Bernanke Says Fed Will Act If Inflation More Than 'Transitory'. Federal Reserve Chairman Ben S. Bernanke said he expects an increase in commodity prices to create a “transitory” boost in U.S. inflation and that the central bank would act if he’s proven incorrect. “We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintainprice stability,” he said. “So long as inflation expectations remain stable and well anchored” and commodity-price increases slow, as he’s forecasting, then “the increase in inflation will be transitory,” Bernanke said today in response to audience questions after a speech in Stone Mountain, Georgia.
Qaddafi Diplomacy Rebuffed as Europeans Back Rebel Demands. Muammar Qaddafi’s diplomatic outreach failed to entice European leaders, as Italy rejected a reported cease-fire proposal and recognized the rebels’ interim council as the nation’s only legitimate government. In Libya, rebels pushed back regime loyalists to gain control of most of the oil port at Brega, according to al- Jazeera television. U.S. and NATO warplanes continued to destroy regime targets, such as military vehicles near Brega hit by a U.S. A-10 Thunderbolt II ground-attack jet, according to a statement from the Pentagon.
Geithner Says U.S. to Reach Debt Limit No Later Than May 16. The U.S. will reach its $14.29 trillion legal debt limit no later than May 16 unless Congress acts before then, Treasury Secretary Timothy F. Geithner said today. If the limit hasn’t been raised by May 16, the Treasury Department will turn to a toolkit of emergency measures that can provide up to eight weeks of additional borrowing room, Geithner said. That extra time would end about July 8, the Treasury chief said.
BofA(BAC) Was Pressed by SEC on Reserves for Mortgage Repurchases. Bank of America Corp. (BAC), in an exchange of letters with U.S. regulators that lasted over a year, was pressed for information about its reserves to cover the cost of buying back faulty home loans. “Discuss the level and type of repurchase requests you are receiving, and any trends that have been identified, including your success rates in avoiding settling the claim,” the Securities and Exchange Commission said in a Jan. 29, 2010, letter to the Charlotte, North Carolina-based bank that was released today. “Tell us and disclose in future filings how you establish repurchase reserves for various representations and warranties that you have made.”
Google(GOOG) Said to Be Possible Target of U.S. FTC Antitrust Probe. The U.S. Federal Trade Commission is considering a broad antitrust investigation of Google Inc. (GOOG)’s dominance of the Internet-search industry, two people familiar with the matter said. Before proceeding with any probe, the FTC is awaiting a decision on whether the Justice Department will challenge Google’s planned acquisition of ITA Software Inc. as a threat to competition in the travel-information search business, said the people, who spoke on condition of anonymity because the matter is still confidential. The FTC and Justice Department share responsibility for oversight of antitrust enforcement, and the outcome of the ITA matter may determine whether the two agencies will vie for control of a broader probe of Google, the people said. The two agencies sometimes negotiate which one will handle major antitrust investigations, with the decision turning on their respective expertise. The Justice Department may soon announce its decision on Google’s purchase of ITA, said the people familiar with the matter.
Options, Volume Surge on Barclays' Long-Term Treasury ETF(TLT). Trading of bullish options on an exchange-traded fund tracking long-term Treasuries jumped to the highest level since September after a single block trade that profits if bond prices increase, driving yields lower. The block of 45,000 June $101 calls to buy the iShares Barclays 20+ Year Treasury Bond Fund traded at the ask price and exceeded the prior open interest of 764 contracts, indicating a buyer who expects the ETF to rally initiated the transaction. Total call trading volume for the fund, which rose 0.1 percent to $92.29 at 4 p.m. New York time, was 65,687 contracts, or quadruple the four-week average.
TI(TXN) to Buy National Semi(NSM) for $6.5 Billion, Expanding Analog Chip Leadership. Texas Instruments Inc. (TXN), the second- largest U.S. chipmaker, agreed to buy National Semiconductor Corp. (NSM) for about $6.5 billion, its biggest acquisition, to add higher margin analog semiconductors. National Semiconductor shareholders will get $25 a share in the all-cash transaction, the Dallas-based company said today in a statement. That’s a 78 percent premium to National Semiconductor’s closing price today of $14.07.
EU Regulator Starts Probe Into High Speed Trading. The European Securities and Markets Authority has begun an investigation into automated trading firms, asking for details on trading strategies and the computer algorithms that drive their trading deals, the Financial Times reported, citing a questionnaire sent to companies across Europe. The probe is part of a fact-finding project to enable ESMA to “better understand high frequency trading strategies and the impact of these strategies on the functioning of the markets as a whole, including the risks associated with HFT,” the questionnaire said, according to the FT.
