North American Investment Grade CDS Index 94.74 -.80%
European Financial Sector CDS Index 94.06 +12.20%
Western Europe Sovereign Debt CDS Index 165.75 bps +2.10%
Emerging Market CDS Index 197.66 +.30%
2-Year Swap Spread 16.0 -1 bp
TED Spread 23.0 -1bp
Economic Gauges:
3-Month T-Bill Yield .05% +1 bp
Yield Curve 273.0 -2 bps
China Import Iron Ore Spot $181.90/Metric Tonne unch.
Citi US Economic Surprise Index +29.60 +1.1 points
10-Year TIPS Spread 2.62% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -16 open in Japan
DAX Futures: Indicating +23 open in Germany
Portfolio:
Higher: On gains in my Medical, Tech and Biotech sector longs
Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and then added them back
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite rising energy prices, emerging market inflation fears, financial sector weakness and rising eurozone debt angst. On the positive side, Gaming, Networking, Disk Drive, Computer, Software and Coal shares are especially strong, rising more than 1.0%. Tech shares have outperformed throughout the day and leadership is improving in the sector. Lumber is rebounding +3.76%. The Japan sovereign cds is falling -3.44% to 85.18 bps. On the negative side, Oil Tanker, Defense, Steel, Telecom, Bank, I-Banking, Insurance, Homebuilding, Education and Airline shares are lower on the day. (XLF) has been heavy throughout the day. The Transports are also relatively weak. Copper is falling another -1.88% and oil is rising +1.09%. The US price for a gallon of gas is up +.02 today to $3.81/gallon. It is up .69/gallon in 57 days. Despite near-record gas prices, refinery utilization plunged 3.0% this week to 81.4% which is a very depressed level. The Gasoline Crack Spread is currently 29.05, the highest level since May 2007. The 10-year TIPS spread is maintaining recent gains. The Bloomberg Autos Anchored Index continues to surge, rising another +4.8% today, and is now at the highest level since August 2009. The US dollar continues to trade very poorly, notwithstanding today's mild bounce. The Spain sovereign cds is rising +4.39% to 220.25 bps, the Portugal sovereign cds is gaining +2.68% to 574.82 bps, the Italy sovereign cds is gaining +3.37% to 135.10 bps, the Belgium sovereign cds is jumping +2.63% to 127.12 bps, the UK sovereign cds is gaining +2.11% to 53.33 bps and the Greece sovereign cds is surging +4.02% to 1,104.53 bps. The Greece sovereign cds is now at a new record high. Energy/Foods prices have not declined nearly enough yet to help sustain a strong broad equity market advance from current levels. Tomorrow's March PPI will likely exceed estimates of +1.0%, which could pressure equities in the morning. One of my longs, (AAPL), is trading much better the last 2 days despite some negative analyst commentary regarding their forward guidance during the upcoming earnings call. I still see significant upside in the shares from current levels over the longer-term. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, Mideast unrest, rising eurozone debt angst, rising energy prices, emerging markets inflation fears, profit-taking and Japan concerns.
Crude Oil Rises on Bigger-Than-Forecast Decline in U.S. Gasoline Supplies. Crude oil and gasoline rose after a U.S. government report showed inventories of the motor fuel plunged the most in 12 years as demand climbed and refineries idled units. Futures advanced as much as much as 1.1 percent after the Energy Department said gasoline supplies dropped 7 million barrels to 209.7 million last week. Stockpiles were forecast to decline by 1 million barrels, according to the median of 17 analyst estimates in a Bloomberg News survey. Crude oil for May delivery increased 31 cents, or 0.3 percent, to $106.56 a barrel at 2:11 p.m. on the New York Mercantile Exchange. Prices are up 27 percent from a year ago. The drop in gasoline inventories was the largest on a per- barrel basis since Oct. 9, 1998. Gasoline supplies have slipped 31.4 million barrels, or 13 percent, in the past eight weeks, the report showed. It’s the longest stretch of declines since the summer of 2008. Refineries operated at 81.4 percent of capacity, down 3 percentage points from the prior week, the report showed. It was the lowest level since February. An 0.5 percentage-point increase was forecast in the Bloomberg news survey. Stockpiles at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate crude oil, gained 26,000 barrels to 41.9 million, the highest level since at least 2004 when the department began tracking stockpiles at the hub.
