundering" Rules To Virtual Transactions.

Business Insider: 

• Before Cyprus Flared Up, One Analyst Warned Us It Was The Scariest Thing In The World.

NY Times:

• To Boaz Weinstein, Betting Against JPMorgan’s(JPM) Trade Was ‘Easy’. “That was a fairly easy and obvious trade to do,” said Boaz Weinstein, the founder of Saba Capital Management, who was among a group of investors betting against JPMorgan’s trader known as the London Whale. While the trade caused losses of at least $6 billion for JPMorgan, it was enormously profitable for Mr. Weinstein. Beyond the financial losses, the trade caused significant reputational damage for JPMorgan, which said last year that the loss-making position was intended as a hedge against risk. “I think it’s pretty clear from the Senate paper that it was not a hedge, it was a bet,” Mr. Weinstein said.
• Blackstone(BX) Studying Dell(DELL), but Said to Be Unlikely to Bid.
• Europe Weighs iPhone Sale Deals With Carriers for Antitrust Abuse. European Union regulators are examining the contracts Apple strikes with cellphone carriers that sell its iPhone for possible antitrust violations after several carriers complained that the deals throttled competition.  

Reuters:

• US senators introduce railroad antitrust bill. Two leading U.S. senators on Thursday introduced legislation to strip railroads of their exemption from antitrust laws, arguing that the policy has led to higher costs for agricultural producers and other businesses. Similar bills have been introduced numerous times in the past decade but failed to become law. "This legislation makes commonsense reforms that will require the railroad industry play by the same antitrust rules as other industries and will help keep costs down for businesses, farmers and consumers," said Senator Amy Klobuchar, the new chair of the Senate Judiciary Committee's antitrust subcommittee and a Minnesota Democrat, in a statement. She introduced the bill along with David Vitter, a Republican from Louisiana. Railroads say the exemptions are necessary for their survival but businesses which rely on rail shipping, especially power companies which use coal, say railroads have sharply raised rates.  
• Pentagon urged to stop stalling, start planning defense cuts. The Pentagon needs to stop stalling and start figuring out how to cut its budget by $50 billion annually for the foreseeable future in a way that preserves U.S. national security, defense analysts from across the political spectrum said on Thursday. Warning that the department appeared to be clinging to the hope that Congress and the White House would eventually reverse the cuts, the analysts said the Pentagon needed to focus on factors that drive long-term cost growth, including overhead, compensation and acquisition.
• Brazil stocks hit 4-month low on euro zone data, Cyprus.
• Demand for stock funds plummets over Cyprus fears -Lipper. U.S.-based stock funds recorded inflows of just $1.9 billion in the latest week as worries over Cyprus's debt burden disrupted demand for international stocks, data from Thomson Reuters' Lipper service showed on Thursday. The drop in demand in the week ended March 20 came after investors poured $11.26 billion into the funds in the previous week to capitalize on the Dow Jones Industrial Average's nine-day winning streak. A scant $297.3 million flowed into funds that hold stocks outside of the United States as Cyprus, an island in the 17-nation euro currency bloc, flirted with default on its debt. Over the previous week, the funds had gained $2.54 billion in new money.
• U.S. Republicans may use debt limit to leverage spending cuts. House Speaker John Boehner and his fellow Republicans say they are preparing to use the next debt limit deadline to fight for further spending cuts and major changes to federal healthcare and retirement programs. Boehner's demand that any debt cap increase be matched with commensurate budget savings sets up Republicans for another fiscal battle with the Obama administration and a possible repeat of the 2011 debt limit brawl that cost the United States its top credit rating.
  
  
  "Dollar for dollar is the plan," Boehner told reporters on Thursday after the House passed a budget for next year that would cut domestic programs drastically but is not going to be approved by the Democratic-controlled Senate. The government is on track to hit the limit on how much it can borrow around May 19.
• German finance minister sceptical at Cypriot proposal-paper. German Finance Minister Wolfgang Schaeuble expressed his scepticism at the Cypriot government's proposal for raising billions of euros during a meeting of Germany's coalition parties on Thursday afternoon, newspaper Bild reported. Citing participants at the meeting, the German newspaper reported in its Friday edition that Schaeuble had said he had deep doubts and "cosmetic touches alone" would not be enough.
  Cyprus must "move and seriously save", he added.
  
  
  

  
  
  

Telegraph:

• Cyprus overhauls two biggest banks to stave off collapse. Cyprus will inflict losses of up to 40pc on large depositors but guarantee all deposits up to €100,000 in a plan to restructure its biggest banks and prevent the island’s economic collapse next week.

Shanghai Securities News:

• China May Issue 50% More LGFV Bonds in 2013. China may issue at least 59% more LGFV bonds in 2013 than in the previous year, Ba Shusong, a researcher at the Sate Council's Development Research Center, said in an interview today. China may face some inflationary pressures in 2H, Ba said.

China Securities Journal:

• China may soon announce new policies to support the solar industry, citing the National Development and Reform Commission researcher Wang Sicheng.

Economic Information Daily:

• China Studying Expansion of Consumption Tax. The Ministry of Finance and State Administration of Taxation are studying levying consumption taxes on some products that cause severe pollution or consume excessive resources, citing a document by the ministry and the National People's Congress standing committee. China may also raise tax rates for some "high-end consumer goods," according to the report.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.75% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 120.0 +1.75 basis points.

• Asia Pacific Sovereign CDS Index 90.75 +8.25 basis points.

• FTSE-100 futures -.23%.

• S&P 500 futures +.01%.

• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DRI)/1.01
• (TIF)/1.36 

Economic Releases
12:00 pm EST

• Fed revisions of Industrial Production.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German IFO data and the (TRI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.