Weekend Headlines
Bloomberg:- European Stocks Fall for Third Week as Spain Bonds Drop. European stocks fell for a third week, the longest losing streak since August, as Spain’s rising borrowing costs boosted concern the euro-area has yet to contain its debt crisis, and the U.S. Federal Reserve damped expectations for further monetary stimulus. Banking shares led declines. Banca Popolare di Milano Scarl (PMI) and UniCredit SpA slid at least 12 percent each this week. Peugeot SA (UG) dropped 10 percent after a report showed U.S. sales of light vehicles rose less than forecast. Cairn Energy Plc (CNE) gained 3.7 percent after agreeing to buy Agora Oil & Gas AS to expand in the North Sea. The Stoxx Europe 600 Index (SXXP) declined 1.6 percent to 259.07 this week. “The fact that Spain is back in the news makes equity investors nervous about where we go from here,” said Peter Dixon, global equities economist at Commerzbank AG (CBK) in London. Spanish bonds fell for a third day on April 5, widening the spread between yields on 10-year Spanish and German debt to more than 400 basis points for the first time since Dec. 12. National benchmark indexes dropped in 16 of the 18 western- European markets this week. France’s CAC 40 Index slid 3 percent, the U.K.’s FTSE 100 Index lost 0.8 percent and Germany’s DAX Index decreased 2.5 percent.
- Spain Plans Health-Care Reform to Reassure Markets, El Pais Says. The Spanish government will present “forceful” measures in coming days to reassure investors after the nation’s borrowing costs rose, El Pais reported, citing unnamed government officials. The measures the government is considering include a “radical change” to the health care system to guarantee its viability, the newspaper said. A proposal will be ready by the end of the month and approval is expected by the beginning of summer, it said. The government may reduce the services offered by the tax- funded health care system, the newspaper said.
- Portugal Will Stick to Austerity Plan, Coelho Tells Die Welt. Portugal will maintain its austerity program after the International Monetary Fund said the country should relax the measures if its recession worsens, Die Welt reported, citing an interview with Prime Minister Pedro Passos Coelho. “Saving is no vicious cycle,” he was cited as saying. “Our measures are just a consequence of the imbalance that we’ve built up since 1995. The current contraction of the economy proves that we have brought on this disease ourselves.”
- U.K. Consumer Spending Slows as Fuel Prices Climb, Times Says. Consumer spending in the U.K. on items other than gasoline has risen in March at the slowest pace in at least two years because of rising fuel prices, The Times reported, citing MasterCard’s SpendingPulse survey. Spending rose 0.8 percent last month as consumers were forced to divert more of their earnings to fuel costs for their cars, according to the newspaper. Gasoline prices were 9.8 percent higher in March than a year ago, The Times said.
- Westerwelle Calls Comparing Israel With Iran ‘Absurd,’ Bild Says. German Foreign Minister Guido Westerwelle said that putting Israel and Iran on the same moral level is “absurd,” according to a commentary the he wrote in Bild am Sonntag. Germany has “historic responsibility” for Israel and the two countries share a partnership of values with belief in democracy, rights for individuals, freedom, responsibility and the rule of law, Westerwelle said. In contrast, Iran has violated international law, avoiding for years full cooperation to control its nuclear program, the foreign minister said. Westerwelle’s comments come in reaction to a poem published by Nobel Prize winning author Guenter Grass April 4. In the poem “What Has to Be Said,” Grass says that Israel as a nuclear power “is endangering already-fragile world peace” and describes its nuclear potential as “out of control, because no one can examine it.”