Small Businesses Balk at 'Piggy Bank' Role in Tax Code Rewrite. Small companies such as Arc Abrasives Inc. in Troy, Ohio, may end up as a roadblock to President Barack Obama’s drive to revamp the corporate tax code. A manufacturing business with 82 employees, Arc changed its tax status from a standard C corporation to a hybrid S corporation about a decade ago. The reason, says the company’s president, Anthony H. Stayman: to avoid paying taxes twice, at both the corporate and individual levels. Now he is worried that his tax bill could grow if a corporate overhaul makes its way through Congress. Other companies structured like his are concerned, too. The Obama administration has “created a firestorm in the business community,” says Neal Weber, managing director of the Washington national tax office of RSM McGladrey Inc., a tax and consulting firm.C corporations face what economists call double taxation.
China's Banks Said to Need $131 Billion of Capital to Meet Stricter Rules. Chinese banks may have to raise about 860 billion yuan ($131 billion) of stock over six years to meet stricter capital rules, according to estimates from the industry regulator, a person with knowledge of the matter said. Lenders are likely to need an additional 1.26 trillion yuan in supplementary capital by the end of 2016, the person said, declining to be named because the calculations aren’t public. The estimates, compiled in January, assume economic growth of 8 percent a year and 15 percent credit expansion, the person said. Chinese lenders including Industrial & Commercial Bank of China (1398) Ltd. sold a combined $70 billion of shares last year after record credit expansion fueled concern that their assets might be eroded by bad debts. Banks’ dependence on loan growth to increase profits means they’ll likely have to raise more equity capital, according to Fitch Ratings. “Capital erosion is a long-term issue facing Chinese banks because they don’t really have the motivation to reduce reliance on loan expansion,” said Wen Chunling, a Beijing-based analyst at Fitch.
China Will Say March Inflation Jumped Above 5%, Brokerages Say. The Chinese government will probably announce this week that inflation jumped above 5 percent last month, according to Haitong Securities Co. and Central China Securities Co., citing market speculation. “Investors are speculating March inflation will be 5.3 percent and that’ll justify the government’s continuing stance towards tightening,” said Li Jun, a strategist at Central China Securities in Shanghai. The statistics bureau is due to release the latest inflationnumber on April 15, with economists forecasting a 5.2 percent annual rate for March, the fastest pace since July 2008. Property developers and some banks fell today on speculation the central bank may order lenders to set aside more money in reserves as early as this week.
Cuomo Scores Highest Approval Among Governors in Quinnipiac Poll. New York Governor Andrew Cuomo has the highest approval rating among his peers around the nation, with New Jersey’s Chris Christie coming second, according to a Quinnipiac University poll released today.Cuomo’s score among registered voters rose to 64 percent from 56 percent in February, higher than governors in five other states polled by the Hamden, Connecticut-based college. Christie, a first-term Republican, has the next highest rating at 52 percent, according to a Feb. 9 survey. “Cuomo comes out of the budget vote -- usually a punishing time for politicians -- with impressive job-approval numbers,” said Maurice Carroll, director of the Quinnipiac University Polling Institute, in a statement. New York lawmakers approved the state’s first on-time budget in five years March 31. Cuomo, a 53-year-old Democrat, pushed lawmakers to close the budget gap with $9.3 billion of spending cuts, including reductions in education and health care that were opposed by a majority of voters, according to earlier surveys. The governor has threatened to fire almost 10,000 workers unless they agree to $450 million in concessions.
Bernanke Urges Republicans to 'Deal With' Debt, Lawmaker Says. Federal Reserve Chairman Ben S. Bernanke urged Republicans during a dinner meeting yesterday to find a way to “deal with” the rising U.S. national debt without endorsing a specific plan, lawmakers who attended said. “He said we have to deal with the debt,” Representative Steve Pearce, a Republican from New Mexico, said in an interview after leaving the session with the central bank chief on Capitol Hill. “So far the market seems to be forgiving of the fact that we haven’t,” Pearce said, adding that Bernanke told lawmakers that “we need to deal with it.”
BRICs Said to Seek End to U.S., Western Europe Monopoly of World Bank, IMF. Five of the largest emerging nations will push the U.S. and Europe to end their 65-year monopoly on leadership positions at the World Bank and International Monetary Fund, according to two diplomats who helped negotiate a statement by the countries. The management structure of the institutions needs to reflect changes in the world economy, the draft statement by Brazil, Russia, India, China and South Africa says, according to the diplomats, who asked not to be identified because the final text isn’t public. The section calls for a bigger role for developing countries in global institutions, a reference to concerns with how leaders are chosen at the World Bank and IMF. “We will insist on the fact that governance at the IMF and the World Bank cannot be a systematic rotation between the U.S. and Europe, with the other countries excluded,” Brazilian President Dilma Rousseff told reporters in Beijing April 12. “There is no reason for that.
