Today's Headlines

Bloomberg:
- European retail sales declined 1.6% in March, the most since at least 1995 and twice as much as economists forecast, as soaring fuel and food costs sapped consumer spending.
- The US dollar rose against most of the other major currencies as US productivity increased while Europe showed signs of an economic slowdown.
- India, the world’s second-biggest buyer of vegetable oils, banned futures trading in soybean oil and three other commodities as it intensified efforts to cool inflation that’s at the highest in more than three years.
- Copper dropped for the second straight day on concern that a 27% jump in prices this year will curb demand in China, the world’s largest user of the metal.
- China’s stocks fell 4.7%, the most in three weeks, led by financial companies, on concern a supply of newly tradable Shanghai Pudong Development Bank shares will create a glut and as investors judged a two-week rally to be excessive.
- Crude oil is rising another $1.82/bbl. to a record $123.65/bbl. even after US oil inventories surged 5.6 million barrels as investment funds raised bets on an unexpected decline in refinery utilization.
- Petrobras(PBR) plans to add 14,000 engineers, geologists and drillers within three years as it develops the biggest crude oil discovery in the Western Hemisphere since 1976.
- South Korea’s won may add to its 8.8% loss this year as the country is poised for a “monetary shock” from overstretched local banks, according to Morgan Stanley.

Wall Street Journal:
- Charles Schwab(SCHW), Vanguard Group and other US companies are offering “managed-payout” mutual funds, which seek to make retirees’ savings last throughout their lives.
- This week in Congress, efforts are underway to roll back goals enacted just last year to encourage the development of biofuels. This could damage – perhaps irretrievably – the substantial progress we’ve made toward relieving the threat posed by our reliance on foreign oil.

Il Sole 24 Ore:
- UBS AG(UBS) CEO Marcel Rohner said “the worst is behind” the Swiss bank after the turmoil in global financial markets.

China Youth Daily:
- China’s Guangdong province plans to boost wages by 12% in 2008, citing a local government report. The average wage in Chinese urban areas climbed 18.3% in the first quarter from a year earlier.

The Economic Times:
- After buying agricultural commodities worth a record $70 billion in February, large index fund traders pulled out $10 billion in March. The total investment in farm futures from index funds has risen 400% in two years. At the end of the week, on CBoT, index traders held 44% of the open interest in wheat, 23% in corn and 27.8% in bean oil. On ICE Futures, index traders were holding 25% of the open interest in cotton, 17.3% in cocoa, 36.6% in sugar and 28% in coffee. There has been a steady rise in assets being parked by commodity index funds. Calculations by Fortis Bank show they have risen from $19.3 billion at the start of 2006 to $52.1 billion at the start of 2008. The CFTC could help prick the bubble by enforcing its own rules. If the agency were to rescind the exemption on position limits given to the index funds, prices would probably fall back to reflect their true supply-demand fundamentals.

Xinhua News:
- China’s rate of hand, foot and mouth disease infections may rise in June and July, citing Health Ministry spokesman Mao Qunan. This disease has occurred in the provinces of Anhui, Jiangsu, Hunan, Hubei, Shaanxi, Henan, Hebei, Zhejiang, Guangdong, Guangxi, Jiangxi, Yunnan, Jilin and in the municipalities of Beijing, Shanghai and Chongqing.

Gulf Times:
- Saudi Arabia, which is grappling with near-record inflation, said yesterday it is having some success with efforts to curb public spending but acceleration in rents and food costs continue to pose risks. Inflation in Saudi Arabia, the world’s largest oil exporter, hit 9.6% in March, the highest since at least the oil boom of the 1970s, as rents surged 19% and food prices jumped 14.2%. Saudi Central Bank Governor Hamad Saud al-Sayyari said inflation could cross 10% this year before possibly easing in the second half of the year as anti-inflationary government measures take hold and lower global demand for commodities feeds into prices.

Bear Radar

Style Underperformer:

Large-cap Value -1.09%

Sector Underperformers:

Airlines (-2.56%), Banks (-1.94%) and Homebuilders (-1.54%)

Stocks Falling on Unusual Volume:

PTR, SNCR, JKHY, KNDL, CTSH, TXCO, NCMI, BIDZ, PRGO, SOHU, GB, PRA, SRX, NFP and KCP

Stocks With Unusual Put Option Activity:

1) CLWR 2) VRSN 3) NVDA 4) AGN 5) OVTI

Productivity Surges, Unit Labor Costs Decelerate, Pending Home Sales Decline

- Preliminary 1Q Non-farm Productivity rose 2.2% versus estimates of 1.5% and 1.8% in 4Q.

- Preliminary 1Q Unit Labor Costs rose 2.2% versus estimates of a 2.6% gain and 2.8% in 4Q.