- Egan-Jones Cuts U.S. Debt Rating One Notch to AA Citing Growing Debt. Egan-Jones Ratings Co. cut the U.S. credit rating one step to AA, the second downgrade in nine months and two levels below its highest grade, with a negative outlook citing the nation’s increasing debt burden. U.S. debt has increased to 100 percent of gross domestic product, while debt climbed 23.6 percent from 2008 to 2010, the credit-rating firm said in a statement today. Egan-Jones lowered the U.S. grade to AA+ in a July. The downgrade was based on “the increasing debt load coupled with the fact that there has been no tangible progress in addressing the country’s growing debt to GDP” ratio, Sean Egan, president of Egan-Jones in Haverford, Pennsylvania, said today in a telephone interview. “Unfortunately, the debt is growing fairly rapidly while the GDP is not.” Standard & Poor’s cut the U.S. grade by one step to AA+ on Aug. 5 and has a negative outlook on the country’s debt. Moody’s Investors Service and Fitch Ratings assign the nation their top Aaa and AAA ratings respectively and also have negative outlooks.
- Employment Increase in U.S. Trails Most-Pessimistic Forecasts. Hiring by American employers trailed the most pessimistic forecasts in March, casting doubt on the strength of the expansion now in its third year. The 120,000 increase in payrolls reported by the Labor Department in Washington yesterday was the smallest in five months. The data also showed the unemployment rate fell to 8.2 percent as people left the labor force, while workers put in fewer hours. The figures, which followed an average 246,000 increase in payrolls in the previous three months, underscored Federal Reserve Chairman Ben S. Bernanke’s concern that stronger economic growth is required to keep powering the labor market. Yesterday’s report showed a drop in weekly earnings that bodes ill for consumer spending at a time when Americans are paying more at the filling station. “Not welcome news,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The economy needs a lot of momentum to get through the latest headwind of the return of $4 gasoline, and this report is distinctly on the slow side.” The March data showed a 34,000 decrease in retail employment, the biggest decline since October 2009. A milder winter may have limited hiring as workers were added to payrolls in previous three months at the expense of March. The Labor Department said that the number of people unable to work due to inclement weather was 360,000 below average from December through February. Professional and business service payrolls rose 31,000 last month, restrained by a 7,500 drop in temporary hiring. Only one president since World War II, Ronald Reagan, has been re-elected with a jobless rate above 6 percent. Reagan won a second term in 1984 with 7.2 percent unemployment in the month of the election, after the rate had fallen almost three percentage points in the previous 18 months. The jobless rate dropped as both unemployed and employed workers left the labor force. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.8 percent from 63.9 percent. Some economists saw similarities with early 2011, when the economy slowed amid rising energy prices, a disruption of supplies caused by the tsunami in Japan and political gridlock in the U.S. over the debt ceiling. This year, rising gasoline prices and the European debt crisis are taking a toll, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. The number of people unemployed for 27 weeks or more eased as a percentage of all jobless, to 42.5 percent from 42.6 percent. Average weekly earnings fell to $806.96 in March from $807.56. The average work week for all workers decreased to 34.5 hours from 34.6. Wage increases are needed to help Americans weather gasoline prices that have increased by 66 cents this year through April 5, to $3.94 a gallon, according to data from AAA, the nation’s largest auto club. The so-called underemployment rate, which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking, decreased to 14.5 percent from 14.9 percent.
- Consumer Credit in U.S. Rose Less Than Forecast in February. U.S. consumer borrowing rose less than forecast in February, restrained by a drop in credit-card debt, according to a Federal Reserve report. Credit increased $8.7 billion, the least in four months, after a revised $18.6 billion gain in January that was more than initially estimated, Federal Reserve figures showed today in Washington. Economists projected a $12 billion rise in the measure of revolving and non-revolving loans for February, according to the median forecast in a Bloomberg News survey. Smaller gains in borrowing indicate American households are continuing to pay down debt or are less optimistic about their finances. “Credit card borrowing has slowed down a bit,” Aneta Markowska, a senior U.S. economist at Societe Generale in New York, said before the report. “Clearly there was a run up in the past few months related to the holidays, and we’ve seen a pretty meaningful slowdown. The process of repairing consumers’ balance sheets still has farther to go.”