Obama Lays Out Deficit Plan. President Calls for 'Across-the-Board' Spending Cuts, Tax Increases to Tackle Debt.
Engineer Sentenced for Stealing Ford(F) Secrets. An engineer who stole trade secrets from Ford Motor Co. has been sentenced to almost six years in prison. Xiang Dong Yu, also known as Mike Yum, admits copying thousands of documents with details on engine-transmission systems and electrical-power supply before leaving to work for a Chinese competitor in 2008.
Incoming ECB Executive Board member Peter Praet said Europe's sovereign debt crisis won't be helped by "looser monetary policy," citing an interview. Paraet said the "biggest contribution" a central bank can make is keeping inflation expectations anchored at a time of commodity-price increases.
The euro will need to be restructured in three to four years, John Taylor, chairman and founder of FX Concepts LLC, said.
Bullard: Fed Exit May Mix Asset Sales, Rates. The U.S. Federal Reserve has yet to decide how it will start to reverse its unprecedented rescue of the U.S. economy and is likely to take several months before making its first moves, a top Fed official said on Tuesday. In an interview with Reuters Insider, St. Louis Federal Reserve Bank President James Bullard said the Fed was looking at launching its exit strategy by raising its near-zero interest rates or selling some of the nearly $2 trillion in bonds it has amassed.Doing both at the same time was possible too, he said. "The debate about how to exit this loose, uber-easy monetary policy is again coming to the fore." Bullard, a non-voter this year on the Fed's policy-setting panel but whose views are often representative of its middle ground, has all but conceded he won't persuade his peers to cut short the Fed's $600 billion bond buying initiative. Instead, the easing program will probably be completed in its full amount through June. "If things are as strong as I think they'll be through 2011, the presumption is the next move after that will be some kind of tightening, and that tightening could be either on the balance sheet side or on the interest rate side." "Both things will be going on at once at some point," he said. His position points to an intense debate over exit strategy at the Fed's next meeting on April 26-27 and in coming months. Divisions have emerged between policymakers about the speed of the Fed's next steps amid signs of higher inflation.
Handelsblatt:
Federal Reserve Bank of Dallas President Fisher said he sees a risk of inflation getting out of control, according to a guest commentary. "I see the risk that we won't be able to keep inflation under control," Fisher wrote. "After the Fed completed its job, I now see above all the risks of a too-expansive monetary policy." It is not the Federal Reserve's task to dilute the debts of "an irresponsible government," he wrote.
The Greek government, which owes German companies about 500 million euros, is unable to pay suppliers like Siemans AG, Bayer AG and Hochtief AG.
Committing Germany to Europe's permanent rescue fund for debt-strapped euro countries risks breaching the constitution, citing a report by the German parliament's research service. The study, prepared for lawmakers in Berlin, warns that German loan guarantees under the planned European Stability Mechanism would set off a process that might force Germany to make payments that push the deficit beyond constitutional limits without giving parliament a say.
Zeit:
S&P said that a restructuring of Greek sovereign debt could involve haircuts of between 50% and 70%, according to an interview. The head of S&P's European debt evaluation team, Mortiz Kraemer, said that the risk of a Greek debt restructuring was "almost one in three."
Die Welt:
German Finance Minister Wolfgang Schaeuble said Portugal will have to undertake "stringent' austerity measures in order to receive financial aid from the European Union. Schaeuble also said that further measures could be required for Greece if the country isn't able to manage its debt.
Xinhua:
The BRICs countries of Brazil, Russia, India and China still face economic heating issues including inflationary pressures and asset bubbles, citing Chinese Commerce Minister Chen Deming.
China will implement a "prudent" monetary policy and ensure basically stable consumer prices, the State Council said in a statement posted on the central government's website. The country will keep consumer price growth at an "acceptable" level. It will also consolidate and expand macro control over the property market, the council said after a meeting chaired by Permier Wen Jiabao.