- Pending Home Sales for March fell 1.0% versus estimates of a 1.0% decline and a downwardly revised 2.8% decline in February.

BOTTOM LINE: US productivity unexpectedly accelerated in the first quarter, helping combat inflation, Bloomberg reported. “Unit labor costs have essentially come to a grinding halt and that should support corporate profits and allow businesses to hold the line on prices,” said Mark Zandi, chief economist at Moody’s Economy.com. Unit labor costs account for about two-thirds of the cost of goods and services. Compared with year-ago levels, productivity rose 3.2%, the largest jump in almost four years. Productivity at non-financial corporations, a gauge closely watched by the Fed and reported with a one-quarter lag, rose 1.8% during 4Q. Productivity at manufacturers rose at a 4.1% rate during 1Q. I expect productivity to trend higher and unit labor costs to trend lower through year-end.

Pending home sales came in right at economists’ expectations in March, Bloomberg reported. Pending home resales fell 10.4% in the Midwest, 1.4% in the West and .1% in the South. Pending resales jumped 12.5% in the Northeast. The MBA Mortgage Applications report surged 15.6% this week. The Homebuyer Affordability Index has risen 31% since its low during July 2006. According to Bankrate.com, the average 30-year fixed-rate mortgage is falling to 5.77% today, down from 6.38% in June of last year. I still expect home sales to surprise on the upside over the coming months on lower interest rates, lower prices, less extreme economic pessimism and pent-up demand.

Bull Radar

Style Outperformer:

Small-cap Growth (+.41%)

Sector Outperformers:

HMOs (+1.18%), Computer Services (+.95%) and Networking (+.81%)

Stocks Rising on Unusual Volume:

CRNT, NETL, NTGR, DTV, HPQ, IBM, TIE, JCOM, FTO, KALU, ME, VIP, CLMT, MFLX, ATHN, MCHX, POWL, NILE, LMIA, EGLE, FWLT, STAR, GPOR, OCNF, FEED, VDSI, IMKTA, UNTD, CEPH, LM, EQT, PWR, STE, CKP and CRL

Stocks With Unusual Call Option Activity:

1) SNCR 2) CEG 3) XRX 4) SIRI 5) CLWR

Links of Interest

Market Snapshot Commentary
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Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
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Exchange Volume vs. Average
NYSE Unusual Volume
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Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Wednesday Watch

Late-Night Headlines
Bloomberg:
- Deutsche Bank AG CEO Josef Ackermann said the financial crisis stemming from the collapse of the US subprime market may be nearing an end.
- Federal Reserve Bank of Kansas City President Thomas Hoenig said today “serious” inflation pressures may compel the central bank to raise interest rates. “The current accommodation stance should be sufficient to cushion the economy from a deeper slowdown,” he said. “As the economy recovers and credit conditions improve, however, it will be necessary for the Federal Reserve to remove the policy accommodation in a timely manner,” Hoenig said.
- The Bush administration signaled it will veto foreclosure-prevention legislation being advanced by House Democrats that would offer states $15 billion in grants and loans to buy and refurbish abandoned homes. ``The principal beneficiaries of this type of plan would be private lenders -- who are now the owners of the vacant and foreclosed properties -- instead of struggling homeowners who are working hard to stay in their homes,'' the White House said in a statement released today in Washington. House Democrats plan to advance the measure tomorrow.
- Cisco Systems(CSCO), the world’s largest maker of networking equipment, reported a 5.4 percent drop in profit because of acquisition expenses and predicted sales that met analysts’ estimates. The stock rose .36 to $26.69 in extended trading.
- AC Transit and UTC Power Announce Largest Ever US Order of Fuel Cell Systems to Power Next-Generation Zero-Emission Transit Buses.
- Walt Disney(DIS), reported second-quarter profit that exceeded analysts’ estimates as the early Easter spurred resort visitors and the film “National Treasure 2” scored wins. Disney rose as much as .92, or 2.7%, to $34.65 in after-hours trading.

Wall Street Journal:
- Daimler AG says it plans to open an office in Baghdad after a nearly 20-year absence. The plan is significant because it involves a big Western company interested in the country for reasons other than its big oil reserves.
- Barack Obama triumphed in North Carolina’s Democratic presidential primary, and did better than expected against the favored Hillary Clinton in Indiana, which was too close to call late Tuesday evening.

MarketWatch.com:
- Sprint(S), Clearwire(CLWR) to announce $12 billion deal.
- Apple Inc.(AAPL) shares climbed to their highest point in four months Tuesday after British wireless giant Vodafone Group said it reached a deal to sell the iPhone in 10 new international markets.

USA Today.com:
- Microsoft(MSFT) has signed a worldwide deal with automakers Hyundai and Kia to use its in-car software that allows people to use voice commands to control personal music players and telephones.

