North American Investment Grade CDS Index 92.70 -.86%
European Financial Sector CDS Index 76.58 -12.11%
Western Europe Sovereign Debt CDS Index 162.69 bps -.70%
Emerging Market CDS Index 198.72 -.63%
2-Year Swap Spread 17.0 unch.
TED Spread 24.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .05% -1 bp
Yield Curve 270.0 +4 bps
China Import Iron Ore Spot $176.10/Metric Tonne +1.27%
Citi US Economic Surprise Index +34.60 -2.5 points
10-Year TIPS Spread 2.58% -1 bp
Overseas Futures:
Nikkei Futures: Indicating +106 open in Japan
DAX Futures: Indicating +18 open in Germany
Portfolio:
Slightly Higher: On gains in my Medical, Retail, Tech and Biotech sector longs
Disclosed Trades: Covered my (IWM)/(QQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite weaker economic data, Mideast unrest, rising energy prices, rising long-term rates and recent equity gains. On the positive side, Education, Bank, Wireless, Disk Drive and Semi shares are especially strong, rising 1.0%+. Tech and financial shares are outperforming. Copper is surging +2.57%. The Spain sovereign cds is falling -8.92% to 200.91 bps, the Italy sovereign cds is falling -6.36% to 129.66 bps, the Portugal sovereign cds is falling -5.7% to 551.66 bps, the Ireland sovereign cds is dropping -8.2% to 530.03 bps, the Belgium sovereign cds is falling -6.59% to 117.17 bps, the UK sovereign cds is dropping -6.4% to 47.56 bps and the US sovereign cds is falling -6.4% to 36.18 bps. On the negative side, HMO, Telecom, Steel, Ag, Oil Service, Energy, Alt Energy and Coal shares are under pressure, falling more than -.75%. Cyclicals are underperforming. Gold is rising +.22%, oil is up +.65% and Lumber is falling -3.24%. Lumber has broken down from the trading range that it had been in since mid-Dec. of last year. The 10-year yield is rising +6 bps to 3.54%. The US price for a gallon of gas is up +.02 today to $3.71/gallon. It is up .59/gallon in 50 days. The California Muni CDS is rising +10.71% to 230.40 bps. (XLF) is now trading above its 50-day moving average, which is a big positive. As well, the MS Tech Index is trading a bit better. However, leadership is lacking. As well, overall trading is still choppy with lackluster breadth/volume. The market seems to be anticipating a reversal lower in energy prices, which would likely send the S&P 500 to a new 52-week high. However, if this reversal fails to materialize soon, equity weakness is likely. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial/tech sector pessimism, short-covering, bargain-hunting, fund inflows, buyout speculation and less eurozone debt angst.
Euro Rallies Before ECB Meeting; Dollar Declines to Record Against Aussie. The euro advanced to its highest level against the dollar in more than 14 months on speculation the European Central Bank will increase borrowing costs further after raising its target lending rate tomorrow. The greenback dropped to a record against the Australian dollar and the lowest level versus the Canadian currency in more than three years on the view the Federal Reserve will trail other central banks in boosting interest rates. The yen tumbled against all of its major counterparts on bets the Bank of Japan will expand economic stimulus as the nation recovers from its worst earthquake on record. “It’s a combination of the market expecting the ECB to hike tomorrow and the generally positive environment for risky assets,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York.
Portugal Finance Minister Calls for European Assistance, Negocios Reports. Portugal needs to ask the European Union for financial assistance, Portuguese newspaper Jornal de Negocios reported on its website, citing Finance Minister Fernando Teixeira dos Santos. “It’s necessary to resort to financing mechanisms available in the European framework in the appropriate terms for the current political situation,” Teixeira dos Santos said in a response to questions from the newspaper, Negocios reported today on its website. The comments mark the first time that the government has said it would need to seek aid.