Japan Hit by Aftershocks as Jaczko Says Nuclear Crisis Is Yet to Stabilize. Japan’s crippled nuclear station is yet to stabilize and the reactors must be kept cool to prevent the crisis from deteriorating, the U.S. atomic regulator said, as more aftershocks rocked the country. “Currently the situation is static,” Nuclear Regulatory Commission Chairman Gregory Jaczko said at a hearing of the Senate Environment and Public Works Committee yesterday, after Japan raised the severity rating of the accident to the same level as Chernobyl. “It is not yet, however, what we believe to be stable” and “significant additional problems” could still occur at the Fukushima Dai-Ichi plant, he said in Washington. The stricken plant, about 220 kilometers (135 miles) north of Tokyo, is leaking radiation in Japan’s worst civilian nuclear disaster after a magnitude-9 quake and tsunami on March 11. While Tokyo Electric Power Co.’s station has withstood hundreds of aftershocks, temblors this week have hindered efforts to restore cooling systems as workers were temporarily evacuated. Tepco, as the utility is called, said a 5.2-magnitude earthquake today didn’t damage the plant and recovery work is continuing. Japan was struck by two earthquakes stronger than magnitude 6 yesterday, following a 6.6-magnitude temblor April 11 and a magnitude 7.1 aftershock on April 7.
Libyan Rebels Ask for Help From NATO to Break Qaddafi's Siege of Misrata. Libyan rebels said Muammar Qaddafi’s forces are “accelerating attacks” on Misrata, including firing Russian-made Grad rockets into the city, and appealed for international help to stop the “potentially devastating assault.”
Banks to Face Sovereign Debt Scrutiny in European Regulator's Stress Tests. European regulators will scrutinize banks’ calculations for losses on sovereign debt held to maturity when carrying out this year’s stress tests, Europe’s top banking supervisor said. Financial watchdogs will “check what banks are doing with reference to some sovereign exposures and see whether they’re taking a conservative attitude” when valuing the assets, Andrea Enria, the chairman of the European Banking Authority, said in an interview in London. Ninety banks will be expected to maintain a Core Tier 1 capital ratio of at least 5 percent under the stress-test scenarios, the EBA said. Portugal last week became the third euro-area state after Greece and Ireland to succumb to the region’s sovereign-debt crisis and request emergency aid. “I understand on contacts I’ve had with banks that some of them have already reviewed the valuations of sovereign exposures on the banking book towards certain countries,” Enria said. Banks hold on to bonds in the banking book until the principal is scheduled to be repaid, rather than trading them on the secondary market. This year’s tests will include a review of how banks would handle a 0.5 percent economic contraction in the euro area in 2011 as well as a 15 percent drop in European equity markets. The EBA tests will also examine the effect of a 75 basis- point-jump in interest rates on European sovereign bonds and an increase in short-term inter-bank financing costs of 125 basis points.
Asia Deficits Swell as Soaring Oil Makes Leaders Delay Subsidy Reductions. Surging oil and food costs may swell budget deficits in Asia as governments spend on subsidies to keep consumer prices low and avoid inflation protests that helped topple regimes in the Middle East this year. India, Indonesia, Malaysia and Thailand, Asia’s biggest fuel subsidizers, will probably all miss fiscal deficit targets due to higher oil outlays, according to a March 10 Bank of America Merrill Lynch research note. Ten-year bond yields in India are trading near a six-week high, while those in Malaysia are close to levels last seen in January. The threat of further oil-price increases has become a “key downside risk” for global growth, the International Monetary Fund said on April 11. Oil at $120 per barrel would shave 0.5 to 1.2 percentage points off gross domestic product growth this year in most of Asia’s biggest economies, Oversea- Chinese Banking Corp. said in a March 10 report. “If we continue to see this upward pressure on oil prices, that becomes one of the key risks to pretty much most markets,” said Kenneth Akintewe, a Singapore-based money manager at Aberdeen Asset Management Plc (ADN), which oversees $287 billion. Crude prices, which traded close to a three-year high at as much as $112 per barrel last week, may force governments to sell more debt, pushing up yields across the region, he said.
Commodities Slump Most in Four Weeks as Japan Crisis May Slow World Growth. Commodities slid the most in four weeks, led by declines in grains, oil and industrial metals, as Japan’s nuclear crisis escalated, potentially slowing the global economic expansion. Crude oil retreated in the biggest two-day drop in 11 months after the International Energy Agency warned that oil above $100 a barrel is starting to hurt the global economy. Wheat and copper tumbled the most in four weeks, while cotton fell to a six-week low. Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said today the March 11 earthquake may hurt the economy more than forecast. “Seeing the oil market come down has taken some of the wind out of the inflationary forces that drove commodities to records,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.
