Monday Watch

Weekend Headlines 
Bloomberg: 

• EU Affirms Debt-Cut Strategy in Face of ‘Fragile’ Outlook. The European Union will tell its counterparts in the Group of 20 nations that a shaky economic recovery requires renewed commitment to budget cuts and other structural reforms. “The situation remains fragile” in the euro area, the EU said in a planning document prepared for next week’s G-20 meeting in Washington and obtained by Bloomberg News. The document affirms the EU’s “fiscal consolidation strategy” and calls on other countries to speed up similar efforts. One of the main threats facing the world economy is “the lack of credible medium-term fiscal consolidation plans in the U.S. and Japan,” according to the EU document. It also sees risks stemming from a renewed slowdown in emerging-market nations, political tensions that could boost oil prices and the euro-area’s three-year-old sovereign debt crisis. 

• EU Set to Clash on Bank Deal as Germany Sees Treaty Limit. European Union nations are set to clash over plans to centralize the handling of failing banks, as Germany warned that the bloc is running out of road to adopt crisis-fighting measures under its current treaties. German Finance Minister Wolfgang Schaeuble told his EU counterparts at a meeting in Dublin April 12-13 that there isn’t enough of a basis in the EU’s current rulebook for building a common authority and fund for bank failures. Other nations, including France, Luxembourg, and Denmark, are urging swift progress on putting in place a resolution system, amid concerns that treaty changes would cause unacceptable delays.

• Schaeuble Favors ‘Liability Hierarchy’ in European Bank Bailouts. German Finance Minister Wolfgang Schaeuble said he wants to see a “liability hierarchy” where owners and creditors of banks are first in line to bail them out before governments bolster equity and the European Stability Mechanism provides international aid. “It is not so that all banks can in future cover their capital requirements at the ESM,” Schaeuble told reporters in Dublin after a two-day meeting of European Union finance ministers and central bank governors. “Before the state gets involved in the liability hierarchy, owners and creditors of banks” will be asked to contribute, and the ESM will help if “the government itself can’t because its access to financial markets is restricted,” he said. Independently of the fact that Cyprus was a “unique case, we will no longer accept the moral hazard problem,” Schaeuble said. “In the future, it will have to be possible to wind down troubled banks just like any other company, without risking the stability of the financial sector as a whole.” To the extent necessary, a troubled bank’s home state has to ensure the provisioning of capital, Schaeuble said. 

• U.K. Faces ‘Sluggish’ Economic Growth on Weak European Demand. Britain’s economy will grow less than previously forecast this year and further bond purchases by the Bank of England may do little to stimulate the recovery, according to the Ernst & Young Item Club. Gross domestic product will rise 0.6 percent, compared with a January forecast of 0.9 percent, the London-based group said in a report today. Growth will accelerate to 1.9 percent next year and 2.5 percent in 2015, in line with previous estimates.

• Six EU Nations Seek Bank Detail Sharing; Austria Resists. The European Union moved closer to agreement on a coordinated clampdown on tax evasion as a total of nine countries backed an initiative for automatic sharing of bank details across borders. 

• China Said to Invite Four Flu Experts as Disease Outbreak Widens. Four international flu experts will arrive in China within days to help authorities respond to the country’s widening bird-flu emergency, according to two people familiar with the matter. Shanghai’s government said yesterday that the virus killed two more people, taking the country’s death toll to 13. The city also reported three fresh infections while the eastern provinces of Jiangsu and Zhejiang also confirmed new cases, raising the national tally to 60 from 49 on April 13. The cases of the child in Beijing and two men in Henan widen the geographic spread of H7N9, adding impetus to the government’s efforts to gauge the magnitude of the infection in poultry and wild birds.

• China’s Soybean Imports Seen Declining on Bird Flu, Dead Hogs. An eight-year surge in soybean imports by China, the biggest buyer, may come to an end this year as feed consumption drops following a bird-flu outbreak and the discovery of thousands of dead pigs floating in a river. Imports, which more than tripled from 2004 to 59.2 million metric tons in the year to Sept. 30, will probably fall to 58 million tons this year, according to the median of a Bloomberg survey of four crushers and three analysts in China. 