Wall Street Journal:
Rebel Chief Asks for Timely Strikes, Helicopters. The top military commander of Libya's rebels said opposition fighters are unlikely to make significant gains against Col. Moammar Gadhafi's forces unless the North Atlantic Treaty Organization responds more quickly to requests for airstrikes, and gives the rebels advanced weapons, including helicopters. "If NATO listens to us and takes our requests seriously, this war won't last long," said rebel Chief-of-Staff Gen. Abdel Fattah Younis, in an interview at a safe house in a rural suburb of Benghazi. "If they don't give us what we are asking for, I don't know how long it will last."
U.S. Lenders Near Pacts in Foreclosure Probe. Fourteen U.S. lenders are on the verge of agreements with federal bank regulators to overhaul their handling of foreclosures and treatment of delinquent borrowers in response to allegations of abuses that emerged last fall. Regulators including the Office of the Comptroller of the Currency, Federal Reserve and Office of Thrift Supervision could announce the agreements with the banks and thrifts as early as next week, though a date wasn't final, according to people familiar with the matter.
Hedge Funds Had 'Challenging' March. Hedge funds struggled to avoid losses in March as the $2 trillion industry was hit by the mid-month market slump triggered by Japan's massive earthquake and tsunami. "Hedge funds had a challenging March," Mary Ann Bartels, who tracks industry activity at Bank of America Merrill Lynch, wrote in a note to investors Monday. Investable hedge-fund indexes tracked by Bartels lost 0.91% last month, through March 30, while the Standard & Poor's 500 index rose 0.08% in the same period.
Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. have received increased orders after the earthquake in Japan disrupted production in the nation.
People's Daily:
Conditions supporting China's high growth may gradually weaken, citing Ma Jiantang, head of the country's National Bureau of Statistics. The country is facing a difficult task to meet domestic grain demand which may continue to increase.
China National Radio:
The likelihood of an interest rate increase in China is getting larger, citing Zhu Baoliang, chief economist at the State Inflation Center. The country's consumer prices may gain as much as 5% this year, citing Zhu.
Evening Recommendations
None of note
Night Trading
Asian equity indices are -1.0% to unch. on average.
Asia Ex-Japan Investment Grade CDS Index 104.0 -.5 basis point.
Asia Pacific Sovereign CDS Index 110.0 -1.0 basis point0.
The ISM Non-Manufacturing Composite for March is estimated at 59.5 versus 59.7 in February.
2:00 pm EST
FOMC Meeting Minutes.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Plosser speaking, Fed's Kocherlakota speaking, Treasury's Geithner speaking, $24 Billion 1-Year Treasury Bills Auction, weekly retail sales reports, Needham Healthcare Conference, (TECD) investor day, (EM) investor summit and the (AYR) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 93.24 -1.03%
European Financial Sector CDS Index 94.72 +7.13%
Western Europe Sovereign Debt CDS Index 165.17 bps -.70%
Emerging Market CDS Index 198.25 -1.11%
2-Year Swap Spread 18.0 unch.
TED Spread 26.0 +2 bps
Economic Gauges:
3-Month T-Bill Yield .04% -2 bps
Yield Curve 266.0 +1 bp
China Import Iron Ore Spot $173.90/Metric Tonne unch.
Citi US Economic Surprise Index +41.10 -8.4 points
10-Year TIPS Spread 2.55% +3 bps
Overseas Futures:
Nikkei Futures: Indicating +30 open in Japan
DAX Futures: Indicating +16 open in Germany
Portfolio:
Slightly Lower: On losses in my Tech sector longs
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly busllish as the S&P 500 consolidates recent gains, despite Mideast unrest, rising energy/food prices, tech sector worries, emerging market inflation fears and Japan concerns. On the positive side, Drug, Steel and Ag shares are especially strong, rising .75%+. The Italy sovereign cds is falling -3.67% to 139.30 bps, the Ireland sovereign cds is declining -3.7% to 602.12 bps, the Japan sovereign cds is falling -5.24% to 92.17 bps, the US sovereign cds is falling -6.11% to 39.50 bps and the Saudi sovereign cds is declining -3.7% to 114.0 bps. On the negative side, Education, Homebuilding, I-Banking, Wireless, Networking, Disk Drive, Semi, Computer, Oil Tanker and Defense shares are under pressure, falling more than -.75%. Tech shares have underperformed throughout the day again. (XLF) is also relatively weak again. Oil is rising +.3%, copper is falling -.18%, gold is rising +.42% and the UBS-Bloomberg Spot Ag Index is gaining another +1.18%. The UBS-Bloomberg Spot Ag Index looks poised to test its record highs over the coming weeks, which would again raise emerging market inflation worries. Chinese pork prices are up 41% over the last 10 months. The US price for a gallon of gas is up +.04 today to $3.66/gallon. It is up .54/gallon in 48 days. The Spain sovereign cds is rising +3.09% to 224.80 bps, the Portugal sovereign cds is gaining +1.57% to 578.33 bps and the US Muni CDS Index is gaining +1.85% to 153.47 bps. Action in copper, bonds and t-bills is a concern again today. The TED spread has broken out of an eight-month range. With the DJIA back to multi-year highs, the tech and financial sectors must join in soon for the recent rally to gain much traction from current levels, in my opinion. Both sectors remain below their 50-day moving averages. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, technical selling, tech sector weakness, emerging market inflation fears, rising energy/food prices, Mideast unrest and Japan concerns.
