Friday Watch

Evening Headlines 
Bloomberg: 

• ECB Data to Show Extent of Capital Flight in Cyprus. The European Central Bank will publish data today showing how much money savers withdrew from the euro region’s banks after a botched attempt to tax Cypriot savers as part of a European Union-led bailout. The ECB will publish data for euro-area bank deposits including Cyprus after 10 a.m. in Frankfurt. In February, the month before the rescue, Cypriot deposits decreased 2.2 percent to 46.4 billion euros, down from 47.4 billion the previous month. It was the ninth straight decline. 
• China’s Politburo Warns on Financial Risks as Recovery Falters. China’s top leaders said the country must guard against financial risks and boost consumption amid signs that the recovery in the world’s second-biggest economy is faltering. “China needs to cement its domestic economic growth momentum and guard against potential risks in financial sectors,” the Politburo Central Committee said in a statement late yesterday published by the official Xinhua News Agency.
• Japan’s Bigger Price Decline Shows Size of Kuroda Task: Economy. Japan’s consumer prices fell the most in two years, underscoring the challenge facing Bank of Japan (8301) Governor Haruhiko Kuroda as he works to meet a 2 percent inflation target. Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent.
• Japan-China Defense Officials to Meet as Island Tensions Flare. Defense officials from Japan and China will meet today in Beijing, signaling Asia’s two biggest economies are trying to soothe rising tensions over East China Sea islands claimed by both. The officials are scheduled to meet this evening, Japanese Defense Minister Itsunori Onodera told reporters in Tokyo. The two sides will discuss ways to improve maritime communication over territorial issues, he said.
• S. Korea Demands North Respond Today on Joint Factory Talks. South Korea demanded North Korea agree by today to negotiations aimed at re-opening a jointly-run industrial park that has been shuttered for more than two weeks or face reprisals. North Korea hadn’t responded as of 10:47 a.m. local time to yesterday’s offer by Park Geun Hye’s administration to hold talks on the Gaeseong industrial zone, Unification Ministry spokesman Kim Hyung Suk told reporters in Seoul. The South will wait until noon to take “serious measures” if there is no reply, Kim said, declining to elaborate.
• Brazil May Have to Step Up Rate Raise Pace, Hamilton Says. Brazil’s central bank may have to step up the pace of interest rate increases to tame above-target inflation, its director for economic policy, Carlos Hamilton, said today. Swap rates rose. “I have a growing conviction that the Copom may be prompted to reflect on the possibility of intensifying the use of its monetary policy tool, the Selic rate,” Hamilton said at an event in Sao Paulo, referring to the bank’s policy making committee. 
• Gold Advances to Highest Since Rout, Set for Best Week Since ’11. Gold headed for its best week since October 2011 as demand rose after the worst slump in three decades. Silver was set for the best week since November. Bullion for immediate delivery climbed as much as 1.2 percent to $1,485.50 an ounce, the highest since April 15 when it plummeted 9.1 percent. The metal traded at $1,476.33 by 10:25 a.m. in Singapore, set for a 5.2 percent gain this week. 
• Brown-Vitter Bill Could Force Banks to Shrink, S&P Analysts Say. U.S. banks could be forced to break up or shed assets because of a push by federal lawmakers to raise capital requirements at the largest firms, Standard & Poor’s said. Senator Sherrod Brown, an Ohio Democrat, and Republican David Vitter of Louisiana unveiled legislation this week that would mandate a 15 percent capital cushion for banks with more than $500 billion in assets. Meeting the requirements may force lenders to raise as much as $1.2 trillion in additional equity and would drive down returns, S&P said yesterday in a report. “We do not see equity markets being able to meet the massive level of common equity the bill requires of the largest banks,” the analysts wrote in the report. “The largest banks would need to break up or deleverage.”
• Baidu(BIDU) Net Income Misses Analysts’ Estimates. Baidu Inc., the owner of China’s largest Internet search engine, reported first-quarter profit that fell short of analysts’ estimates as advertising revenue per customer declined. Net income climbed 8.5 percent to 2.04 billion yuan from 1.88 billion yuan a year earlier, the Beijing-based company said in a statement today. That missed the 2.19 billion yuan average of analysts’ estimates, according to data compiled by Bloomberg.
• Samsung Electronics Posts Record Profit on Galaxy Models. Samsung Electronics Co. (005930) posted a record quarterly profit that topped analyst estimates as surging sales of Galaxy handsets helped Asia’s biggest technology company overcome sluggish demand for TVs.