Silver Options Bears Boost Bets on Decline for Second Day. Trading of bearish options on an exchange-traded fund tracking silver jumped to 3.7 times the four-week average, boosted by a single trade for a second day, as futures on the metal snapped a seven-day winning streak. More than a quarter of all volume for puts to sell the iShares Silver Trust (SLV) ETF was concentrated in 100,000 contracts in a strategy known as a butterfly spread, according to OptionsHawk.com, a Boston-based provider of options-market analytics. The trade profits most if the fund falls 7.9 percent to $36 before May options expire, and follows yesterday’s purchase of 100,000 July $25 puts. “This is interesting in the context of yesterday’s trade,” said Caitlin Duffy, an equity-options analyst at Greenwich, Connecticut-based Interactive Brokers Group Inc. (IBKR) “There’s similar sentiment between yesterday and today because this runup has lost momentum and may be due for a turnaround.”
Pfizer(PFE) Drug Wins FDA Panel's Backing for Pancreatic Cancer. Pfizer Inc. (PFE) won a U.S. panel’s backing to expand marketing of a cancer drug for patients with the rare type of pancreatic tumor diagnosed in Apple Inc. (AAPL)’s Steve Jobs in 2004. The medicine, Sutent, works sufficiently to outweigh potential risks, outside advisers to the Food and Drug Administration said today in an 8-2 vote in White Oak, Maryland.
Bank of Korea Says Inflation May Accelerate Faster Than Earlier Forecast. South Korea’s inflation will probably accelerate more than previously forecast while economic growth stays in line with expectations, the Bank of Korea said. Consumer prices may increase 3.9 percent in 2011, faster than the previous estimate of 3.5 percent, the central bank forecast in a statement in Seoul today. Accelerating inflation spurred by economic growth and higher oil and food prices may prompt the central bank to raise interest rates three more times this year, according to Barclays Plc.
Wall Street Journal:
Japan Vows Emphasis on Caution. Japanese officials said they will put greater emphasis on protecting the Fukushima Daiichi nuclear plant from strong earthquakes and tsunamis, after a series of aftershocks over the past week showed the facility's vulnerability to another major incident.
Tokyo Says Economic Recovery Is Stalled. The Japanese economy is no longer on a recovery path because of the impact of the devastating earthquake on March 11, the government said in its monthly economic report, vowing to compile an extra budget to support reconstruction efforts.
Tyco(TYC) Gets Takeover Offer of $30 Billion. France's Schneider Electric SA has made a preliminary bid for approximately $30 billion for Tyco International Ltd., according to people familiar with the matter, hoping to draw the Swiss-based conglomerate to the negotiating table. "The board is studying the proposal," said one person familiar with the matter. The tentative bid "was a surprise," this person added. As a result, Tyco officials believe "it's going to take awhile to sort it out," this person said. It seems highly unlikely that Tyco will accept a $30 billion offer, and directors "would undoubtedly want it to go higher.''
Risk Rule Riles Main Street. U.S. manufacturers, energy producers and other corporations are balking at a proposed rule they fear would drive up the cost of hedging against price swings in the commodities they depend upon, renewing a high-stakes debate over whether the regulation of derivatives should extend beyond the financial industry.
BP(BP) Races to Save Deal With Rosneft. As a bruising fight between BP PLC and some of Russia’s most powerful oligarchs intensifies, BP is now weighing a previously unthinkable step to end the battle: possibly pulling out of its highly lucrative Russian joint venture with the oligarchs, TNK-BP.
Fitch Warns of Possible China Debt Downgrade. Fitch Ratings said late Tuesday that it has downgraded the outlook on China's long-term local-currency issuer default rating to negative from stable. "The negative outlook reflects concern over the scale of sovereign contingent liabilities and risk to macro-financial stability arising from the very rapid pace of bank lending in recent years, especially against the backdrop of rising real estate valuations and inflation," said Andrew Colquhoun, head of Fitch's Asia-Pacific Sovereigns group. "Fitch expects some sovereign support for the banking system will be required," he said.
Sokol Knew of Lubrizol Deal Progress: Filing. David Sokol knew of progress toward a possible Berkshire Hathaway Inc. bid for Lubrizol Corp. before he bought almost $10 million worth of stock in the lubricant company, according to a new regulatory filing.
