Today's Headlines

Bloomberg:

• Europe's Capital Flight Betrays Currency's Fragility. The euro area’s financial troubles appear to be flaring up again, as this week’s gyrations in the Spanish bond market show. In reality, they never went away. And judging from the flood of money moving across borders in the region, Europeans are increasingly losing faith that the currency union will hold together at all. In recent months, even as markets seemed calm, sophisticated investors and regular depositors alike have been pulling euros out of struggling countries and depositing them in the banks of countries deemed relatively safe. Such moves indicate increasing concern that a financially strapped country might dump the euro and leave depositors holding devalued drachma, lira or pesetas.
• Spain Banks Boost Borrowing From ECB by 50% in March. Spanish banks’ borrowings from the European Central Bank jumped by almost 50 percent in March, reaching the most on record, as lenders tap emergency loans and channel some of it into sovereign debt purchases. Average net borrowings by Spanish banks climbed to 227.6 billion euros ($300 billion) last month from 152.4 billion euros in February, the Bank of Spain said on its website today. Spanish lenders took 29 percent of the total long-term loans offered to euro-region banks, the data showed. That includes the three-year long-term refinancing operation loans known as LTRO.
• Spanish Risk at Record High as Rajoy Struggles to Avoid Bailout. The cost of insuring against a Spanish default jumped to a record as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region member to need a bailout. Credit-default swaps on Spain rose 17 basis points to 498 as of 4 p.m. in London, surpassing the previous all-time high closing price of 493, according to CMA. The contracts are up from 431 at the start of the month and 380 at the end of 2011, signalling a deterioration in investor perceptions of credit quality. “Spain is viewed as the next most likely to be in need of a financing program,” said Brian Barry, an analyst at Investec Bank Plc in London. “It’s not surprising to see CDS widening.” The rate on Spain’s 10-year note rose 17 basis points today to 5.99 percent, 21 basis points up from a week ago. Royal Bank of Canada said in a note that rising borrowing costs increased the chances that the country will seek some sort of external aid, such as having a European Union bailout fund buy up its debt. Sovereign insurance costs also rose elsewhere, with the Markit iTraxx SovX Western Europe Index of default swaps on 15 governments climbing four basis point to 278.5. The gauge was at 265.5 basis points on April 3.
  
• Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, according to BNP Paribas SA. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings jumped 14 basis points to 656 at 9:51 a.m. in London, and is heading for a fourth weekly rise. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.5 basis points to 136.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased six basis points to 242 and the subordinated index climbed 5.5 to 390.5.
• Italians Rally in Rome Against Monti's Pension-Revamp Gap. Italy’s main labor unions took to the streets of Rome today to protest Prime Minister Mario Monti’s pension-system overhaul, saying it traps hundreds of thousands of workers in a legal limbo without retirement pay. Tens of thousands of people marched through the streets of central Rome this morning before a rally where union leaders criticized the government for underestimating the extent of the problem. Last night the Labor Ministry said there are 65,000 Italians who may be left without support between when they leave work and when their pension kick in as the higher retirement age delays their payout. Unions say the figure is about five times that amount.
• Greece Euro Exit Would Trigger Chain Reaction, Schulz Tells FAZ. A decision by Greece to give up the euro would trigger a chain reaction that would force Spain and Portugal out of the common currency, European Parliament President Martin Schulz said in an interview with Frankfurter Allgemeine Zeitung in which he warned against such a step. A failure of the euro would risk reversing European economic integration as currency depreciations and appreciations would prompt countries to set up trade barriers, Schulz said in an interview.
• European Stocks Drop on Debt Fears, Slower China Growth. European stocks fell, for the longest streak of weekly losses since August, as concern resurfaced about the euro-area’s debt crisis and China’s economic growth slowed last quarter more than forecast. UniCredit SpA and Banca Popolare di Milano Scarl (PMI) led European banks lower. Banco Santander SA, the biggest Spanish lender, fell 3.2 percent. Cap Gemini (CAP) SA dropped 5.1 percent.
• Consumer Sentiment in U.S. Eases as Employment Growth Diminishes: Economy. Confidence among U.S. consumers cooled in April from a one-year high, a sign the moderation in job growth may limit the biggest part of the economy. The Thomson Reuters/University of Michigan’s preliminary index of sentiment dropped to 75.7 from 76.2 last month. The measure was projected to be unchanged, according to a median forecast in a Bloomberg News survey of economists. Tempered optimism follows the slowest month of job growth since October and a drop in weekly earnings that may restrain household purchases that account for about 70 percent of the economy. Tempered optimism follows the slowest month of job growth since October and a drop in weekly earnings that may restrain household purchases that account for about 70 percent of the economy. The Michigan index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket goods like cars, declined to a four-month low of 80.6 in April from 86 a month earlier.
• Consumer Prices in U.S. Increased at a Slower Pace in March. The consumer-price index climbed 0.3 percent, matching the median forecast of economists surveyed by Bloomberg News, after increasing 0.4 percent the prior month, Labor Department data showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, rose 0.2 percent.
• Wells Fargo(WFC), JPMorgan(JPM) Label More Junior Home Loans as Bad Assets. Wells Fargo & Co. (WFC) (WFC) and JPMorgan Chase & Co. (JPM) (JPM) labeled $3.3 billion of junior liens as bad assets after regulators pushed the nation’s biggest banks to rethink the value of second mortgages whose collateral has vanished. Wells Fargo classified $1.7 billion of junior liens as nonperforming in the quarter, leading to an increase in overall soured loans, and JPMorgan gave that designation to $1.6 billion of such loans, according to their first-quarter presentations today.