- China's Stocks Drop Most This Month After Inflation Accelerates. China’s stocks fell, dragging the benchmark down by the most this month, as faster-than-estimated growth in consumer prices damped speculation the government will ease monetary policy to spur economic growth. China Vanke Co. and Poly Real Estate Group Co. led a decline for developers after the inflation rate rebounded to 3.6 percent in March compared with economists estimate of 3.4 percent. China Merchants Bank Co. (600036) slid 1.3 percent after its plan to raise 35 billion yuan ($5.6 billion) in a rights offer was approved. China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, lost 2 percent after the U.S. added fewer jobs than estimated, dimming the outlook for global trade. “Rebounding inflation will weigh on investor sentiment,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Some of the expected monetary easing such as a reserve ratio cut may be delayed.” The Shanghai Composite Index (SHCOMP) fell 18.8 points, or 0.8 percent, to 2,287.77.55 as of 9:52 a.m. local time.
- Hedge Funds Cut Wagers as Fed Signals Less Stimulus: Commodities. Hedge funds reduced bullish bets on commodities for a second consecutive week as the Federal Reserve signaled it may refrain from more monetary stimulus, increasing concern that growth will slow and curb demand for raw materials. Money managers lowered net-long positions across 18 U.S. futures and options by 2.8 percent to 1.1 million contracts in the week ended April 3, data from the Commodity Futures Trading Commission show. Bets on higher corn prices fell to the lowest since February, while those on hogs dropped by the most since May. Speculators cut wagers on costlier crude oil for a third week, and are now the least bullish in two months. “The market is addicted to stimulus,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets. “This market has risen because of the liquidity push and the market will decline when it’s deprived of liquidity.”
- Nigeria Bombing Kills as Many as 50 Near Church in Kaduna. As many as 50 people were killed in a suicide car bombing today near a church in the northern Nigerian city of Kaduna. “It was a big explosion that shook the whole city,” and about 50 people may have died, Shehu Sani, president of the Civil Rights Congress, said by phone from Kaduna. The explosion occurred about 8:30 a.m. local time near the Assemblies of God Protestant church in the city, Sani said. Nobody has claimed responsibility so far. Kaduna state’s Emergency Agency said 16 people had died in the city’s four hospitals, though this number didn’t include those immediately killed in the blast, Abubakar Zakari Adamu, a spokesman for the agency said by phone. About 30 others were seriously injured and being treated, he said. Yinka David, a Kaduna resident, said by phone that he counted about 30 bodies at the scene and the bombing happened about 500 meters from the church. Authorities in Nigeria, Africa’s biggest oil producer, blame Boko Haram, an Islamist militant group, for a surge of attacks since 2009 against government buildings and security forces in the mainly Muslim north and Abuja, the capital. Those attacks have caused hundreds of deaths.
- Syrian Cease-Fire Unravels Amid Alleged Regime Violations. The United Nations effort to end the violence in Syria unraveled as the regime differed with envoy Kofi Annan over terms of a cease-fire and opposition groups reported 59 more people killed. President Bashar al-Assad’s government refused to pull back forces without written cease-fire commitments from the rebels. Colonel Riad al-Asaad, commander of the Free Syrian Army, the main armed opposition group, told Al Jazeera television in an interview that while the group would abide by the UN accord, it wouldn’t give further written guarantees to the government.
- N. Korea Neighbors Call for Dropping Rocket Launch. South Korea, Japan and China expressed concern over North Korea’s plan to launch a rocket this month as the communist nation’s activities raise tension in the region. North Korean space officials have moved all three stages of a long-range rocket into position at the launch site, the Associated Press reported yesterday. The AP said it was among foreign news agencies allowed a firsthand look at preparations under way at the coastal Sohae Satellite Station in northwestern North Korea.
- American Universities Infected by Foreign Spies Detected by FBI. Hearkening back to Cold War anxieties, growing signs of spying on U.S. universities are alarming national security officials. As schools become more global in their locations and student populations, their culture of openness and international collaboration makes them increasingly vulnerable to theft of research conducted for the government and industry. “We have intelligence and cases indicating that U.S. universities are indeed a target of foreign intelligence services,” Frank Figliuzzi, Federal Bureau of Investigation assistant director for counterintelligence, said in a February interview in the bureau’s Washington headquarters.