Cuomo Repeats Threat to Dismiss 10,000 N.Y. State Workers. Governor Andrew Cuomo, who produced New York’s first on-time budget in five years last week, is standing by his threat to fire almost 10,000 workers unless they agree to provide the state with $450 million of savings. Labor contracts that increased state workers’ pay almost 14 percent over four years expired March 31, 10 days after formal negotiations with unions began. Cuomo has said he spoke with labor leaders about his goals before talks started. “Negotiations are ongoing and obviously if we don’t reach an agreement, we would need to proceed with layoffs,” said Joshua Vlasto, a spokesman for Cuomo, in a telephone interview today. Cuomo, a 53-year-old Democrat, reached agreement with top lawmakers March 27 to close a $10 billion gap in the $132.5 billion budget.
Wall Street Journal:
Budget Talks Head to Brink. Republicans and Democrats stumbled one day closer to a government shutdown on Friday, as the two parties escalated what has become a broader battle over Washington's role in the U.S. economy.
CNBC.com:
Gold, Oil Soar to Fresh Highs as Inflation Fears Mount. Gold hit record highs a second straight day Wednesday and oil soared to fresh 2-1/2 year highs, sparking fears of inflation that could hurt some of the world's most dependable economies. Price pressures were rising in Asia's emerging economies — which had been the catalyst for the world's recovery from the financial crisis — and were unlikely to subside soon, the Asian Development Bank cautioned. "High and volatile oil and food prices will, in particular, reverberate through the world economy, and they are likely to stay that way in 2011-2012,'' the ADB said. "They will thus be a significant source of global inflation, especially in developing countries where recovery is firmly under way,'' the Manila-based agency said in a report.
Glenn Beck Pulling Show Off Fox News. According to the release Beck won't jump ship entirely. He'll develop a variety of programs for Fox News and its digital properties.
Google's(GOOG) on Verge of Victory. Google is poised to win Department of Justice approval for its controversial $700 million acquisition of ITA Software, The Post has learned.
New York Times:
Portugal Sells Debt But At a Much Higher Rate. Portugal was forced to offer higher interest rates to sell short-term debt on Wednesday, underlining concerns among investors about the country’s ability to continue financing itself without an emergency European bailout. Portugal sold 455 million euros, or $650 million, of one-year Treasury bills at an average yield of 5.9 percent, the country’s debt management agency said. That was significantly higher than the 4.33 percent yield when Portugal last sold such bills on March 16. The auction attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 2.2 two weeks earlier. The agency also sold 550 million euros of six-month bills at an average yield of 5.12 percent, compared with a yield of 2.98 percent at a previous auction of on March 2.
Rasmussen Reports:
45% Say Government Programs Increase Poverty in America. A new Rasmussen Reports national telephone survey shows that 45% of American Adults think current government anti-poverty programs actually increase poverty in America. Only 18% say these programs decrease poverty, while 24% say they have no impact.
Obama Reviews Names to Run Consumer Agency: White House. A source aware of the process told Reuters on Tuesday that the White House is considering Federal Reserve Governor Sarah Raskin and former Michigan Governor Jennifer Granholm to run the Consumer Financial Protection Bureau, set to open in July.
U.S. Stock Market Bulls Near 4-Month High. Bullish sentiment is often used as a contrarian indicator, with a high level of bullishness often interpreted to indicate an imminent fall in stock prices. U.S. stock market bulls rose to their highest level in nearly four months as equities continue to recover from their recent fall, according to a weekly survey of advisers by Investors Intelligence. Bullish advisers rose to 57.3 percent in the latest week compared to 51.6 percent in the previous week and a recent low of 50.6 percent just prior to that. The reading was the highest since the middle of December when it hit 58.8 percent. "At the end of last August's market lows the bulls were as few as 29.4 percent, suggesting a time to buy," said Investors Intelligence. "The latest reading suggests increased danger. At the October 2007 top, the bulls were 62 percent."
Several eurozone governments no longer rule out a reorganization of Greek debt, amid concern that Greece will be unable to borrow in capital markets net year, citing government officials. To increase the Greek aid package would be politically impossible and an alternative plan is therefore needed.