Wall Street Journal: 

• U.S. Believes Syria Used Gas. White House Shifts Assessment on Chemical Weapons; New Pressure to Respond. U.S. intelligence agencies now believe the embattled regime of Syrian President Bashar al-Assad has used chemical weapons, the White House told Congress on Thursday, saying the agencies have "varying degrees of confidence" in the assessment. Coming in a detailed letter to lawmakers, the findings mark a turning point in the Obama administration's approach to the two-year civil war, constituting the administration's most explicit acknowledgment that the bloodletting in Syria has reached a point that might require U.S. military involvement. But administration officials, saying more proof is needed, avoided declaring that Mr. Assad had violated restrictions set by President Barack Obama against the use of chemical weapons.
• Fed Zeroes In on Vulnerability to Rate Rise. The Federal Reserve is scrutinizing the nation's biggest banks to ensure they can handle an eventual rise in interest rates, as concern grows among regulators about the risks posed by a long low-interest-rate environment. On Thursday, a panel of federal regulators charged with identifying market risks warned that a sudden rise in interest rates could have a destabilizing effect on financial markets. The Financial Stability Oversight Council, in its third annual report, cited interest-rate risk as one of seven major vulnerabilities to financial stability. "A sudden spike in yields and volatilities could trigger a disorderly adjustment, and potentially create outsized risks," the council said in its report.
• Senators Pass Bill to Ease Air-Travel Delays.
• Shopping Tax Free on the Web Nears End. Online shoppers, beware. Freedom from sales taxes is on the way out. Late Thursday afternoon, in a 63-to-30 procedural vote, the Senate cleared the way for passage of a bill to effectively end tax-free shopping online. A final Senate vote is scheduled for May 6. The bill, called the Marketplace Fairness Act, would allow states to require online sellers around the country to collect sales tax for them on purchases made by their residents.

Fox News:

• Reps challenge DHS ammo buys, say agency using 1,000 more rounds per person than Army. Republican Rep. Jason Chaffetz said Thursday that the Department of Homeland Security is using roughly 1,000 rounds of ammunition more per person than the U.S. Army, as he and other lawmakers sharply questioned DHS officials on their "massive" bullet buys. "It is entirely ... inexplicable why the Department of Homeland Security needs so much ammunition," Chaffetz, R-Utah, said at a hearing. The hearing itself was unusual, as questions about the department's ammunition purchases until recently had bubbled largely under the radar -- on blogs and in the occasional news article. But as the Department of Homeland Security found itself publicly defending the purchases, lawmakers gradually showed more interest in the issue.

CNBC: 

• Bundesbank Faults ECB Bond-Buying Plan: Paper. The head of the Bundesbank has sharply criticized the European Central Bank's plan to buy the debt of highly indebted states in a confidential report, according to German newspaper Handelsblatt. In the 29-page report prepared for Germany's Constitutional Court, the Bundesbank warns that the purchase of such debt could "compromise the independence of the central bank" and could be difficult to stop, the paper said in an article made available on Thursday. 
• Chinese Can't Get Enough of 'Super Cities'. Chinese investors can't seem to be getting enough of commercial real estate abroad - having already spent $1 billion in the first quarter on buying property, they are now on track to spend a whopping $5 billion for the whole year, according property services firm Jones Lang LaSalle.
• Starbucks(SBUX) Earnings Meet Estimates, Guidance Misses. Starbucks reported fiscal second-quarter earnings that met analysts' expectations on Thursday as the company recorded record revenue. The shares fell in after-hours trading after disappointing third-quarter guidance. 
• Electronics Arts(EA) Hit With More Layoffs.

Zero Hedge: 

• JPMorgan's(JPM) Eligible Gold Plummets 65% In 24 Hours To All Time Low.
• On The Unsustainable Losses Of The Italian Banking System.
• It's A Bit Early To Declare A Winner In The Economic Debate.

Business Insider: 

• Why Politicians Think Now Is The Perfect Time To Shrink Wall Street Down To Size.
• Yahoo(YHOO) Chairman Fred Amoroso Quits.
• House Republicans Slam Federal Loan To Fisker As 'Corrupt' And 'Mismanaged'.
• George Soros Reports A 7.9% Stake In JCPenney And The Stock Is Soaring.
• The New Guy Being Investigated In The Bizarre Ricin Case Is Reportedly Missing.
• LIVE! Every Pick From The First Round Of The NFL Draft.

New York Times:

• Southern Europe’s Recession Threatens to Spread North. No company symbolizes German industrial might like Daimler, the giant maker of Mercedes-Benz autos and trucks. So when the company said this week that it, too, had finally been caught in the downdraft of the European economic crisis, it was an ominous sign for all of the Continent, if not the whole world. 
• RUSSIA TOLD U.S. BOMB SUSPECT WAS RADICAL ISLAMIST. On March 2011, the Russian security service sent a stark warning to the FBI, reporting that Tamerlan Tsarnaev was “a follower of radical Islam” who had “changed drastically since 2010” and was preparing to travel to Russia’s turbulent Caucasus to connect with underground militant groups. Six months later, Russia sent the same warning to the CIA.
• Reinhart and Rogoff: Responding to Our Critics. In an Op-Ed essay for The New York Times, we have tried to defend our research and refute the distorted policy positions that have been attributed to us. In this appendix, we address the technical issues raised by our critics.