• World Bank Says East Asia Should Consider Stimulus Withdrawal. Asia’s emerging economies should consider reining in monetary stimulus to curb the risks of asset bubbles and inflation as policy easing in developed nations spur capital inflows, the World Bank said. Demand-boosting measures that helped sustain growth “may now be counterproductive,” the Washington-based lender said in its East Asia and Pacific Economic Update released today. “As the global economy recovers, an emerging issue is the risk of overheating in some of the larger economies,” it said in a release accompanying the report.

• Japan Getting Calls From U.S. to Europe Not to Drive Down Yen. Japan will be reminded of its pledge not to drive down the yen when Group of 20 finance chiefs meet this week for the first time since the world’s third- largest economy intensified its campaign to defeat deflation. As G-20 finance ministers and central bankers prepare to convene this week in Washington, the U.S. Treasury is saying it will press Japan to refrain from competitive devaluation and European governments are urging it not to become too reliant on fiscal and monetary stimulus. 

• BOJ’s Bet on Easing Will Backfire: Ex-Soros Adviser. The Bank of Japan (8301)’s “huge bet” by boosting quantitative easing won’t turn the economy around and is instead sending the nation toward default, said Takeshi Fujimaki, former adviser to billionaire investor George Soros. “By expanding the monetary base to 270 trillion yen, the BOJ is making a huge bet which I think it will ultimately lose,” Fujimaki said in an interview in Tokyo on April 11. “Kuroda’s QE announcement is declaring double suicide with the government. The BOJ will have to share the country’s fate and default together.” Fujimaki said he recently bought put options for Japanese government bonds of various maturities, without elaborating. “Japan’s finance is sinking into the ocean,” Fujimaki said. “There’s no escape from a market crash in the future when you have such enormous debt.” “Things may look rosy for now as stocks rise, but should we see hyper-inflation, JGBs will see a huge selloff, leading to a stock market crash,” said Fujimaki, adding that he sold “almost all” of his Japanese stock holdings some time ago. Kuroda’s predecessor Masaaki Shirakawa had warned of the dangers of excess liquidity. At his final meeting as governor he said the costs and risks of monetary policy tend to be recognized long after steps are taken and that the government and BOJ need to have discipline. “Shirakawa did more than enough and he had good reasons to not do any more,” said Fujimaki. “There will be tremendous side effects from monetary stimulus. QE doesn’t work and has no exit.”

• N. Korea Attack Would Disrupt U.S. Companies: BGOV.  A North Korean military attack would pose a risk to sales and investment in South Korea by U.S. companies, including those in the automotive and semiconductor industries, according to a Bloomberg Government study. U.S. imports of goods produced in South Korea, including vehicles and smartphones, may also be disrupted, at least temporarily, in the event of an attack by the totalitarian regime led by Kim Jong Un, according to the study by Ken Monahan, a senior global business analyst with BGOV. 

• Rebar Drops as China Economic Growth Signals Recovery Faltering. Steel reinforcement-bar futures in Shanghai fell by the most in two weeks as China’s economic growth unexpectedly eased in the first quarter, sparking a slump in commodities. The contract for October delivery on the Shanghai Futures Exchange fell as much as 2.4 percent, the most since April 1, to 3,745 yuan ($605) a metric ton and was at 3,749 yuan at 10:49 a.m. local time. 

• Rubber Slumps Most in 8 Months on Yen, Bridgestone Consumption. Rubber slumped the most in more than eight months as a rally in Japan’s currency cut the appeal of the yen-based contracts and after a report that Bridgestone (5108) Corp. may reduce consumption ignited concerns about demand from tiremakers. The contract for delivery in September lost as much as 5.4 percent to 261.4 yen a kilogram ($2,655 a metric ton) before trading at 264 yen on the Tokyo Commodity Exchange at 10:23 a.m. The drop extended this year’s losses to 13 percent.

• Asian Stocks Drop as China GDP Grows Less Than Estimates. Asian stocks dropped, with the regional benchmark index retreating from the highest level in 20 months, after Chinese economic growth and industrial production expanded less than economists’ estimated. Jiangxi Copper Co., China’s largest copper producer, plunged 4.5 percent in Hong Kong. Newcrest Mining Ltd., Australia’s biggest gold producer, sank 8.2 percent, after the bullion tumbled to the lowest price in almost two years. Nissan Motor Co. (7201), a Japanese carmaker that gets 32 percent of sales from North America, slid 2.7 percent, pacing declines among exporters after U.S. retail sales unexpectedly fell. The MSCI Asia Pacific Index (MXAP) fell 0.9 percent to 136.99 as of 11:46 a.m. in Tokyo, with about three shares falling for each that rose.