European Producer-Price Inflation Accelerates to 6.6% on Oil. European producer-price inflation accelerated to the fastest in more than two years in February, led by increasing energy costs, adding to pressure on the European Central Bank to raise key interest rates. Factory-gate prices in the euro region jumped 6.6 percent from a year earlier, the fastest since September 2008, after increasing a revised 5.9 percent in January, the European Union’s statistics office in Luxembourg said today.
Corn Rallies to Highest Since 2008 as Stockpiles Drop, Goldman(GS) Sees Record. Corn rose for a third day to the highest price since 2008 in Chicago on concern that a planned increase in sowing in the U.S. will fail to rebuild global inventories drained by stronger demand. U.S. corn stockpiles on March 1 dropped to 6.52 billion bushels, the lowest level for that date since 2007, the Department of Agriculture said on March 31. Farmers in the country will expand corn sowing to 92.178 million acres this year, the second-largest area since 1944, it said, citing a survey. Goldman Sachs Group Inc. increased its three-month forecast for corn by 39 percent to $8.60 a bushel after the USDA figures last week.
Possible Greek Default May Have Domino Effect. A sovereign debt default by Greece, which prices in the derivatives market suggest is likely, may condemn Ireland and Portugal to the same fate, as investors dump bonds of all three nations and voters resist economic austerity measures. “Greece will restructure in 2013, or perhaps before,” said Marie-Anne Allier, Paris-based head of the euro-aggregate group at Amundi Asset Management. “If Greece restructures, it will be very difficult for Ireland and Portugal to impose a very strict austerity program and not restructure. It’s a domino effect.”
Google(GOOG) Enters Pact to Buy Nortel Networks Patents for $900 Million. Google Inc. (GOOG) offered $900 million for the rights to about 6,000 Nortel Networks Corp. patents as the world’s biggest Internet-search company seeks to stave off lawsuits by bolstering its portfolio of intellectual property.
Sept. 11 Trial to Military Commission, Not New York Court. The Obama administration reversed its plan to put the self-proclaimed mastermind of the Sept. 11 attacks on trial in civilian court in New York and instead will send the case to a military commission. The case of Khalid Sheikh Mohammed and four alleged co- conspirators is being referred to the military justice system, Attorney General Eric Holder said in a statement in Washington today. The military trial will be held at the U.S. prison at Guantanamo Bay, Cuba, said two U.S. officials, who weren’t authorized to discuss the matter publicly and spoke on condition of anonymity.
Wall Street Journal:
Fujitsu Chief Looks at Japan's Crisis. Top executives at major Japanese companies are collectively facing the biggest test in crisis management they have ever experienced.
Grand Jury Investigates Apps. Online music service Pandora Media Inc. said it had received a subpoena related to a federal grand-jury investigation of information-sharing practices by smartphone applications.
Police Kill Yemen Protesters. Police opened fire on protesters in the southern city of Taiz Monday, killing at least 11 and injuring more than 200, in an abrupt return to violence that increases pressure on President Ali Abdullah Saleh to break a dangerous political stalemate with the opposition.
Chip Stocks Pull Down Tech Sector.Semiconductor stocks such as Intel Corp. and Nvidia Corp. led a mostly down day in the tech sector Monday following the latest chip-sales figures and reports on how the industry may respond to the effects of the recent earthquake and tsunami in Japan.
Oil Futures Rise Above $108 a Barrel. Crude-oil futures edged higher Monday as tensions in key oil-exporting countries kept investors worried about supply constraints. Prices earlier spiked to the highest levels in 30 months. Although investors remain worried about geopolitics, nothing “was dramatically new over the weekend so we’re in something of a mixed bag,” said Bill O’Neill, a principal at Logic Advisors in New Jersey. But as the situation in Libya and elsewhere in the Middle East and North Africa shows no signs of a speedy resolution, prices could hit $110 in short order and $120 by the end of the year, if not sooner, O’Neill added. Brent for May delivery added $1.51, or 1.3%, to $120.28 a barrel on the ICE Futures Exchange in London.
More ETFs Reach Far and Wide, Focus is Narrower Than Ever. March's tally isn't in yet, but another 700 to 800 new ETF issues are in the pipeline, says Michael Johnston, a senior analyst at ETF Database.