Real Estate Alert:
- Goldman Sachs Group(GS) is seeking to raise $2.5 billion for a new fund that will invest in loans and other debt securities. The fund, called Goldman Sachs Real Estate Mezzanine Partners will borrow money, giving it total investing power of more than $8 billion. Adam Brooks, Goldman’s head of real estate mezzanine lending, will run the fund, which will buy mezzanine loans, high-yield senior loans, real estate corporate debt, commercial mortgage-backed securities and loan portfolios. The fund is charging a 1.5% annual management fee and 80% of any additional profits above an 8% preferred return for investors. Once Goldman gets to 20% of cumulative distributions, it will take 20% of any additional profit.

Reuters:
- Hedge funds press for right to advertise. “Advertising will come, but it is a long way away and will come only after a more comprehensive review of the industry and more rule-making for the industry,” said Timothy Mungovan, a partner who works with hedge funds at law firm Nixon Peabody.
- The Chicago Board Options Exchange said on Tuesday that it is partnering with S&P to license the methodology on its popular volatility index, known as the VIX., to exchanges worldwide.
- US Treasury Secretary Henry Paulson said US financial markets are emerging from the credit crunch that many economists believe has pushed the country to the brink of recession.
- A new co-branded store by Nike Inc.(NKE) and Finish Line(FINL), the No. 2 US athletic shoe retailer, opens on Wednesday, aimed at gaining a foothold in the niche market of runners and athletes in training.
- Short interest on the NYSE edged up another .02% the last two weeks of April to 15,629,000,000 shares. Short interest in shares of National City(NCC) soared 67%. Short interest jumped 53% in shares of Ambac Financial(ABK). Short interest rose 38% in Airtran(AAI), 29% in Delta(DAL) and 14% in shares of Southwest(LUV). Short interest rose nearly 32% in shares of CIT Group(CIT) and 20% in shares of Sprint(S).

Telegraph:
- Citi(C) chairman Sir Win Bischoff has joined a growing chorus of Wall Street executives in believing that the worst of the crisis that has gripped financial markets since last summer is over.

International Herald Tribune:
- EU defends support for biofuels, says the crops unfairly blamed for soaring food prices. The European Union’s senior agriculture official defended the bloc’s push for biofuels Tuesday. She said bigger factors were at work, namely increased demand for meat and dairy products, particularly in China and India, which has reduced farmland for growing food crops. She also noted that bad weather in 2006 in North America, Russia, the 27-nation EU and in Australia last year led to less production. Also — but harder to quantify — grain and other food commodity speculators have pushed up prices, she said. She said investments in commodity indexes that totaled US$10 billion in 1998 reached US$142 billion by 2007. In February alone, 140 commodity-based financial products were launched for investors, according to EU data. That is double the number issued each month in 2006 and 2007.

The Australian:
- While the Chicken Littles of the world economy, led by British Prime Minister Gordon Brown, George Soros and Warren Buffett, may still repeat mechanically the IMF’s surprising judgement that the world – especially the US – faces its worst financial crisis since the 1930s, their hearts are no longer in it.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (COV), raised estimates, boosted target to $58.

Merrill Lynch:
- Raised target on (CRM) to $85 from $68.

Night Trading
Asian Indices are -1.25% to +.50% on average.
S&P 500 futures -.23%.
NASDAQ 100 futures -.25%.

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Earnings of Note
Company/EPS Estimate
- (RIG)/3.32
- (FWLT)/.73
- (AGN)/.52
- (STE)/.50
- (OC)/.03
- (TDS)/.60
- (LAMR)/-.07
- (NCR)/.17
- (CKP)/.14
- (DTV)/.31
- (CTSH)/.33
- (DVN)/2.33
- (MMC)/.46
- (PWR)/.14
- (CROX)/.10
- (NWS/A)/.32
- (DNB)/1.12
- (HANS)/.36
- (FTO)/.19
- (WCG)/1.62

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Preliminary 1Q Non-farm Productivity is estimated to rise 1.5% versus a 1.9% gain in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 2.6% versus a 2.6% gain in 4Q.

10:00 am EST
- Pending Home Sales for March are estimated to fall -1.0% versus a -1.9% decline in February.

3:00 pm EST
- Consumer Credit for March is estimated to rise to $6.0 billion versus $5.2 billion in February.

Other Potential Market Movers
- The (ELN) company day, (MFE) investor day, (AMX) analyst meeting, (KND) investor meeting, (GENZ) analyst day, (HUM) investor meeting, weekly MBA Mortgage Applications report, Deutsche Bank Health Care Conference, DA Davidson Financial Services Conference, Merrill Lynch Global Industries Conference, Bank of America Basics/Industrials Conference and Merrill Lynch Technology Conference could also impact trading today.

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