- Slumping U.S. Crop Reserves Raising Food Costs in Election Year. U.S. corn stockpiles are poised to be the smallest in 16 years by August and soybean reserves will be lower than the government expected, potentially accelerating food-price inflation in an election year. The U.S. Department of Agriculture may say tomorrow that corn inventories on Aug. 31 will be 37 percent lower than a year earlier at 715 million bushels (18.2 million metric tons), the average of 32 analyst forecasts compiled by Bloomberg show. That compares with a projection of 801 million bushels last month. Soybean stockpiles will be 242 million bushels, down from a March prediction of 275 million, the survey showed. The government is already predicting food inflation of 2.5 percent to 3.5 percent in 2012.
- High-Speed Rail Takes Californians for a Ride. The California High-Speed Rail Authority has a serious public-relations hurdle: how to sell its proposed Los Angeles-to-San Francisco bullet train without the word “boondoggle” attached. But the rail authority’s latest compromise plan to solve this problem -- with its focus on building the system in a “better, faster, cheaper” manner -- not only doesn’t fix the system’s fundamental flaws, it may plant the seeds of its destruction.
Wall Street Journal:- France Calls For "Substantial Increase" In IMF Resources.
- For Big Companies, Life Is Good. Large Corporations Emerge from Recession Leaner, Stronger—and Hiring Overseas.
- The New Mastermind of Jihad. A recently freed Islamist thinker has long advocated small-scale, independent acts of anti-Western terror. Mohamed Merah, the 23-year-old Islamist gunman who hunted down three Jewish children and a rabbi after murdering three French paratroopers in Toulouse last month, didn't act alone. In his journey from the slums of Toulouse, to the local mosques, to the terrorist training camps in Afghanistan and Pakistan that he described to French police, to filming his murder of the terrified children in order to post video clips on the web, Mr. Merah was following a path marked out years earlier by the coldblooded jihadist theoretician Abu Musab al-Suri.
- Traders Navigate a Murky New World.
- Path For Romney Getting Clearer.
- Crovitz: Complexity Is Bad for Your Health. If even Supreme Court justices can't fathom ObamaCare, where does that leave the rest of us? The Supreme Court has long had the role of declaring what the law is. That's becoming a harder and harder task thanks to the White House and Congress concocting laws so complex that no one knows their meaning before, during or after they're passed.
Business Insider:
Zero Hedge: CNBC:
Wall Street All-Stars:
SafeHaven:
- Cracks in Europe. In Europe, Wednesday's auction of Spanish 10-year bonds disappointed increasingly nervous markets. Demand for Spain's debt has waned. This is a serious issue for a country suffering from deep recession, a troubled banking sector and ongoing borrowing requirements. Even from a bearish perspective, one would have expected the ECB's massive liquidity operations to have bought Spain more than just a few short months.
OC Register:
- Mark Landsbaum: Working Longer For Government's Sake. Tax Freedom Day, the date representing the point each year when Americans have earned enough to pay all their taxes, won't be reached this year until April 17, four days later than last year. In California, it's even later.
Hedge Funds Review:
- European Commisison Shocks Hedge Funds With Decision To Implement AIFM as Regulation. The latest draft of the EU AIFM directive has been leaked, prompting an unofficial consultation over changes to several key points and accusations that the European Commission ignored Esma's advice. The European Commission’s decision to implement its controversial hedge fund rules as a regulation rather than a directive has rankled the hedge fund industry and the wider European financial and political communities. A draft version of the implementation rules for the alternative investment fund managers (AIFM) directive has been leaked, sparking debate across the industry about why the Commission is ignoring much of the Level 2 advice from the European Securities and Markets Authority (Esma) and reverts back to Level 1 detail in some areas.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -16 (see trends).
Reuters:
- China Steps Up Pressure To Prevent Any Attack On Iran. A senior Chinese diplomat said on Friday an attack on Iran would invite devastating retaliation that would envelop the region and destabilise the global economic recovery.
