Today's Headlines

Bloomberg:

• Banks in Europe Face $3.8 Trillion in Assets Sales. European banks could be forced to sell as much as $3.8 trillion in assets through 2013 and curb lending if governments fall short of their pledges to stem the sovereign debt crisis or face a shock their firewall can’t contain, the International Monetary Fund said. In a study of 58 banks including BNP Paribas SA (BNP) and Deutsche Bank AG (DBK), the IMF forecast that under such circumstances, gross domestic product in the 17-country euro region would be 1.4 percent lower than now expected after two years. Even under its baseline scenario, the IMF sees banks’ combined balance sheets possibly shrinking by as much as $2.6 trillion.
• Italian Bonds Slide on Monti Deficit as Bunds Outperform. German bunds outperformed most of their euro-region peers as fresh concern about Europe’s debt crisis boosted demand for the safest assets while the nation’s borrowing costs dropped to a record at a sale of two-year notes. Italian bonds reversed gains after Prime Minister Mario Monti pushed back his balanced-budget goal and predicted a deeper contraction of the economy. Spanish government bonds pared an advance after the Bank of Spain said the country’s bad loans ratio climbed. The nation will auction two- and 10-year securities tomorrow.
• European Stocks Decline; Repsol, Santander Retreat. European stocks declined as Bank of England policy maker Adam Posen ended his support for more stimulus, falling house prices signaled slowing growth in China and bad loans surged in Spain. “The debt crisis is far from over still and I think Spain will be worse before it gets better,” Henrik Drusebjerg, a senior equity strategist at Nordea Bank AB in Copenhagen, said in a Bloomberg Television interview with Maryam Nemazee. “European leaders need to address the key issues to move Europe out of this crisis and that is how to create growth under this environment and that has been almost unaddressed so far during this crisis.”
• 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. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings climbed 12.5 basis points to 669.5 at 2:42 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose five basis points to 142 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 6.5 basis points to 250.5 and the subordinated index climbed 11 to 409.
• Bank Credit Worst to Companies Since Crisis Peak. The debt of banks is trading at the biggest discount to the broader corporate bond market since the depths of the funding squeeze in November as Europe’s sovereign crisis again threatens to rattle global financial markets. From Spain’s Banco Santander SA (SAN) to Morgan Stanley in New York, the cost of credit-default swaps on a basket of the largest banks in Europe and the U.S. is 266 basis points, compared with 137 for the Markit iTraxx Europe Index of 125 companies with investment-grade ratings. The 129 basis-point spread is the most since it reached 133 on Nov. 30.
• Worst Yet to Come as Crisis Rescue Cash Ebbs, Deutsche Bank(DB) Says. The worst may be yet to come in the global financial crisis as the central bank spending that kept defaults low runs out, according to Deutsche Bank AG. (DBK) Credit-default swap prices imply that four or more European nations may suffer so-called credit events such as having to restructure their debt, strategists led by Jim Reid and Nick Burns said in a note. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments including Spain and Italy jumped 26 percent in the past month as the region’s crisis flared up. “If these implied defaults come vaguely close to being realised then the next five years of corporate and financial defaults could easily be worse than the last five relatively calm years,” the analysts in London said. “Much may eventually depend on how much money-printing can be tolerated as we are very close to being maxed out fiscally.”
• Oil Falls as U.S. Supply Rises Twice as Much as Forecast. Crude fell for the first time in three days on a U.S. Energy Department report showing a larger- than-expected supply gain. Prices dropped as much as 1.8 percent after the government said oil inventories rose 3.86 million barrels last week, more than double the increase forecast in a Bloomberg survey of analysts. Refineries operated at a rate below 85 percent for a second week.
• Intel(INTC), (IBM) See Sales Stall as Europe Crisis Crimps Orders.
• SXC(SXCI) to Buy Catalyst(CHSI) in $4.4 Billion Pharmacy Services Deal. SXC Health Solutions Corp. agreed to buy Catalyst Health Solutions Inc. in a cash and stock transaction valued at $4.4 billion to stay competitive as larger pharmacy benefits managers join forces. Catalyst investors will receive $28 in cash and 0.6606 shares of SXC stock for each Catalyst share under the terms of the agreement, the companies said today in a statement. That implies a purchase price of $81.02 per Catalyst share, 28 percent above yesterday's closing stock prices.
• Default Concern Mounts in Brazil as State Banks Cut Rates. President Dilma Rousseff is pushing state-run banks Banco do Brasil and Caixa Economica Federal to lower interest rates and boost lending to less-creditworthy borrowers, fueling concern that delinquencies will rise. The consumer default rate in Latin America's biggest economy held at 7.6 percent in February, the highest since December 2009, the central bank said in a report last month. The overall default rate in Brazil was unchanged at 5.8 percent, compared with 2.47 percent in Mexico.
• Webb Sees Virginia Question for Obama After Health-Law Fight. Democratic Senator Jim Webb of Virginia said it's a "big question mark" whether President Barack Obama will be able to carry his state again in this year's election because Obama's handling of the health-care overhaul harmed his credibility.