Wall Street Journal:

• Moody's Decides On Possible Italian Bank Downgrades Next Week.
• China Strains to Contain Buzz Around Bo Xilai. China's propaganda machine has gone into overdrive following the removal of top Communist Party leader Bo Xilai and a murder investigation into his wife, reflecting insecurities within the leadership amid the worst political crisis in a generation. A strongly worded editorial emphasizing the need for party discipline was splashed across the front pages of newspapers across the country on Friday.
  

MarketWatch:

• Utica Shale Bringing Jobs to Eastern Ohio.

CNBC.com:

• Is The World's Biggest Economy in Danger of Disintegrating? It is the world's biggest economy, China's largest export market and the top contributor to the International Monetary Fund (IMF). And while its politicians and citizens may feel some sense of belonging to the European Union, the sovereign debt crisis has shown that when the going gets tough, few people identify with Europe.
• Flurry of Fed Comments Suggest Less Chance of Easing.
  

Business Insider:

• Egyptians Are Terrified The Military Is Going To Take Over The Country.
• Obama is Slammed For 'Jetting Around' On Vacation And Being Out Of Touch.
  

Zero Hedge:

• Steinhardt On The Fed's Failure And The End Of Wall Street As We Know It.
• Spain CDS Notional Update.
• Austerity, Social Unrest, And Europe's 'Lose-Lose' Proposition.
  

NY Post:

• New York Times(NYT) Journalist Says Sulzberger 'Piloting Ghost Ship'. The mood is turning uglier inside the New York Times, where publisher and acting CEO Arthur Sulzberger Jr. has again been ripped for his globe-trotting ways, this time by a veteran newsman who, in an e-mail to more than 150 friends, accuses the boss of piloting a “ghost ship.”

New York Times:

• German Maker of Robots Gains as Chinese Wages Rise.

Pragmatic Capitalism:

• Rail Traffic Continues to Soften. (graph)

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Reuters:

• Fitch: U.S. Housing Not Keeping Pace With Improving Investor Sentiment.
• Exclusive: G20 May Boost IMF Resources by $400-500 Billion: Officials. The world's 20 biggest economies are likely to agree to increase the resources of the International Monetary Fund by between $400 and $500 billion, rather than the $600 billion initially sought by the IMF, Group of 20 officials have told Reuters. The extra money is to give the IMF, which is a lender of last resort to governments, more firepower to fight the sovereign debt crisis, triggered by unsustainable policies in euro zone countries such as Greece, Portugal and Ireland.
• Exclusive - Iran Ships "off radar" as Tehran Conceals Oil Sales. Iran is concealing the destination of its oil sales by disabling tracking systems aboard its tanker fleet, making it difficult to assess how much crude Tehran is exporting as it seeks to counter Western sanctions aimed at cutting its oil revenues. Most of Iran's 39-strong fleet of tankers is now "off-radar" after Tehran ordered captains in the National Iranian Tanker Co (NITC) to switch off the black box transponders that are used in the shipping industry to monitor vessel movements, oil industry, trading and shipping sources said.
• Copper Falls Below $8,000, China Data Disappoints.
• China March Crude Steel Output Hits Record. China's crude steel output hit a monthly record of 61.58 million tonnes in March, up 10 percent from February, data from the National Bureau of Statistics showed on Friday. Daily crude steel output reached 1.986 million tonnes, its highest since June last year.
• Goldman Sachs(GS) CEO Gets $16.2 Million Pay Package. Goldman Sachs Group Inc Chief Executive Lloyd Blankfein's compensation increased 14.5 percent to $16.2 million in 2011 despite a sharp decline in profits and share price during the year, leaving the bank open to more attacks on its pay policies.
• Obama Orders Oversight Group On Shale Gas.
  

Telegraph:

• Debt Crisis: Live. Spanish shares tumble 3pc after the country's borrowing costs rose again on worries over its banks, triggering sell-offs in European and US markets as slowing growth in China added to fears for the world economy.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.20%

Sector Underperformers:

• 1) Coal -3.51% 2) I-Banks -2.60% 3) Banks -2.65%

Stocks Falling on Unusual Volume:

• BCS, TI, DB, TEF, E, AAPL, INFY, IOSP, ILMN, GOOG, CTSH, CREE, ETFC, DWSN, ZION, ANEN, AMTD, QCOM, VCO, IVC, SJR, APL, STI and ANR
  

Stocks With Unusual Put Option Activity:

• 1) REE 2) HBC 3) ZION 4) GOOG 5) CTSH
  

Stocks With Most Negative News Mentions:

• 1) CNX 2) KBH 3) BAC 4) WFC 5) JPM
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Mid-Cap Value -1.0%

Sector Outperformers:

• 1) Software -.22% 2) Foods -.41% 3) Tobacco -.52%

Stocks Rising on Unusual Volume:

• CSTR, VECO, SODA and LNG
  

Stocks With Unusual Call Option Activity:

• 1) CSTR 2) SWY 3) ALL 4) GOOG 5) LNG
  

Stocks With Most Positive News Mentions:

• 1) HPQ 2) BA 3) CSTR 4) SBAC 5) GOOG
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Friday Watch

Night Trading

• Asian equity indices are unch. to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 161.0 -5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 137.75 -.75 basis point.
  
• FTSE-100 futures -.05%.
  
• S&P 500 futures -.27%.
  
• NASDAQ 100 futures -.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JPM)/1.17
• (WFC)/.73
  

Economic Releases
8:30 am EST

• The Consumer Price Index for March is estimated to rise +.3% versus a +.4% gain in February.
• The CPI Ex Food & Energy for March is estimated to rise +.2% versus a +.1% gain in February.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for April is estimated at 76.2 versus 76.2 in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Dudley speaking and Eurozone inflation data could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Surging into Final Hour on Less Eurozone Debt Angst, More Financial/Tech Sector Optimism, Diminished Global Growth Fears, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.16 -9.29%
  
• ISE Sentiment Index 185.0 +96.81%
  
• Total Put/Call .84 -22.22%
  
• NYSE Arms .53 -36.61%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.87 -5.13%
  
• European Financial Sector CDS Index 235.45 -4.74%
  
• Western Europe Sovereign Debt CDS Index 272.28 -.91%
  
• Emerging Market CDS Index 261.08 -2.11%
  
• 2-Year Swap Spread 28.50 -.25 basis point
  
• TED Spread 38.50 -.25 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -52.75 +4.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 177.0 +4 basis points
  