• Fed, BOE Officials Don’t See Signs of Emerging Equity Bubbles. Policy makers from the Federal Reserve and the Bank of England said they see few signs of equity price bubbles in the U.S. and the U.K., countering criticisms record stimulus is stoking excessive risk-taking. “We don’t have a lot of experience” with large-scale asset purchases and “they can entail risks,” Chicago Fed President Charles Evans said during the panel discussion at the Boston Fed.

• Global Defense Spending Falls as U.S. Cuts Outpace China Growth. Global defense spending contracted for the first time in 15 years last year as U.S. and European cuts exceeded rising outlays in China and Russia, the Stockholm International Peace Research Institute said. In the first decline since 1998, states spent $1.75 trillion on defense last year, or 0.5 percent less in real terms than in 2011, the research group said in a report today. The U.S. and much of Europe have curtailed military spending as commitments in Afghanistan wind down and governments cut budgets to reduce debt. The White House last week said it is seeking about $615 billion in Pentagon spending for the fiscal year starting in October, about the same as this year, before mandatory spending cuts. “Military spending is likely to keep falling for the next two to three years,” Sam Perlo-Freeman, head of the research group’s military expenditure project, said in an interview.

• Paulson Loses More Than $300 Million as Gold Declines. Billionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years. Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent yesterday, shaving about $328 million from his net worth on this bet alone.

Wall Street Journal:

• As America Ages, Shortage of Help Hits Nursing Homes. A labor shortage is worsening in one of the nation's fastest-growing occupations—taking care of the elderly and disabled—just as baby boomers head into old age. Nursing homes and operators of agencies providing home-care services already are straining to find enough so-called direct-care workers, who help the elderly or disabled with such things as eating and bathing. They also face looming retirements in the current workforce, in which one-fifth of workers are 55 years old or older.

• Brokers Face Pay Disclosures. Rules Would Require Defectors to Inform Clients of Signing Bonuses, Easy Loans. Securities regulators are widely expected to start forcing stockbrokers who get big bucks when they defect to another firm to tell their clients. Signing bonuses, loans that are forgiven over time and other sweeteners have become bigger as securities firms fight harder to lure brokers. 

• America Needs an Alternative Maximum Tax. When do federal, state and local taxes indisputably start to harm the economy—at 50% of income? 60%? 70%?

• Obama's United Nations Backdoor to Gun Control. Luckily, the Constitution gives the Senate exclusive power to ratify, or block, the Arms Trade Treaty.

Fox News:

• North Korea rejects South Korea's calls for talks. North Korea on Sunday rebuffed a South Korean proposal to resolve rising tensions through dialogue, dismissing it as a "crafty trick" by its rival. Tensions have been high on the Korean Peninsula for weeks, with Pyongyang threatening to attack Seoul and Washington for conducting joint military drills and for supporting U.N. sanctions imposed on North Korea for a February nuclear test. While the threats are largely seen as rhetoric, U.S. and South Korean officials have said they believe North Korea may test-fire a mid-range missile designed to reach the U.S. territory of Guam.

CNBC: 

• China's Q1 GDP Growth Slows Unexpectedly to 7.7%. China's economic recovery unexpectedly stumbled in the first three months of 2013 as the annual rate of growth eased back to 7.7 percent from the 7.9 percent pace set in the final quarter of last year, official data showed on Monday. The growth rate, announced by the National Bureau of Statistics, was weaker than a Reuters poll consensus forecast for an 8.0 percent expansion. "This number may well explain my there was so much liquidity support in Q1," Tim Condon, head of Asian economic research at ING in Singapore, told Reuters. "Industrial production is unexpectedly weak and that's the source of weakness in GDP. Based on this, the consensus GDP forecasts are going to be headed lower and we'll certainly be looking at ours."

• G20 Mulls Slashing Debt to Less Than 90% of GDP. Financial leaders of the world's 20 biggest economies will consider next week in Washington a proposal to cut their public debt over the longer term to well below 90 percent of gross domestic product, a document prepared for the meeting showed.