El Pais:
The situation in Portugal is "not as easy" as in Spain, and whether Portugal needs a bailout or not depends on markets, IMF Managing Director Dominique Strauss-Kahn said in an interview.
Valor Economico:
Brazil's central bank may continue to raise its benchmark interest rate after its April 19-20 policy meeting. Policy makers will raise rates as much as necessary to bring inflation within target in 2012.
Xinhua:
China may raise the price of gasoline by 500 yuan a ton and the price of diesel by 400 yuan a ton.
China Business News:
BYD Co. sold 40,027 vehicles in March, a 41% decline from the same period a year ago, citing the company.
NATO Gets Blamed as Libyan Rebels Flee Assault by Qaddafi Forces. Libyan rebels retreated under heavy fire from the central oil port of Brega, prompting their top commander to lash out at NATO for not doing enough to stop artillery attacks by Muammar Qaddafi’s forces. The North Atlantic Treaty Organization is slow “in responding to our instructions” on targets and is failing to ‘give us what we need,’’ said Abdel Fattah Younes, head of the rebel army and Qaddafi’s former interior minister. He was particularly critical of the alliance for failing to stop Qaddafi’s weeks-long siege of Misrata, the rebel-held city near Tripoli that has been the scene of the most protracted attacks on civilians. “We’re disappointed in NATO,” said Younes, speaking at a press conference in Benghazi broadcast on al-Jazeera.
U.S. Fiscal Crisis in Spitting Distance: Laurence Kotlikoff. The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot. Arguing over lowering our deficit by just 0.4 percent of GDP when we need to run massive surpluses to deal with the baby boomers’ impending retirement is, pick your metaphor -- rearranging the Titanic’s furniture, Nero’s fiddling, Custer’s Last Stand. Is this malign fiscal neglect, or has Congress somehow missed what its own Congressional Budget Office is indicating? CBO’s baseline budget updates suggest the date for reaching what Carmen Reinhart, Kenneth Rogoff and other prominent economists believe is a critical insolvency threshold -- a 90 percent ratio of federal debt held by the public to gross domestic product -- has moved four years closer, in just nine months! On March 18, when the CBO released a new forecast that incorporated the president’s budget, the 90 percent mark had moved up to 2017. Actually, 2017 is optimistic.
Japan May Restrict Power Use as Summer Worsens Shortages. Japan’s government said it may impose legal limits to electric power use as policy makers prepare for shortages that are likely to worsen as the summer approaches. Energy-supply constraints due to the damage to the Fukushima Dai-Ichi nuclear power plant following last month’s earthquake and tsunami mean the step must be considered, Chief Cabinet Secretary Yukio Edano said yesterday. “We want to ask companies to reduce their electricity use, especially during the peak, in a way that won’t affect their business,” Edano told reporters at a press conference in Tokyo. “Before we resort to forcible measures, we must first ask for cooperation that would impose minimal disruption. We will then consider other measures.” “This shortage is extremely damaging to the economy,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “We’ll see a lot of investment once reconstruction gets under way, but we’re not going to get much growth until we solve this electricity problem.”
U.S. Homebuilders Default Swaps Jump as KB Home(KBH) Misses Earnings Estimates. The cost to protect the bonds of U.S. homebuilders surged after KB Home (KBH) reported a bigger-than- expected loss as orders plunged. Credit-default swaps protecting the debt of the Los Angeles-based homebuilder, which targets first-time buyers, jumped 21.2 basis points to 436.9 basis points, according to data provider CMA. “This recovery has yet to include significant job growth and has not spilled over into housing,” Chief Executive Officer Jeffrey Mezger said in an earnings call today. “These headwinds will not go away, and a sustained broad-based housing recovery will not occur until we start to experience material job creation and higher consumer confidence levels.” Credit-default swaps on Lennar Corp. jumped 7.5 basis points to 355.9 and those on Pulte Group Inc. climbed 8.8 basis points to 325, CMA data show. Contracts on Ryland Group Inc. added 9.6 basis points to 249.5, the data show.