CNBC:
Inflation Actually Near 10% Using Older Measure. After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.
Business Insider:
Obama Faces a Tough Battle in the Key Stone State: Poll. President Barack Obama's is a perilous position in the key swing state of Pennsylvania, according to new polling numbers released today. The poll, conducted by Public Policy Polling, shows Obama's approval rating is just 42% in the Key Stone State.
Cotton Prices Heat Up This Summer. If you can't wait to shed that scratchy wool sweater for a cool new cotton T-shirt this summer, prepare yourself. The price hikes on cotton goods that are coming your way will be decidedly uncool. This summer, shoppers will be paying 10% to 15% more on all cotton products, according to a new industry survey.
Electronista:
iPhone 5 Due in China in October, Sources Allege. The iPhone 5 appears to be on track to launch in China in October, says Ticonderoga Securities analyst Brian White. The information comes from sources at a Chinese electronics trade show, at least some of which are conflicted about when the phone's initial announcement will take place. While some suggest the normal June timeframe, others call for September.If the iPhone 5 does arrive as late as September, White notes that Apple could ramp up international launches faster than it did for the iPhone 4, putting the device in China a month later.
Reuters:
US Govt Weighs More Drilling Contractor Oversight. The U.S. offshore drilling regulator is weighing options for expanding oversight of rig contractors after last year's massive BP Plc (BP.L) oil spill exposed a possible regulatory gap, Interior official Michael Bromwich said on Tuesday. Bromwich, who heads the the Interior Department's Bureau of Ocean Energy Management, said the agency was examining whether it has the authority to extend its regulations beyond the rig operators. So far, officials have found that the agency's regulations cannot go beyond operators unless new laws are enacted, but the agency is still looking into the issue, Bromwich said.
Fed Has Provided All The Liquidity US Needs: Fisher. The U.S. Federal Reserve Bank has provided the economy all the liquidity it needs, "and then some," Dallas Fed President Richard Fisher said on Tuesday. The U.S. central bank has kept short-term interest rates near zero for more than two years and has bought more than $2 trillion in long-term securities to push borrowing costs down still further.
Riverbed Technology(RVBD) Raises Q1 Forecast; Shares Jump. Riverbed Technology Inc raised its first-quarter forecast, which came in above market expectations, on strong sales of its network optimization products across geographies.Shares of the network equipment maker, which closed at $30.92 on Nasdaq on Tuesday, rose 14 percent to $35.10 in trading after the bell.
Financial Times:
Goldman(GS) Was 'Key' Galleon Partner. A former senior Galleon Group executive testified that the precarious state of the financial industry and concerns about its trading partner Goldman Sachs were frequently discussed inside the hedge fund in July 2008, prompting a meeting with senior bank executives that summer.
US Lacks Credibility on Debt, Says IMF. The US lacks a “credible strategy” to stabilise its mounting public debt posing a small but significant risk of a new global economic crisis, says the International Monetary Fund. In an unusually stern rebuke to its largest shareholder, the IMF said the US was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when its economy was growing fast enough to reduce borrowing.
Tuoi Tre:
Vietnam has 393,000 metric tons of steel in stockpiles as demand declines, citing information from the Vietnam Steel Association. Steel prices are expected to drop in the second quarter, the report said.
China Daily:
Chinese property developers are suffering a slump in cash flow as the government tightens monetary policy to tackle inflation and tries to rein in property speculation, citing a report by data provider Shanghai Wind Information Co. Free cash flow at the 84 developers that had filed 2010 annual reports to the Shanghai Stock Exchange by Money was minus -70.59 billion yuan, the report said.
Shanghai Securities News:
China's Vice Minister of Land and Resources Yun Xiaosu said that the nation's housing issues are affecting the overall economy and must be resolved. Yun, during a visit to Zhejiang province, said that China must be "determined" to resolve the issue of home prices as the government works to control inflation.
Economic Information Daily:
China may raise its reserve requirement ratio by 50 basis points either April 15 or April 22, citing analysts.
China Securities Journal:
China's banking regulator will enhance scrutiny on commercial banks through monitoring their average daily loan-to-deposit ratios starting from June, citing a person familiar with the situation.