• Moody's Zandi Is Top Pick for Fannie Watchdog. Mark Zandi, a well-known economist, is a front-runner to lead the U.S. housing regulator and oust Edward DeMarco, who critics say hasn't done enough to aid homeowners, the Wall Street Journal reported.

• Why Money-Printing Could Be Costly.

• Nearly 20% of UK Businesses Favor EU Withdrawal.

Zero Hedge: 

• Railcar Loadings Drop Most Year-To-Date Since Crisis. (graphs) 

• Fear The Uncorrelated Stock Market. (graph)

• Eight Divergences. (graphs)

• The Return Of The Money Cranks.

• Five Fund Flow Charts Every Japanese Stock Investor Should See.

• Cyprus Mail: "Exiting The Euro Is A Debate We Must Have".

• Which Nations Are Next? The Credit Market Answers. (graphs)

• Priced For Perfection - A Return To 'Normal' Won't Be Enough. (graphs)

• Congress Exempts Most Federal Workers From Key Insider Trading Reporting Requirement.

Business Insider: 

• And Now The US Economy Looks Ready To Slow Down.

• Kermit Gosnell's Nightmare Abortion Clinic Was A Multimillion-Dollar Business.

• Assad's Killing Of Syrian Civilians Has Reached Barbaric Proportions.

• MAULDIN: There's A Huge Problem With Our Deficit Forecasts — They Assume A Perfect World.

• Sheldon Adelson Comment About Macau Gangsters Has The Gambling Paradise On Edge.

• Germany Has Picked Its Next Two Targets After Cyprus. After squashing Cyprus, gutting its offshore financial and money laundering center, and destroying its main resource, the EU has now trained its big guns on Austria and Luxembourg.

• The Link Between Banks And Sovereigns In Most Countries Remains Strong.

• The New Bird Flu In China Is Creating A SARS-Like Scare.

• Peak Oil Demand Is Already A Huge Problem. (graphs)

Wall Street All-Stars:

• Indicator Update: A Critical Season for Earnings.

New York Times: 

• Europeans Reach Deal With Google(GOOG) on Searches.

• Intel(INTC) Tries to Secure Its Footing Beyond PCs.

Seattle Times: 

• Silicon Valley’s lavish perks reportedly under IRS scrutiny. Some experts say tech companies’ free meals and other enticements ought to be taxable. For the thousands blessed to be working for benevolent behemoths like Google and Facebook, there could be an end to the free lunch. And the free shuttle to work. And maybe even the free haircut. As firms pile on benefits to attract and retain the brightest of the bright, it has increasingly been part of the job description of Silicon Valley tech workers that they be pampered nearly to death with perks. But now the IRS is reportedly examining whether free food — and the other free perks — provided by tech companies qualifies as a fringe benefit on which employees should pay additional tax.

Wine Spectator:

• China Cuts Back on Big-Buck Bordeaux. A government campaign against lavish spending has led wine drinkers to spend less. The party's over for Bordeaux first-growths. Chinese President Xi Jinping has told the country's free-spending political elite to cut back on their extravagant lifestyle, leading to a sharp drop in demand for Bordeaux’s classified growths, with the first-growths taking a particularly hard hit under the new government’s austerity platform. "Ostentatiousness is politically frowned on in China now," said Simon Staples from British wine merchant Berry Bros. & Rudd. There's been a "global slowdown on those very expensive wines."

Reuters: 

• World Bank cuts China, Indonesia growth estimate; warns of asset bubbles. The World Bank on Monday scaled back slightly its 2013 growth forecasts for developing East Asia and warned about possible over-heating in the region's larger economies that could stoke inflation and asset bubbles.  

• Thermo Fisher nears $13 bln Life Tech deal-sources. Thermo Fisher Scientific Inc is nearing a deal to buy genetic testing equipment maker Life Technologies Corp for close to $13 billion, according to four people familiar with the matter, in what would be one of the year's biggest corporate takeovers. The acquisition would catapult Thermo Fisher into the hot field of genetic sequencing, where researchers, drugmakers and doctors are uncovering the genetic factors underpinning diseases to better tailor treatments to the patients.