• China Import Iron Ore Spot $148.80/Metric Tonne +.07%
  
• Citi US Economic Surprise Index 15.40 +10.6 points
  
• 10-Year TIPS Spread 2.30 -1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a +73 open in Japan
• DAX Futures: Indicating +13 open in Germany
  

Portfolio:

• Higher: On gains in my Retail, Technology, Medical and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Italy Borrowing Costs Rise on Concern Over Debt Crisis. Italy was forced to pay about 1.1 percentage point more than a month ago to sell three-year debt as concern about Spain’s budget deficit reignites the euro area’s debt crisis. The Treasury sold 2.88 billion euros ($3.78 billion) of a 3-year benchmark bond to yield 3.89 percent, which was less than a maximum target of 3 billion euros and up from 2.76 percent at the previous auction on March 14. Investors bid for 1.43 times the amount offered, down from 1.56 times last month. The Rome- based Treasury also sold 2 billion euros of bonds due in 2015, 2020 and 2023. The auction’s top target was 5 billion euros. “Spain and Italy are the twin bellwethers of the euro-zone crisis,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by e-mail after the auction. “When one of them catches a cold, the other one sneezes. It’s the similarities between Spain and Italy that concern investors”.
• Monti Tackles Italy Corruption as Scandals Taint Parties. Prime Minister Mario Monti is shifting his focus from overhauling Italy’s economy to tackling corruption, a problem highlighted by the recent resignation of one of the country’s best-known political leaders amid a party- financing scandal. Monti’s government is readying a package of anti-corruption measures, including broadening the criminal definition of corruption to include cases in the private sector and tightening procedures to prevent failed prosecutions due to the statute of limitations, said a person with knowledge of the proposals, who declined to be identified because an official announcement hasn’t been made yet.
• IMF's Lagarde Says Europe Still Main Economic Risk. International Monetary Fund Managing Director Christine Lagarde said the main risk to global growth is a return of Europe’s debt crisis. A recent move by European governments to increase their crisis defenses is only part of the solution, Lagarde said, adding she is hopeful to see progress on her pledge to increase IMF resources when member countries meet in Washington next week. “Risks may not be as large as estimated earlier this year,” Lagarde said in a speech in Washington today. “But let us make no mistake, the risks and the needs are still sizable and it would be very imprudent to ignore that fact.”
• Sovereign, Corporate Bond Risk Falls, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt fell, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell 2.5 basis points to 271.5 at 8 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 14 basis points to 660, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 2.75 basis points to 140.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell seven basis points to 240 and the subordinated index declined 10 to 388.
• Jobless Claims in U.S. Rose Last Week to Two-Month High: Economy. More Americans than forecast filed applications for jobless benefits last week, reinforcing concern among Federal Reserve policy makers that the labor-market recovery will be slow to develop. Unemployment claims increased 13,000 in the week ended April 7 to 380,000, the highest since Jan. 28, the Labor Department reported today in Washington. The median forecast in a Bloomberg News survey called for 355,000 claims.
• U.S. Core Producer Price Index Rises More Than Estimates. Wholesale prices in the U.S. excluding food and fuel rose more than forecast in March, led by a pickup in the costs of light trucks and soaps. The so-called core producer price index climbed 0.3 percent after a 0.2 percent rise, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median estimate in a Bloomberg News survey. The overall gauge was little changed after a 0.4 percent rise.
• India's Industrial Output Rises Less Than Estimated. Indian industrial production rose less than predicted in February as weaker overseas demand and the highest interest rates since 2008 curbed output, with January’s figure revised lower because of a data error. Production (INPIINDY) at factories, utilities and mines advanced 4.1 percent from a year earlier, the Central Statistical Office said in a statement in New Delhi today. The median of 36 estimates in a Bloomberg News survey was for a 6.7 percent gain. January’s reading was cut to 1.1 percent from 6.8 percent after an error was found in sugar output calculations, the office said.
• Oaktree(OAK) Falls in Trading Debut After Raising Less Than Sought. Oaktree Capital Group LLC, the world's largest distressed-debt investor, fell on its first day of trading after raising less than sought in an initial public offering. Oaktree, which began trading today on the New York Stock Exchange under the ticker symbol OAK, declined 5.1 percent to $40.80 at 9:43 a.m. after losing as much as 5.5 percent. The Los Angeles-based firm, co-founded by Howard Marks and Bruce Karsh, raised $380.2 million in its IPO yesterday, about 27 percent less than originally sought.
• Maiden Lane Redux Joins With Europe to Roil CMBS. A $7.49 billion mass of real-estate debt assumed by the Federal Reserve Bank of New York in 2008 is weighing on the commercial-mortgage bond market, exacerbating a slide in values as Europe’s debt crisis flares and doubts mount about the strength of the U.S. economy. Relative yields on securities tied to shopping malls, skyscrapers and hotels have climbed to 206 basis points as of April 10, a six-week high, from a more than four-year low reached March 27, according to a Barclays Plc index. The 29 basis-point widening compares with a 17 basis-point rise in a Bank of America Merrill Lynch corporate bond index.
• Inside the Homes of Obama's High-End Donors. (video) Bloomberg's Hans Nichols gives an inside look at some of the homes where President Obama held fundraisers. He speaks on Bloomberg Television's "Inside Track."
• Oil Rises on Fuel Supply.
  

