Trade Deficit Shrinks Again, Core PPI Flat, Confidence Declines

- The Trade Deficit for February shrank to -$58.4 billion versus estimates of -$60.0 billion and -$58.9 billion in January.
- The Producer Price Index for March rose 1.0% versus estimates of a .7% gain and a 1.3% rise in February.
- The PPI Ex Food & Energy for March was unch. versus estimates of a .2% rise and a .4% gain in February.
- The preliminary Univ. of Mich. Consumer Confidence reading for April fell to 85.3 versus estimates of 87.5 and a reading of 88.4 in March.

BOTTOM LINE: The US trade deficit unexpectedly narrowed in February from the previous month, as the US purchased fewer goods from China and imported less petroleum, Bloomberg reported. Imports from China fell to the lowest since May 2006. Exports of consumer goods during January and February were the best on record for any two-month period. Oil imports fell to $20.7 billion, the lowest since June 2005 as both volume and prices fell. The trade deficit with China fell to $18.4 billion in February versus $21.3 billion the prior month. I expect the trade deficit to only improve modestly over the intermediate-term as falling commodity prices more than offset improving US growth relative to other developed nations.

Prices paid to US producers rose more than forecast in March, however core prices were unexpectedly flat, Bloomberg reported. The core reading shows that companies are mainly absorbing higher energy prices rather than passing them along to customers. Producer Prices rose 3.2% year-over-year in March, around long-term average levels. The Core PPI has shown deceleration the past 4 months despite the recent bounce higher in commodity prices, which is a positive. I expect the PPI to decelerate from current levels as commodity prices fall.

Overall consumer confidence declined in April as energy prices rose, Bloomberg reported. The expectations component fell to 74.3 from 78.7 the prior month. However, the current conditions component of the index is still a healthy 102.4 versus 103.5 the prior month. Regular gas prices at the pump rose to $2.79/gallon on April 10, the highest since last August. While consumer confidence remains muted, mainly due to the rise in gas prices and media's obsession with housing, recent strong retail sales reports show they continue to spend. I still expect consumer confidence to head back to cycle highs over the intermediate-term as energy prices fall, the job market remains healthy, stocks rise further, housing sales stabilize at relatively high levels, interest rates remain low and inflation decelerates.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Intraday Chart/Quote

Friday Watch

Late-Night Headlines
Bloomberg:
- Merck & Co.(MRK) won dismissal of federal securities lawsuits claiming the company defrauded investors before withdrawing its Vioxx painkiller from the market in September 2004. Merck’s experimental arthritis drug Arcoxia, the successor to its withdrawn Vioxx, shouldn’t be allowed on the market because of safety concerns, US regulators said. Merck also raised its first-quarter earnings forecast to 78 cents a share, as much as 34% higher than its earlier forecasts, citing higher sales across its product lines.
- New Century Financial(NEWC) won permission to sell about 2,000 mortgages to a Royal Bank of Scotland Group PLC subsidiary unless a rival tops the bank’s $47.3 million bid.
- CBS Corp.(CBS) said it will no longer broadcast Don Imus’s morning radio program in response to the talk-show host’s remarks.
- Apple Inc.(AAPL) delayed the release of its new Macintosh system software after shifting engineering resources to ensure the iPhone makes its debut in June. The stock fell 3.2% after-hours.
- The US Congress must not exclude fossil-based fuels, such as liquids extracted from coal, from proposed legislation to reduce gasoline use, said Alexander Karsner, assistant secretary for renewable energy at the Energy Dept.
- Codelco, the world’s largest copper producer, said the current rise in copper prices is “temporary.”

Investor’s Business Daily:
- Jones Soda(JSDA) plans to boost sales of its premium soft drinks via mass-market retailers such as Wal-Mart Stores(WMT).

Business Week:
- US workers can more easily sue companies for being unfairly fired because federal, state and local lawmakers have passed laws expanding who qualifies for legal protection during the past 40 years. Since 1991, the number of lawsuits filed in federal court against businesses has increase to 14,353 from 8,273.