European, U.S. Divide Deepens in Ratings Slump: Credit Markets. European credit quality is deteriorating by the most since 2009 as the continent's sovereign debt crisis stifles growth and underscores a divergence from the U.S. Moody's Investors Service lowered long-term credit ratings on 182 banks, governments and companies in western Europe this year, including Spanish lender Banco de Sabadell SA and Paris-based grocer Carrefour SA, according to data compiles by Bloomberg. It upgraded 39 entities, translating into the smallest ratio since the full year of 2009. In the U.S., upgrades are outpacing downgrades by 25%.
Corn Futures Extend Rally to 33-Month High as Demand Outpaces U.S. Supply. Corn prices climbed to the highest since July 2008 on speculation that U.S. inventories will tighten as demand increases for food, livestock feed and fuel. U.S. corn stockpiles on March 1 dropped to the lowest for the date in four years, the Department of Agriculture said last week. The agency may cut its forecast this week for supplies held as of Aug. 31. The U.S. sold 101,600 metric tons to unknown destinations, the USDA said today. High fuel costs are boosting demand for grain-based ethanol, and feed demand is rising as cattle and hog prices climb. “Meat is at all-time highs, so obviously feed usage isn’t likely to be rationed,” said Frank Cholly Sr., a senior strategist at Lind-Waldock, a broker in Chicago. “The ethanol grind isn’t likely to slow down as long as they’re profitable, so corn prices have to go higher.”
Oil Falls a Second Day After Signals U.S., China Demand Growth May Falter. Crude oil declined for a second day in New York amid signs that the pace of fuel demand recovery may falter in the U.S. and China, the world’s biggest energy- consuming nations. Oil for May delivery fell as much as 62 cents, or 0.6 percent, to $107.72 a barrel, in electronic trading on the New York Mercantile Exchange. It was at $107.85 at 9:40 a.m. Sydney time. Yesterday, the contract slid 13 cents to $108.34. Futures are 24 percent higher than a year ago.
Swaps Signal Further Rate Increases Adding to Yuan Pressure: China Credit. The cost of fixing borrowing costs in China suggests policy makers will raise interest rates at least once more this year as food and fuel costs surge, adding pressure on the yuan to strengthen. The five-year non-deliverable swap rate jumped 26 basis points in the past three weeks to 4.23 percent, after a report showed a higher-than-forecast inflation rate of 4.9 percent in February. The People’s Bank of China’s latest increase was announced yesterday before an April 15 report that will show consumer prices climbed 5.2 percent in March, according to the median estimate in a Bloomberg News survey of nine economists. Brazil, Poland, India, South Korea and Thailand all raised benchmark borrowing costs in the past month, increasing the allure of local currency-denominated assets as interest rates in the U.S. and Europe remain near zero. China’s deposit rate of 3.25 percent compares with benchmarks of 11.75 percent in Brazil, 8 percent in Russia and 6.75 percent for India.
Wall Street Journal:
Egypt's Muslim Brotherhood to Rejoin Protests. After two months of working closely with Egypt's new military rulers, the country's most powerful Islamist group said it will join demonstrations this Friday—a move that could reinvigorate a revolutionary movement damped since protesters ousted the country's president in February. Muslim Brotherhood members have said the group will throw its official weight behind demonstrations against the country's provisional military leadership, which many youth protest leaders complain has been too slow to purge and prosecute lingering elements of the former regime. Its participation in Friday's protests calls into question the perceived alliance between the military and Islamist politicians, whose support has formed an essential political ballast in the military's hasty transition to democratic rule. If this Friday's protests succeed in pressuring the military to purge what is left of ex-President Hosni Mubarak's National Democratic Party, they could help the 83-year old Islamist group reclaim its revolutionary bona fides before parliamentary elections scheduled for September.