How a Major US Bank Laundered Billions in Mexican Drug Money. The Guardian has an alarming story detailing the central role that Wachovia played in money laundering for Mexico's lucrative drug trade. The newspaper's investigation shows how the bank - now owned by Wells Fargo(WFC) - moved $378.4 billion from powerful drug cartels into currency exchange houses in Mexico. That's one-third of Mexico's annual GDP.
Foreign Currency Trading Is Easy - An Easy Way to Lose Money. More and more Americans are dabbling in currency trading and losing in spectacular fashion. Experts say the structure of the currency market makes it hard for amateurs to beat the house. An estimated 615,000 Americans are dabbling in foreign currency trading, encouraged by advertising from the two biggest U.S. brokers, FXCM Inc. and Gain Capital Holdings Inc., both based in New York. Combined, FXCM and Gain have about 260,000 accounts, a third of them in the U.S. These customers are losing money in spectacular fashion. At FXCM, 75% to 77% of customers lost money each quarter last year, according to newly required disclosures to the Commodity Futures Trading Commission. At Gain, which operates through http://www.forex.com, the number of unprofitable customers hovered between 72% and 79% every quarter last year, according to its filing.
The amount of oil products stored in tankers at sea rose 22% in March, citing data from E.A. Gibson Shipbrokers Ltd. Thirty seven tankers held 3.7 million metric tons of oil products last month, up from 29 vessels in February.
Now Libya Steps on President Obama's Message. President Barack Obama’s decision to intervene in Libya has presented him with a whole new set of political problems with members of both parties. But its most worrisome effect for the White House is the way it’s undermining his efforts to address what has been his administration’s longest-running issue — the economy.
Reuters:
European Banks Seen Raising $57 Billion - Morgan Stanley Poll.European banks will raise at least 40 billion euros ($57 billion) capital this year and fewer than 10 banks will fail an upcoming health check, according to a majority in a poll of investors at a Morgan Stanley conference. Morgan Stanley said 26 percent of respondents to a poll of 800 investors at its European financial services conference in London last week said listed banks would raise 40-50 billion euros of capital this year, 14 percent expected 50-70 billion to be raised, and 10 percent expected over 70 billion to be needed. A third expected 30-40 billion euros to be raised. European banks have raised or announced they will raise about 10 billion euros so far this year. Morgan Stanley said on Monday 43 percent of those polled -- which it said represented a range of international investors -- expected 5-10 listed banks would fail a European stress test of the sector, or would be prompted to raise captail ahead of the test results due in June. Another 42 percent said there would be less than five failures. Some 12 percent said 10-15 banks would fail.
Libya Rebels to Sell First Oil Cargo This Week - Report. Libyan rebels will this week load the first tanker with crude since an uprising against leader Muammar Gaddafi fully suspended exports from the North African country, Platts news agency reported on Monday. The agency said Liberian-registered tanker Equator was due to arrive in the rebel-held eastern Libyan port of Tobruk on Monday to load a cargo of Serir/Mesla blend crude oil. The agency quoted Wahid Bougaighis, head of the newly established oil company, as saying: "They are coming for sure because there was a contract signed already."
Exclusive - Al Qaeda Acquiring Weapons in Libya: Algerian Official. Al Qaeda is exploiting the conflict in Libya to acquire weapons, including surface-to-air missiles, and smuggle them to a stronghold in northern Mali, a security official from neighbouring Algeria told Reuters. The official said a convoy of eight Toyota pick-up trucks left eastern Libya, crossed into Chad and then Niger, and from there into northern Mali where in the past few days it delivered a cargo of weapons. He said the weapons included Russian-made RPG-7 anti-tank rocket-propelled grenades, Kalashnikov heavy machine guns, Kalashnikov rifles, explosives and ammunition. He also said he had information that al Qaeda's north African wing, known as al Qaeda in the Islamic Maghreb (AQIM), had acquired from Libya Russian-made shoulder-fired Strela surface-to-air missiles known by the NATO designation SAM-7.
European Insurers See "Dire" Impact of Capital Rules. Europe's proposed Solvency II capital rules for insurers could have "dire consequences" for the sector, making it more vulnerable to economic downturns and forcing it to charge higher prices, insurers warned on Monday.
Telegraph:
Nuns Ask Goldman Sachs(GS) Bosses Whether They're Really Worth $69.5 Million. Goldman Sachs is facing a call from four leading orders of catholic nuns to review whether the pay awarded to chief executive Lloyd Blankfein and other top executives is excessive. The proposal will be put forward at the Wall Street bank’s annual general meeting next month by the orders, who own shares in Goldman, the bank revealed in a filing with the Securities and Exchange Commission.