AP:
- Durham County District Attorney Mike Nifong apologized to three former Duke University lacrosse players a day after they were cleared of sexually assaulting a stripper. Nifong, who stepped down as the lead prosecutor on the case in January amid charges of ethics violations, said that the judgments he made “proved to be incorrect.”

Financial Times:
- Apple Inc.(AAPL) has opened talks with some music companies about introducing a music subscription service for its iTunes online store.

Xinhua News Agency:
- China began a six-month campaign to crack down on Internet pornography yesterday, targeting distributors of videos and pictures and the organizers of online strip shows.

South China Morning Post:
- Cnooc Ltd, China’s largest offshore oil producer, increased total reserves by 7% last year, boosted by overseas acquisitions, citing the company’s annual report. The gain is the fastest in four years.

Economic Times:
- Nymex Holdings(NMX) and Merrill Lynch(MER) are interested in buying stakes in commodity exchanges in India, with the government set to allow overseas investment of as much as 49% in those bourses.

Late Buy/Sell Recommendations
CSFB:
- Reiterated Outperform on (AKAM). One of the primary drivers of our Outperform rating is our belief that with increased adoption of video content over the Internet, Internet bandwidth consumption-and in turn the use of CDNs that ease the demand for bandwidth-is poised for tremendous growth unlike anything we have seen to date.

Lehman Brothers:
- Raised Samsung Electronics to Overweight.

Business Week:
- Avalon Pharmaceuticals(AVRX) shares may rise more than 180% in a year on the promise of a drug in early-stage trials, citing Patrick Flanigan of WR Hambrecht.
- Sunpower Corp.(SPWR), a maker of panels and solar cells that generate electricity from sunlight, could have its earnings double this year and again in 2008. ThinkEquity Partners’ David Edwards raised his 12-month target price for Sunpower to $60 from $50 because of the company’s five-year outlook.

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.%.
NASDAQ 100 indicated -.%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (GE)/.44

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for February is estimated to widen to -$60.0 billion versus -$59.1 billion in January.
- The Producer Price Index for March is estimated to rise .7% versus a 1.3% gain in February.
- The PPI Ex Food & Energy for March is estimated to rise .2% versus a .4% gain in February.

10:00 am EST
- The preliminary Univ. of Mich. Consumer Confidence reading for April is estimated to fall to 87.5 versus a reading of 88.4 in March.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and energy stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs on More Economic Optimism, Short-Covering

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Stocks Higher into Final Hour on Strong March Retail Sales

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs, Biotech longs, Semi longs and Retail longs. I covered my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is above average. Yesterday, the Philly Fed reported its Leading Economic Index for February, which is a future gauge of activity for New Jersey, Pennsylvania and Delaware. It rose at a 3.4% rate, the best in at least a year and up from a 1.1% rate in November of last year. Biotechs are outperforming substantially today and Gilead (GILD) is hitting an all-time high. I remain long the stock. Same-store sales for March rose an above-estimates 5.9%. It was the best March since 2004, despite higher energy prices and the drag from housing. While better weather did contribute to this strong performance, many bears said weather wasn't an excuse for retailers during one of the coldest Februarys in U.S. history. Moreover, March sales were strong across the board, even at many lower-end retailers. I see little evidence that only high-end retail is doing well, which is a myth that has been perpetuated in many circles for several years now, even as most of the stocks have moved meaningfully higher. More than weather or the calendar, I suspect the very healthy job market is the main reason sales were strong.