- Exclusive: Egypt's Islamist Candidate Says IMF Deal Unlikely. Egypt's Muslim Brotherhood has warned the government it will not support an IMF loan unless the terms are changed or it moves aside and allows a new administration to oversee how the funds are spent, its candidate for president said on Sunday. The government has been negotiating a $3.2 billion loan with the International Monetary Fund (IMF) to help it avert a balance of payments crisis caused by the political and economic turmoil of the last year, and an IMF technical team is now in Cairo. The IMF has said that before it agrees to a loan, the government must first sell the plan to the country's political groupings, especially the Muslim Brotherhood's Freedom and Justice Party, which won nearly half the seats in the new parliament.
- China Shuts Maoist Websites Amid Political Scandal. Chinese authorities have ordered a leading pro-Maoist website shut down for one month because of critical essays posted on it, the site's founder said, amid the country's worst high-level political crisis in years. The move comes after the firing of a once high-flying official who promoted Mao Zedong-era songs and stories.Han Deqiang, founder of the leftist website Utopia, said police ordered that it be shut down because of content that criticized the Communist Party, its leaders and an upcoming party congress.
Financial Times:- Hedge Funds and the Whale, Credit Index Edition. To summarise, a number of market participants are pointing their fingers at JP Morgan’s Bruno Iksil, who works for the bank’s “Chief Investment Office”. It’s said that he’s on the other ends of so many large trades on the Markit CDX.NA.IG.9 credit index that it’s distorting the market. Now, if you want to avoid a brief bit of navel-gazing on our part, go straight to The details below.
- Hedge Fund Gains Are Are Other Funds' Losses. Hedge funds are indisputable victors in financial markets over the past decade. Assets under management grew at an astonishing 35 per cent a year from less than $200bn in 1999 to more than $2tn in 2007. They fell back sharply in 2008, but last year they regained 2007 levels. So how have the spoils of victory been shared out? Who are the losers, and what costs do they bear?
- Another Troublesome Feature of CDS Usage. The truly troublesome feature, though, has to do with the “empty creditor” problem. Empty creditors are lenders (to a corporation or government) that cease to be concerned about whether the borrower fares well or poorly. Their interests are not aligned with those of other creditors, who prefer that the debtor does well, so that the debt is repaid.
- Banks Test 'CDOs' For Trade Finance. Some of the world’s biggest banks are trying to extend the principles of securitisation to the plain-vanilla world of trade finance – a market worth an estimated $10tn a year – as concern mounts that regulatory changes could constrain a key lubricant of the global economy.
La Razon:
- The Spanish health-care system is currently "unsustainable," Minister Ana Mato said in an interview. The government will create an agency to assess which drugs and services are "efficient", Mato said.
Xinhua:
- China's coal demand may continue slowing in 2Q as the economy decelerates, citing Wang Xianzheng, chairman of the China Coal Industry Association. Coal companies should properly control production to prevent large changes in the coal market, citing Wang.
Shanghai Securities News:
- Beijing 1Q Average New Home Prices Fall 20% on Year. Average new home prices fell to 12,326 yuan per square meter in the first quarter from a year earlier, citing the Beijing Real Estate Association. 18,000 new and existing home units were sold in the first quarter, down 14% from a year earlier.
Economic Information Daily:
- China will continue its tight control on the rare earth industry, citing Su Bo, vice minister of the Ministry of Industry and Information Technology. The ministry will crack down on the illegal exploration, production, black market sales and smuggling of rare earths this year.
- Made positive comments on (ACI), (ANR), (LM) and (JOYG).
Night Trading- Asian indices are -1.25% to -.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 161.50 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 132.75 +4.0 basis points.
- FTSE-100 futures n/a.
- S&P 500 futures -1.07%.
- NASDAQ 100 futures -1.04%.
Morning Preview LinksEarnings of NoteCompany/EstimateEconomic ReleasesUpcoming Splits
Other Potential Market Movers- The Fed's Bernanke speaking and the BOJ Rate Decision could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.