Budget Talks Head to Brink. Parties Far Apart on 2012 Spending, Long-Term Vision as Friday Deadline Nears.
Fed's Bullard to Push for Curtailing QE2 at April Meeting. James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful. “I don’t always get my way on the committee,” he noted in an interview with the Wall Street Journal. Most Fed officials want to carry the program through to its end in June. “Any changes that we’re going to make we’re going to have to make at this meeting,” he added. “We got a stronger economy and we got higher inflation and higher inflation expectations than we expected at the time,” he said. “The logical thing to do is to pull back.” But Mr. Bullard isn’t looking to a quick or aggressive shift to tight monetary policy. He said he wants to reduce the asset purchase program, slowly taper it off and then watch to see how the economy performs before taking further steps. “We’d be pulling back just a little bit from where we said we were going to be based on economic developments. Then we would be on pause for a little while,” he said. He was generally optimistic about the economy — describing it as “fairly robust” and likely to bounce back in the second quarter after subpar growth in the first quarter. Inflation, meanwhile, he said “appears to have bottomed out over the winter and may be headed higher.” “It is tumultuous times for monetary policy and that is why you’re hearing more from the Fed,” he said. “A tightening cycle is the hardest thing for a central bank to do. There is a lot of risk that you might fall behind the curve and wind up with a lot of inflation. On the other hand you hate to choke off a fledgling recovery. And so there is a lot of debate about it.” In the past, the Fed hasn’t explained itself well. “We’re trying to do a better job of communicating.”
Our Unaccountable Fed. 'I will maintain to my deathbed that we made every effort to save Lehman, but we were just unable to do so because of a lack of legal authority." So said Federal Reserve Chairman Ben Bernanke in 2009. The statement was striking—not because it was false, but because the Fed lacked explicit legal authority to do so much of what it did during the financial crisis. Drawing the line at Lehman seemed arbitrary, and it proved that the Fed has become an unaccountable power within American government.
China Housing-Price Controls Weak: CICC. Recent housing-price caps set by local governments have fallen short of market expectations, and may further fan speculation over price increases, according to China International Capital Corp. (CICC).
American Superconductor(AMSC) Plummets After Announcement of Order Cancellation to Biggest Chinese Customer Due to Overinventory. A stock falling due to a cut in FY outlook is nothing new. However, a stock cutting its outlook due to its biggest customer refusing to accept contracted shipments "until it reduces inventory levels" is probably the first confirmation we have ever seen of the massive inventory overbuild in China. The plunge in AMSC stock afterhours by over 40% is not surprising considering its entire business model is now turned upside down. What also should not be a surprise is when ever more companies delivering into China commence with comparable announcements. And with China drowning in excess inventory of virtually everything, this certainty is just a matter of time.
Munger "Recuses Himself" As Frontrunning Focus Shifts To His BYD Purchase. We are convinced that while his self-proclaimed recusal will placate everyone that Munger may have committed a crime, perhaps the SEC should ask a question or two. If nothing else, than at least to clear the Vice-Chairman's now thoroughly besmirched reputation.
IBD:
Auto Parts Stores Operate in High Gear. Top players O'Reilly Automotive (ORLY) and AutoZone (AZO) have watched both sales and profits climb at double-digit rates the past four quarters. Advance Auto Parts (AAP) has seen such growth the past two quarters.
CNN Money:
In Beijing, "Luxury" Becomes a Dirty Word. Starting next week, mum's the word on luxury in Beijing. After April 15, any company that puts up a public advertisement in China's capital city using the adjective -- or a few other flowery phrases like it -- will be fined around $4,500. The municipal government says on its website that such words induce hedonism and spiritual emptiness. The state media cites the growing gap between the rich and the poor.
Rasmussen Reports:
50% Acknowledge Conflict Between Economic Growth and Environmental Protection, Highest Level Yet. The number of voters who believe protecting the environment gets in the way of a growing economy has reached its highest level in just over two years. A new Rasmussen Reports national telephone survey finds that 50% of Likely Voters say there’s a conflict between economic growth and environmental protection. That’s up seven-points from earlier this year and is the highest level measured since January 2009. In the latest survey, 30% do not believe there’s a conflict between those two areas.