Here are some examples of non high-end retailers that had exceptionally strong same-store-sales during March:

Company Actual Estimate
BJ's Wholesale (BJ) +5.5% 1.20%
Dollar General (DG) +5.5% +5.6%
Family Dollar (FDO) +5.8% +4.0%
Fred's (FRED) +4.4% +2.5%
JC Penney (JCP) +10.6% +7.4%
Kohl's (KSS) +16.8% 9.90%
Ross Stores (ROST) +6.0% +4.6%
Stein Mart (SMRT) +8.0% +5.0%
Target (TGT) +12.0% 12.00%
TJX Companies (TJX) +6.0% +4.6%
Wal-Mart (WMT) +4.0% +1.7%
Dress Barn (DBRN) +12.0% +5.0%
Costco (COST) +6.0% +5.0%

I expect US stocks to trade mixed-to-higher into the close on short-covering, more economic optimism, stable long-term rates and bargain-hunting.

Today's Headlines

Bloomberg:
- The shares of MedImmune Inc.(MEDI) rose after a report that the company, maker of the FluMist nasal spray vaccine, hired Goldman Sachs Group to explore a possible sale.
- Jones Apparel Group(JNY) may sell its Barneys NY unit for more than $1 billion to a private-equity fund linked to Qatar’s royal family.
- Valero Energy(VLO), the largest gasoline refiner in the US, said it’s McKee oil refinery won’t reach full capacity this year. Low refinery utilization, as a result of “outages,” has been the driving force behind higher gas prices this year. Oil surged 1.84/bbl. on the news.
- California home prices rose last month, with the median price in Southern California setting a record, DataQuick Information Systems said.
- US retailers, led by Wal-Mart Stores(WMT), reported March sales rose 5.9%, the best March since 2004 on strong purchases of holiday gifts and spring clothing.
- The al-Qaeda-linked group that killed 33 people in Algeria yesterday has members in Europe and is targeting France, said French presidential candidate and former Interior Minister Nicolas Sarkozy.

Wall Street Journal:
- Sub-Saharan Africa is starting to experience social and economic development after decades of deprivation and conflict, Paul Wolfowitz, the president of the World Bank, wrote. 17 countries, home to one in three Africans, have achieved annual growth rates of 4% or better in the past decade, with even higher growth in those that were ravaged by years of conflict, Wolfowitz said.
- Global Hyatt Corp. plans a new brand of luxury hotels called Andaz, with the first ones opening in London, NY and LA.
- US pension funds are adopting riskier investment strategies and are moving cash away from domestic stocks and into international shares and hedge funds in an attempt to juice returns. Some pension funds are giving their portfolio managers more freedom to engage in short selling the vary companies their investors may work for.
- A personal computer program that eliminates unwanted trial software, ads and offers can be downloaded at www.pcdecrapifier.com, Walter Mossberg writes.
- CBS Corp.(CBS) is set to announce deals to distribute television and other video programming to Web sites including Microsoft Corp.’s(MSFT) MSN and Time Warner’s(TWX) AOL.
- Ralph Whitworth, a US activist investor, has built a stake of almost 1% in mobile-phone company Sprint Nextel Corp.(S).

NY Times:
- A five-year effort to prosecute voter fraud has turned up little proof that problems exist, citing court records and interviews.
- The US military believes Iran may be supplying weapons and training to both Sunni and Shiite militias in Iraq, citing Major General William B. Caldwell.

Forbes:
- Mexican billionaire Carlos Slim Helu has passed investor Warren Buffett to become the world’s second-richest man.

Financial Times:
- A study ordered by Group of Seven finance ministers and central bank governors about hedge funds will not call for specific steps to boost regulations, citing a draft of a report expected next month.

Daily Telegraph:
- CVC Capital Partners Ltd., Centaurus Capital Ltd. and Cerberus Capital Management were among firms whose representatives were interrogated by hostile Dutch legislators of all parties at a parliamentary hearing in The Hague yesterday. Dutch politicians demanded laws to restrict the activities of British and US hedge funds and private-equity firms.

Dagens Industri:
- Nasdaq Stock Market(NDAQ) bid $3.3 billion for OMX AB and the board of the Swedish exchange will meet today to discuss the offer.

Vedomosti:
- Evraz Group SA is in talks to buy Canadian steelmaker Ipsco Inc.(IPS)