Wall Street Journal:

• Italy's 2013 Budget Miss Is No Sign of Laxity. Italy’s decision Wednesday to announce it won’t balance its budget as pledged next year is destined to complicate the debate about whether the euro area is too focused on austerity. A closer look indicates that Italy is not following Spain in loosening its fiscal targets so as not to over-penalize economic growth. Italy is in fact tightening its fiscal policy, a subtle point noted by Deputy Economy Minister Vittorio Grilli.
  

Business Insider:

• The 10 Hedge Funds That Give A Ton Of Money To Politicians.
• Regulators Decide At The Last Minute They're Not Going To Regulate 85% of Derivatives Traders.
• LA Times Publishes Awful Afghan Photos Over Strong Objection From The Army.
• This is the Chart That's Causing Spain to Get Crushed Today.
• Goldman(GS): Apple(AAPL) is a Screaming Buy.
  

Zero Hedge:

• A Quick Reminder Ahead of Tomorrow's Spain Debt Auction.
• Is This The Canary of Australia's Collapsing Housing Coalmine?
• Contagion Returns: France CDS Over 200 For First Time Since January. (graph)
  

Washington Post:

• SEC Approves New Rules for Dealers of Credit Default Swaps; Regulators Face Challenge. More than three years after the financial system teetered on the brink of collapse, federal efforts to impose tighter regulation are facing a major challenge. Business groups that denounce various rules as wasteful and misguided have found a powerful legal tactic to oppose regulators and potentially blunt their work. Their argument: Rulemakers have done too little to analyze the costs and benefits of the rules, thereby creating an unwarranted drag on the economy and giving courts grounds to intervene.

Securities Technology Monitor:

• France Biggest Default Risk, Not Spain. If you thought Spain was the country that most investors were now worried about defaulting on their credit obligations, think again. France tops the list. And Hungary is rising fast. The French republic ranked as the top sovereign entity with the most outstanding credit default swaps, net after offsetting contracts are accounted for, in the week ending April 13.

Reuters:

• Exclusive: Weidmann Says Not ECB Job to Tackle Spain's Problems. Spain should take a rise in its bond yields as a spur to tackle the root causes of its debt woes, not look to the European Central Bank to help by buying its bonds, European Central Bank policymaker Jens Weidmann told Reuters. Weidmann, who has led a push by some policymakers from core euro zone countries for the bank to begin planning an exit from its crisis mode, said no ECB policymakers favored using the bank's bond-buying plan to target specific interest rates on sovereign bonds, and ECB board member Benoit Coeure was simply stating a fact by saying last week that the program still existed. In a wide-ranging interview, Weidmann, who turns 44 on Friday, also said he saw no reason to discuss a third LTRO, the funding instrument with which the ECB has pumped over 1 trillion euros into financial markets since late last year. Weidmann, who is head of Germany's Bundesbank, which gives him a powerful voice on the ECB's 23-man Governing Council, spoke to Reuters against a backdrop of growing tensions in Spain, where benchmark sovereign bond yields are near the closely watched 6 percent level."We shouldn't always proclaim the end of the world if a country's long-term interest rates temporarily go above 6 percent," he said.
• Exclusive: Chesapeake(CHK) CEO Took Out $1.1 Billion in Unreported Loans. Aubrey McClendon, the CEO of Chesapeake Energy Corp, has borrowed as much as $1.1 billion over the last three years against his stake in thousands of company wells - a move that analysts, academics and attorneys who reviewed loan documents say raises the potential for conflicts of interest. The loans, which haven't been previously detailed to shareholders, are used to fund McClendon's operating costs for an unusual corporate perk that offers him a chance to invest in a 2.5 percent interest in every well the company drills. McClendon in turn is using the 2.5 percent stakes as collateral on those same loans, documents filed in five states show.
• Copper Steadies Near $8,000; Europe Caution Weighs.
  