South China Morning Post:
Investment bankers and auditors associated with U.S.-listed Chinese companies say they are not to blame for accounting scandals, citing presentations at a conference in Beijing. Auditors are unable to stop Chinese companies that falsify bank statements, a representative of an accountancy firm said.
Evening Recommendations CSFB:
Rated (AH) Outperform, target $31.
Night Trading
Asian equity indices are -.25% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 107.0 +2.0 basis points.
Asia Pacific Sovereign CDS Index 114.0 +2.0 basis points.
Advance Retail Sales for March are estimated to rise +.5% versus a +1.0% gain in February.
Retail Sales Less Autos for March are estimated to rise +.7% versus a +.7% gain in February.
Retail Sales Ex Autos & Gas for March are estimated to rise +.5% versus a +.6% gain in February.
10:00 am EST
Business Inventories for February are estimated to rise +.8% versus a +.9% gain in January.
10:30 am EST
Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,000,000 barrels versus a +1,952,000 barrel gain the prior week. Distillate supplies are expected to rise by +500,000 barrels versus a +195,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,000,000 barrels versus a -357,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.45% versus a +.3% gain the prior week.
2:00 pm EST
Fed's Beige Book.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Bullard speaking, Bundesbank's Weber speaking, $21 Billion 10-year Treasury Notes Auction, weekly MBA mortgage applications report and the JOLTs Job Openings report for February could also impact trading today.
BOTTOM LINE: Asian indices are slightly higher, boosted by financial and automaker 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.
North American Investment Grade CDS Index 95.50 +2.13%
European Financial Sector CDS Index 81.75 +2.96%
Western Europe Sovereign Debt CDS Index 162.33 bps +.93%
Emerging Market CDS Index 196.62 +1.58%
2-Year Swap Spread 17.0 -1 bp
TED Spread 24.0 -1bp
Economic Gauges:
3-Month T-Bill Yield .04% unch.
Yield Curve 275.0 unch.
China Import Iron Ore Spot $181.90/Metric Tonne -.60%
Citi US Economic Surprise Index +28.50 -4.3 points
10-Year TIPS Spread 2.63% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -15 open in Japan
DAX Futures: Indicating +28 open in Germany
Portfolio:
Slightly Lower: On losses in my Medical, Tech and Biotech sector longs
Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows despite buyout speculation, lower long-term rates and falling food/energy prices. On the positive side, Hospital, HMO, Restaurant, Road & Rail, Airline and Retail shares are slightly higher on the day. The Transports are displaying significant relative strength for the second day in a row. As well, (XLF)/(IYR) aren't down too much. Oil is falling -3.25%, the UBS-Blomberg Ag Spot Index is falling -2.35% and gold is declining -.88%. Weekly retail sales jumped +4.7% this week versus a +1.9% gain the prior week. This is the best weekly gain since the week of May 2nd, 2006. On the negative side, Alt Energy, Semi, Wireless, Homebuilding, Gaming, Coal, Oil Tanker, Energy, Oil Service, Steel, Construction and Education shares are under significant pressure, falling more than -2.0%. Cyclicals and small-caps are underperforming again. Commodity-related stocks have been especially heavy for the second day in a row. Copper is falling -1.89% and Lumber is falling another -.89%. Lumber is down about -22% in 2 weeks. The US price for a gallon of gas is up +.02 today to $3.79/gallon. It is up .67/gallon in 56 days. The 10-year TIPS spread is maintaining recent gains despite the decline in commodities. The Bloomberg Autos Anchored Index continues to surge and is now at the highest level since August 29th, 2009. The US dollar continues to trade very poorly, which remains a huge long-term negative for US equities. The Spain sovereign cds is rising +4.82% to 210.46 bps, the Portugal sovereign cds is gaining +3.19% to 560.55 bps, the Japan sovereign cds is rising +3.79% to 88.21 bps, the Russia sovereign cds is gaining +3.1% to 126.83 bps, the Belgium sovereign cds is jumping +5.45% to 124.17 bps, the UK sovereign cds is gaining +3.76% to 52.02 bps and the Brazil sovereign cds is climbing +3.7% to 107.34 bps. The broad market is finally buckling in the face of a number of headwinds. However, if the decline in food/energy prices picks up steam without the global economy slowing too much, inflation expectations would fall significantly, which should help to boost the broad market back to 52-week highs on multiple expansion later in the year. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, technical selling, rising Mideast unrest, eurozone debt angst, emerging markets inflation fears, profit-taking and Japan concerns.