Politico:
Nobel Panel: Give War a Chance. When the Norwegian Nobel Committee awarded Barack Obama its 2009 peace prize, its members probably didn’t anticipate that the American president would send the U.S. military to fight in Libya just over a year later. And that has some Obama critics demanding that he return it. “The Nobel Peace Prize is no declaration of sainthood,” Geir Lundestad, the committee’s secretary, told POLITICO in an interview from Norway. “And no American president will ever be a saint.”
Reuters:
Reuters Summit - Nasdaq, NYSE Listings The Same - Bankers. Little difference remains between listing shares on the Nasdaq versus on the New York Stock Exchange, capital markets bankers said on Tuesday, undercutting concerns that hang over a proposed merger of the two.
Verizon(VZ) Customers Exposed in Massive U.S. Data Breach. Customers of Verizon Communications had their email addresses exposed in a massive online data breach last week, according to an email to customers obtained by Reuters. In what could be one of the biggest such attacks in U.S. history, a computer hacker penetrated the online marketer Epsilon, which controls the customer email databases for a broad swath of companies.
Japan Quake to Boost 2011 Global Chip Sales by $5 Billion - iSuppli. Global semiconductor sales are likely to grow by 7 percent to $325 billion this year, as last month's earthquake in Japan boosted prices of computer memory chips, research firm IHS iSuppli said on Wednesday.
Financial Times:
The freeze on the Libyan regime's assets has also limited the opposition's access to cash, citing Ahmed el-Sharif, head of the opposition's central bank. Banks in rebel-held areas are short of currency and could run out within weeks if access to Libyan assets abroad continues to be denied, el-Sharif said, noting that there may not be enough money to pay public-sector workers. He said he would recommend that oil exports cease unless the asset freeze is lifted for the opposition.
Times of India:
Beer and liquor will cost between 40% and 60% more in Mumbai and the rest of Maharashtra state following an increase in excise duty in the state's budget.
People's Daily:
China's inflation pressure may continue to increase this year, Chen Jiagui, a researcher with the Chinese Academy of Social Sciences, wrote. China needs to control its economic growth while increasing the supply of agricultural products and tightening liquidity, the researcher wrote.
Shanghai Securities News:
Pressure for yuan appreciation is increasing and the risk of imported inflation in China is rising, the State Information Center, China Development Bank Corp. and the Shanghai Securities News said in a joint report in today's newspaper. The global economic environment is becoming more complicated as a result of the Japanese earthquake and its aftermath and the war in Libya, the report said. Preventing prices from rising too rapidly while maintaining steady economic growth is the main problem facing China's macro-economic controls, according to the report.
China Securities Journal:
China should make property prices one of its main monetary policy goals, Yin Zhongli, a researcher from the Chinese Academy of Social Sciences wrote in a commentary. One way could be to peg property prices with the consumer price index and link consumer prices with the interest rate on deposits, Yin wrote.
Evening Recommendations Citigroup:
Reiterated Buy on (ANF), raised target to $76.
Piper Jaffray:
Raised (URBN) to Overweight, target $36.
Raised (ZUMZ) to Overweight, target $33.
Raised (WTSLA) to Overweight, target $5.
Night Trading
Asian equity indices are -.50% to +.75% on average.
Asia Ex-Japan Investment Grade CDS Index 104.0 unch.
Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +2,945,000 barrel gain the prior week. Distillate inventories are expected to remain unch. versus a +710,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -1,900,000 barrels versus a -2,684,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus unch. the prior week.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Lockhart speaking, weekly MBA mortgage applications report, BB&T Commercial/Industrial Conference, UBS Clean Energy Conference, (FE) analyst meeting and the (GG) investor 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 mixed. The Portfolio is 75% net long heading into the day.