Frankfurter Allgemeine Zeitung:

• Germany's leading economic institutes said the European Central Bank's response to the region's debt crisis jeopardizes its independence, citing a yet unpublished report. "The independence and credibility of the ECB is at stake," the institutes will say in their biannual report to be published tomorrow. "There's a danger that monetary policy won't be able to free itself from the predicament it has entered," the institutes said.
  

Il Corriere della Sera:

• Prime Minister Mario Monti is not planning to adopt new austerity measures this year to meet its deficit-reduction goal, citing his comments in a meeting with the representatives of the three main political parties last night.
  

Bear Radar

Style Underperformer:

• Large-Cap Value -1.18%

Sector Underperformers:

• 1) Oil Tankers -3.74% 2) Computer Services -2.70% 3) Homebuilders -2.16%

Stocks Falling on Unusual Volume:

• YPF, IBM, MJN, EVEP, APH, CHKR, TEF, FSLR, CREE, DOV, TXT, CHK, TITN, ASML, MMYT, CYMI, INTC, VLCCF, MELI, SPRD, NTLS, MSTR, MIDD, UTHR, UNFI, NVLS, RVBD, MTR, PXQ, SBR, VCO, GNI, GHL, SKM and CHKM
  

Stocks With Unusual Put Option Activity:

• 1) NUAN 2) DISH 3) CHK 4) INTC 5) UAL
  

Stocks With Most Negative News Mentions:

• 1) RIG 2) TOL 3) WHR 4) MS 5) CHK
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.35%

Sector Outperformers:

• 1) Disk Drives +.89% 2) Restaurants +.68% 3) Oil Service +.67%

Stocks Rising on Unusual Volume:

• KNOL, CHSI, SXCI, FRAN, TIBX, ISRG, STX, WYNN, IVN, PII, TPL, URI, WDC, KCG and HAL
  

Stocks With Unusual Call Option Activity:

• 1) WPI 2) PII 3) ISRG 4) TEX 5) XRX
  

Stocks With Most Positive News Mentions:

• 1) STX 2) ISRG 3) PWR 4) CHSI 5) STE
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer. Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors. Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasury show. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data. German and French banks, meanwhile, have cut holdings of those countries’ bonds, as well as Irish and Greek debt, by as much as 50 percent since 2010 in some cases. That leaves domestic firms on the hook for a restructuring such as Greece’s last month and their main financier, the European Central Bank, facing losses. Like Greece, governments would have to rescue their lenders with funds borrowed from the European Union. “The more banks stop cross-border lending, the more the ECB steps in to do the financing,” said Guntram Wolff, deputy director of Bruegel, a Brussels-based research institute. “So the exposure of the core countries to the periphery is shifting from the private to the public sector.”
• Bank Credit Worst to Companies Since Crisis Peak: Credit Markets. The debt of banks is trading at the biggest discount to the broader corporate bond market since the peak of the funding crisis in November as Europe's sovereign crisis again threatens to rattle global financial markets. From Spain's Banco Santander SA to Morgan Stanley(MS) in New York, the cost of credit-default swaps on a basket of the largest banks in Europe and the U.S. is 266 basis points, above the 137 for the Markit iTraxx Europe Index of 125 companies with investment-grade ratings. The 129 basis-point spread is the most since it was 133 on Nov. 30.
  