CNBC.com:

• Chinese Banks 'Great Shorts,' Won't Be Broken Up: Chanos. Chanos, the head of Kynikos Associates, has been betting against China — despite its role as a global economic leader — primarily because he believes the country is overbuilt and does not have the internal demand to support its ambitious growth plans. Nowhere has that trend been more apparent than in the banking system.
• The Global Financial Stress Index is Rising.
• Cut Public Debt Levels to 50% of GDP: OECD. Levels of government debt have soared in most countries since 2008 as a result of the financial crisis and will need to be brought down to “prudent” levels of around 50 percent of gross domestic product to cope with future challenges including health and long-term care and pensions, the OECD said in a report published on Thursday.

Business Insider:

• Catholic Bishops Vow To Resist 'Totalitarian Incursions' Of The Obama Administration.
• The Latest Employment Stats From Greece Are Terrifying.
• Seriously, These Chinese Malls Don't Have Any People In Them.
  

Zero Hedge:

• Uncrossing The Rubicon Toward A Euro Federal State: Germans Challenge ESM, Fiscal Pact In Constitutional Court.
• El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail?
• Goldman(GS) on the Greek Elections.
  

New York Times:

• A Fund-Raiser for Obama, With a Host From The Private Equity World. Not everyone in the private equity industry is sour on Mr. Obama. Hamilton E. James Jr., the president of Blackstone(BX) and one of the few prominent Democratic supporters from the private equity world, will host a fund-raiser for Mr. Obama in mid-May, two people with knowledge of the plans said on Thursday.

Reuters:

• Exclusive - SEC, Goldman(GS) to Settle Research Case for $22 Million - Sources. U.S. securities regulators are preparing to announce that Goldman Sachs will pay $22 million to settle allegations the bank did not have adequate policies to prevent research from being passed inappropriately to preferred clients, people familiar with the matter said on Wednesday.

Financial Times:

• Spanish Shares Are Standout Fallers. Spain’s Ibex index fell 0.8 per cent and has now fallen 14 per cent this year, while most global indices have rallied strongly. Banks led the Spanish decline after Banesto, the Spanish domestic bank, set aside €475m for provisions against bad property loans, and Banco Espírito Santo, Portugal’s largest bank by market capitalisation, launched a €1bn deeply discounted rights issue as part of efforts to rebuild its balance sheet.

Telegraph:

• Gold 'to hit $2,000' on Spain Fears. A looming flare-up in the eurozone crisis over Spain will drive the price of gold towards $2,000 (£1,255) an ounce this year, a leading consultancy predicts.

Macleans.CA:

• Household Debt and the Bank of Canada's Anxiety Levels. (graph) In the graph below, we’ve charted debt-to-income ratios, alongside some increasingly alarmed quotes from BOC governor Mark Carney or other Bank officials.