• Italy union warns subsidies for idled factory workers running out. Italy's largest union, the CGIL, warned on Sunday that state subsidies for idled factory workers urgently need funding or else the recession gripping the euro zone's third-biggest economy could worsen. "Unfortunately the economic crisis has accelerated and worsened during the first few months of 2013," CGIL chief Susanna Camusso said in an interview on Sunday broadcast by Sky TG24 television. "We have to find those resources not only to protect the income of those workers but also to avoid a further reduction to consumer spending that would in turn undermine production."

• Cyprus central bank chief calls for its independence to be respected. Cyprus's central bank governor said on Sunday he was willing to work with the government to pull the island out of its economic crisis, provided the bank's independence was respected. A rift between Governor Panicos Demetriades, appointed last May by the communist former administration, and the ruling centre-right government has deepened and pressure grown on him to resign over his handling of the crisis.

Financial Times:

• Commodities: Tougher times for trading titans. The full scale of the trading houses’ ascent has emerged from a review by the Financial Times of thousands of pages of documents, from bond prospectuses to confidential investor presentations and legal filings. The scale of their operations has long been hard to determine. Eleven of the 20 biggest houses are either unlisted or have only recently been required to present filings to exchanges.

• Global economy stuck in a rut. The global economy is stuck in a rut, unable to sustain a decent recovery and susceptible to a sudden stall, according to the latest Brookings Institution-Financial Times tracking index of recovery.

Telegraph:

• German 'Wise Men' push for wealth seizure to fund EMU bail-outs. Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.

Welt am Sonntag:

• Germany's Bundesbank wants more influence on the ECB's bank regulation arm, citing an interview with Bundesbank Vice President Sabine Lautenschlaeger.

Online INN:

• Is Asia Heading for a Debt Crisis? In some countries, debt is rising at a disturbing rate. According to data from Standard & Poor’s, lending from financial institutions to the corporate and household sector as a percentage of GDP in Hong Kong jumped from 143% in 2005 to an estimated 202 per cent in 2012. In South Korea, the same ratio surged from 132 per cent to 166 per cent over that same time period; in Singapore, 91 per cent to 117 per cent; and in China from 112 per cent to 130 per cent. Vietnam’s ratio nearly doubled from 66 per cent to 113%. The culprits differ from economy to economy. In Vietnam, state-owned enterprises are to blame. In South Korea, it’s households.

Channel News Asia:

• Singapore Sees 'Bubble-Like' Property Prices on Imbalance. National Development Minister Khaw Boon Wan said a temporary imbalance in supply and demand has pushed up property prices to bubble-like level and that the government is pulling out all stops to deflate the bubble without causing it to suddenly burst.

Fars News Agency:

• Iran's OPEC Governor: Consumers, Producers Satisfied with $100 Price. Both oil producers and consumers are satisfied with the current oil prices between 100 to 110 dollars per barrel, Iran's Governor at the Organization of Petroleum Exporting Countries Mohammad Ali Khatibi said. "These days those negative factors including slowdown in oil demand growth and worsening economic outlook in industrial countries especially the US are prevailing in the market."

Weekend Recommendations

Barron's:

• Bullish commentary on (YHOO) and (NWY).

• Bearish commentary on (PCLN) and (FSLR).

Night Trading

• Asian indices are -1.50% to -.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 91.50 +1.0 basis point.

• FTSE-100 futures -.06%.

• S&P 500 futures -.39%.

• NASDAQ 100 futures -.32%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MTB)/1.98

• (SCHW)/.16

• (C)/1.17

• (PBY)/.05

• (BRO)/.39 

Economic Releases
8:30 am EST

• Empire Manufacturing for April is estimated to fall to 7.0 versus 924 in March.

9:00 am EST

• Net Long-Term TIC Flows for February are estimated to rise to $40.0B versus $25.7B in January.

10:00 am EST

• The NAHB Housing Market Index for April is estimated to rise to 45.0 versus 44.0 in March.
  

Upcoming Splits

• (RDWR) 2-for-1

• (TU) 2-for-1

• (CRM) 4-for-1

Other Potential Market Movers

• The Eurozone industrial production data and the RBA minutes could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly lower and to maintain lossses into the afternoon. The Portfolio is 50% net long heading into the week.