• Spain's Surging Bad Loans Cast New Doubts on Bank Cleanup Plan. Spain’s surging bad loans are spurring doubt on whether the government can persuade investors that it can clean up the country’s banks without further damaging public finances. Non-performing loans as a proportion of total lending jumped to 7.91 percent in January, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data. The regulator is set to publish data for February today. Defaults are rising and credit is shrinking at a record pace as 24 percent unemployment corrodes the quality of loans built up in the country’s credit boom and saps the appetite of banks to make new ones. Doubts about the extent of Spain’s non- performing loans problem is hurting bank stocks and driving up the government’s borrowing costs on investor concern that the expense of propping up ailing lenders may add to the debt burden. “One of our concerns in Spain is to what extent contingent liabilities could pass to the central government,” said Andrew Bosomworth, Pacific Investment Management Co.’s Munich-based head of portfolio management. Non-performing loans “will have to rise when you take into account the unemployment rate and what’s happening with the economy,” he said.
• Merkel Adviser Feld Says Debt Crisis May Worsen, Bild Reports. The euro area’s debt crisis is reigniting and may cause more turmoil this year than in 2011, Lars Feld, a member of German Chancellor Angela Merkel’s council of economic advisers, was quoted as saying by Bild. The European Central Bank’s efforts to stem the crisis are only having a short-term effect and the French presidential election is causing uncertainty, the Berlin-based newspaper said in an e-mailed summary of an article for today’s edition.
• Spain's Wiling Economy Still Held in Franco's Grip. Spain’s economic woes are triggering renewed fears over a potential default in the euro area, and much of the blame belongs to labor laws that date back to the dictatorship of General Francisco Franco. Unless the government succeeds in changing them, it’s hard to see the country returning to healthy growth even if it manages to stay solvent.
• Euro-Region Weakness Tests Maersk Competition Armistice: Freight. Europe’s container-shipping operators need a pause in the slowdown afflicting the region to bolster the truce they’ve called in their fight for customers.
• China Raises Financial Companies' General Reserve Requirement. The Ministry of Finance has raised the general reserve requirement for financial companies, including banks and trust firms, to 1.5% of their risk-weighted assets effective July 1. The current general reserve requirement is 1% under rules issued by the ministry in 2005.
• BHP(BHP) Iron Ore Output Advances 14%. BHP Billiton Ltd. (BHP), the world’s largest mining company, said third-quarter iron ore production rose 14 percent as it expands its mines and port in Australia, while warning that strikes severely depleted coal stocks.
• First Solar(FSLR) Latest Casualty in Renewable Energy Shakeout. First Solar Inc. (FSLR) (FSLR)’s decision to fire 30 percent of its staff and reduce production shows that even the biggest solar panel makers aren’t immune from the shakeout that’s bankrupted at least eight companies on two continents in the past year. The largest thin-film solar producer said yesterday it will cut 2,000 jobs by the end of the year at a cost of as much as $370 million. It marks the biggest staff reduction for the industry since bankrupt Solyndra LLC, backed by U.S. government loans, dismissed its 1,100 employees on Aug. 31.
• China Home Prices Fall in More Than Half Cities Tracked. China’s March home prices fell in 37 of 70 cities tracked by the government, posting the highest number of declines from a year earlier as officials reiterated plans to maintain curbs on the property market. The drop compares with 27 that registered a decrease in residential prices in February, according to data today from the nation’s statistics bureau. The bureau switched from a national average to individual figures for the 70 cities at the start of last year. “The falling trend in prices reflects government policies, and these are unlikely to change this year, which is discouraging buyers,” Dariusz Kowalczyk, a Hong Kong-based strategist with Credit Agricole CIB, said in an e-mail. “The housing market is the main risk to China’s soft landing, one that we think will be controlled by the government but also one that needs to be closely watched.”

Wall Street Journal:

• Rating Decision Hangs Over Morgan Stanley(MS). A rating company's decision due this spring is looming over Morgan Stanley as it prepares to present its first-quarter earnings report Thursday morning. James Gorman, chairman and chief executive of the New York securities firm, has spoken at least twice this quarter with executives at Moody's Investors Service, a person familiar with the matter said. Mr. Gorman typically speaks with Moody's officials once a quarter, the person added. Morgan Stanley executives were expected to reach out to Moody's again this week.
• In Facebook(FB) Deal, Board Was All But Out Of Picture. On the morning of Sunday, April 8, Facebook Inc.'s youthful chief executive, Mark Zuckerberg, alerted his board of directors that he intended to buy Instagram, the hot photo-sharing service. It was the first the board heard of what, later that day, would become Facebook's largest acquisition ever, according to several people familiar with the matter. Mr. Zuckerberg and his counterpart at Instagram, Kevin Systrom, had already been talking over the deal for three days, these people said.
• Buffett to Stay at Berkshire(BRK/A) Helm Amid Cancer Fight.
• Hedge Funds Use Donations to Boost Clout. Hedge funds have emerged as a force in New York state politics in the past seven years, funneling tens of millions of dollars to political parties, pet causes and candidates from both major parties, according to a report set to be released on Wednesday.