The Blaze:

• Megyn Kelly’s Surprise Revelation: FBI Was ‘Shocked’ to See Judge ‘Waltz’ in and Give Suspect Miranda Rights.

Reuters: 

• US-based stock funds have $7.3 bln outflow - Lipper.
• Amazon(AMZN) growth slows, while profit margins expand. Amazon.com Inc's revenue growth slowed in the first quarter as the world's largest Internet retail struggled overseas, but margins jumped on lower shipping expenses and the expansion of more profitable new businesses. Amazon shares fell 1.9 percent to $269.43 in after-hours trading on Thursday following the results. "The message there is North America was better than expected but international was softer. The question is ... 'Is this a reflection of macro trends in Europe, or is there something else going on there?'" said Telsey Advisory Group analyst Tom Forte. Europe's lackluster economies are weighing on corporate sales in the region - even for fast-growing e-commerce businesses. EBay Inc, Amazon's main rival, reported disappointing results last week and noted European weakness. International revenue rose 16 percent in the most-recent quarter, year-over-year, down from a 31 percent growth rate in the same period of 2012. 
• KLA-Tencor(KLAC) sees revenue below expectations, economy weighs. Chip equipment maker KLA-Tencor Corp reported lower quarterly results and said its outlook for the rest of the year has weakened due to manufacturers' concerns about the global economy. KLA-Tencor's stock fell nearly 5 percent in extended trade after Chief Executive Rick Wallace said on a conference call he was seeing a pause in demand from contract manufacturers and gave a current quarter revenue estimate that was below expectations.
• U.S. council warns of threat of cyber attacks, market runs. Regulators should guard against runs on the shadow banking system and watch out for cyber attacks on banks in coming months, the top U.S. financial stability group said on Thursday. The Financial Stability Oversight Council, which was set up after the 2007-2009 crisis to watch for developing threats to the financial system, also urged a reform of market benchmarks after a global rate-rigging scandal hit the Libor interbank rate. "Technological failures, natural disasters, and cyberattacks can emanate from anywhere, at any time," the report said. "Preparation and planning to address these potential situations are essential to maintain the strength and resilience of our financial system." 
• Expedia(EXPE) Warns of Lower Hotwire Profit. Online-travel agency Expedia beta on earnings but warned of a lower full-year profit from its discount travel website Hotwire due to higher car-rental rates and increased competition. The online travel agency's shares dropped more than 7 percent after initially popping more than 4 percent.

The Economist: 

• Euro Crisis: The Fankfurt Veto. AUSTERITY has been under fire from all corners, lately: from IMF reports showing painfully high multipliers on fiscal cuts, to challenges to the Reinhart-Rogoff debt-threshold research, to the European Commission, whose president, Jose Manuel Barroso, noted this week that austerity in Europea has "reached its limits".

Telegraph:

• The great Spanish nation can end its crucifixion at will by leaving EMU. The mind goes numb. Spanish unemployment jumped by yet another 237,000 people in the first quarter to 6.2 million, or 27.2pc. This is equivalent to roughly 8.3 million in Britain, or 39 million in the United States. The country is losing 3,581 jobs a day. There are 1.9m households where no member of the family has a job.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 111.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 88.75 -1.25 basis points.

• FTSE-100 futures -.17%.

• S&P 500 futures -.27%.

• NASDAQ 100 futures -.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AEP)/.81
• (B)/45
• (BKW)/.16
• (CVX)/3.07
• (DHI)/.19
• (FLIR)/.36
• (GT)/.34 
• (LYB)/1.44
• (NOV)/1.37
• (SPG)/2.01
• (TYC)/.39
• (VFC)/2.19
• (WY)/.22   

Economic Releases
8:30 am EST 

• Advance 1Q GDP is estimated to rise +3.0% versus a +.4% gain in 4Q.
• Advance 1Q Personal Consumption is estimated to rise +2.8% versus a +1.8% gain in 4Q.
• Advance 1Q GDP Price Index is estimated to rise +1.3% versus a +1.0% gain in 4Q.
• Advance 1Q Core PCE is estimated to rise +1.1% versus a +1.0% gain in 4Q. 

9:55 am EST

• The Final Univ. of Michigan Consumer Confidence for April is estimated to rise to 73.5 versus a prior estimate of 72.3. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The BoJ rate decision could also impact trading today.

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