Business Insider:

• John Paulson Unveils A Surprising New Bet On Europe's Collapse. It was reported last night by various news outlets that star hedge fund manager John Paulson was now shorting European bonds. Okay, that's not a huge surprise. Lots of folks are betting against Europe. But what IS interesting is how Paulson is doing it. According to Sam Jones at FT, Paulson told his investors last night that he's doing it via credit default swaps on German bunds!
• REPORT: Secret Service Agents Hired A LOT Of Prostitutes At This Seedy Colombian Strip Club.
• 25 Signs That Middle Class Families Are Being Wiped Out.
  

Zero Hedge:

• Complete Gundlach Presentation.

CNBC:

• Intel(INTC) Earnings Top Forecasts; Stock Skids. Intel reported quarterly earnings that beat analysts' expectations but shares slipped in after-hours trading on Tuesday.
• IBM(IBM) Earnings Exceed Forecasts; Revenue Is Light. IBM reported quarterly earnings that beat analysts' expectations, but missed slightly on revenue, sending its shares lower in after-hours trading on Tuesday.
• Global Auto Parts Shortage Threatens Assembly Lines. Here we go again. One year after the auto industry was hit by parts and components shortages following an earthquake and tsunami in Japan, automakers are scrambling to avoid a repeat of what happened last year.

NY Times:

• Regulators to Ease a Rule on Derivatives Dealers. As federal regulators put the finishing touches on an overhaul of the $700 trillion derivatives market, a major provision has been tempered in the face of industry pressure. On Wednesday, the Securities and Exchange Commission and the Commodity Futures Trading Commission are expected to approve a rule that would exempt broad swaths of energy companies, hedge funds and banks from oversight. Firms would not face scrutiny if they annually arrange less than $8 billion worth of swaps, the derivative contracts tied to interest rates and commodities like oil and gas. The threshold is a not-insignificant sum. By one limited set of regulatory data, 85 percent of companies would not be subject to oversight. After five years, the threshold would reset to $3 billion; it is the same amount suggested by a group of energy companies in a February 2011 letter, according to regulatory records. When regulators first proposed the rules in late 2010, they set the exemption at $100 million. At that level, only 30 percent of the players would have been excused from the oversight, which was mandated by the Dodd-Frank financial overhaul law.
• Carriers Warn of Crisis in Mobile Spectrum. The wireless carriers say that in the next few years they may not have enough of it to meet the exploding demands for mobile data. The result, they ominously warn, may be slower or spotty connections on smartphones and tablets. They imply in carefully couched language that, given the laws of supply and demand, the price of cellphone service will soar.

Reuters:

• EU Report to Show Rocky Road Ahead for Greek Recovery. Greece must liberalise its labour market and business environment and focus on its public finances and credit flow to companies if it wants to make a positive impact on its economy this year, a draft European Commission document showed. The European Union's executive arm will publish on Wednesday a series of ideas on how the contracting Greek economy can return to growth, which the country badly needs to be able to service its huge debts. In the report that runs to more than 40 pages, however, officials list a litany of problems facing the Greek economy, whose recovery is key for the future of the euro currency. "Greece suffers from a lack of capacity to implement policy, manage public finances, collect taxes, open markets to competition, make public procurement work efficiently and innovatively, pay suppliers, or offer timely judicial review to its citizens," they write in the document seen by Reuters.
• Portugal's PM says no guarantees of return to markets on time-FT. Portuguese Prime Minister Pedro Passos Coelho said on Wednesday there were "no guarantees" that the country would meet its commitment to return to the international capital markets before September 2013.
• White House Renews Veto Threat Over Keystone. The White House on Tuesday renewed its threat to veto legislation to fund U.S. transportation projects responsible for millions of jobs if it includes the politically charged Canada-to-Texas Keystone XL oil pipeline.
• Intuitive Surgical(ISRG) 1st-Quarter Profit Tops Street. Intuitive Surgical Inc reported higher-than-expected first-quarter profit on Tuesday on increased sales of its high-priced da Vinci surgical robots and a rise in procedures using the systems and its shares rose nearly 6 percent.
• Incensed Spain threatens Argentina after YPF seizure.

Telegraph:

• Britain faces £50bn more spending cuts and tax rises to cover elderly care, warns IMF. Britain faces another £50bn of spending cuts and tax rises to cover the costs of age-related care and put the national debt under control, the International Monetary Fund has warned.
  

Evening Recommendations
Piper Jaffray:

• Rated (AYI) Overweight, target $66.
• Rated (CBE) Overweight, target $73.
  

Night Trading

• Asian equity indices are +.50% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 161.50 -6.0 basis points.
  
• Asia Pacific Sovereign CDS Index 135.0 -4.5 basis points.
  
• FTSE-100 futures -.01%.
  
• S&P 500 futures +.16%.
  
• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PJC)/.31
• (BLK)/3.04
• (TXT)/.35
• (BK)/.52
• (PNC)/1.48
• (DGX)/1.02
• (HAL)/.85
• (STJ)/.83
• (ABT)/1.00
• (QCOM)/.96
• (FFIV)/1.06
• (LRCX)/.45
• (YUM)/.73
• (EBAY)/.52
• (SWK)/1.12
• (MAR)/.29
• (AXP)/1.00
• (VMW)/.60
• (STLD)/.21
• (KMP)/.65

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,800,000 barrels versus a +2,791,000 barrel gain the prior week. Distillate inventories are estimated to fall by -125,000 barrels versus a -4,000,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,100,000 barrels versus a -4,277,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.6% versus a -1.9% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly MBA mortgage applications report could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by commodity and industrial 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.

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Short-Covering, More Tech Sector Optimism, Rise in Apple Shares

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.96 -8.13%
  
• ISE Sentiment Index 96.0 +47.69%
  
• Total Put/Call .86 -16.50%
  
• NYSE Arms .44 -61.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.99 -3.45%
  
• European Financial Sector CDS Index 244.11 -2.43%
  
• Western Europe Sovereign Debt CDS Index 278.34 -.99%
  
• Emerging Market CDS Index 262.81 -1.58%
  
• 2-Year Swap Spread 28.50 -1.5 basis points
  
• TED Spread 39.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -52.0 +1.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 173.0 +3 basis points
  
• China Import Iron Ore Spot $149.20/Metric Tonne -.07%
  
• Citi US Economic Surprise Index 9.2 -3.8 points
  
• 10-Year TIPS Spread 2.31 +4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +155 open in Japan
• DAX Futures: Indicating +9 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 trades back above its 50-day moving average despite Eurozone debt angst, rising global growth fears, less US economic optimism and rising energy prices. On the positive side, Coal, Alt Energy, Oil Service, Networking, Hospitals, Construction, Airlines, Computer Service and Steel shares are especially strong, rising more than +2.0%. Small-caps are outperforming. Copper is rising +.47%. Weekly retail sales rose +3.6% versus a +4.1% gain the prior week. Major Asian indices were mixed overnight as a +1.2% gain in India was offset by a -.94% decline in China. Major European indices rose around +2.5%, led by a +3.7% gain in Italy. The Bloomberg European Bank/Financial Services Index surged +4.2% today. The Spain sovereign cds is falling -4.6% to 488.76 bps, the Japan sovereign cds is down -4.1% to 99.10 bps and the Russia sovereign cds is down -3.55% to 195.86 bps. Moreover, the European Investment Grade CDS Index is down -4.6% to 137.20 bps. On the negative side, Edcuation, Restaurant, Disk Drive, Paper and Utility shares are underperforming, rising less than +1.0%. Lumber is down -1.8%, Oil is up +1.2% and the UBS-Bloomberg Ag Spot Index is rising +.4%. The Germany sovereign cds is gaining +1.95% to 78.0 bps and the France sovereign cds is up +.35% to 190.33 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to mid-Oct. levels. Lumber is -11.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and the broad equity rally. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -18.0% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +762.0% ytd. China's March copper imports fell -4.6% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. US stocks remain extraordinarily resilient as risks continue to mount. US investor complacency regarding the situation in Europe is high, in my opinion. Copper is only rebounding slightly, bonds are holding recent gains and the euro currency is not participating in today's eurozone equity optimism. As well, the rises in German/French cds are also red flags. For the recent equity advance to maintain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. (ISRG) reports after the close today. While the quarter should be fine, I took a little bit off the table ahead of possible cautious commentary regarding their European biz and on recent large-cap growth stock underperformance. Long (ISRG). I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, less US economic optimism, global growth fears and rising energy prices.

Today's Headlines

Bloomberg:

• Spanish Borrowing Costs Rise as Rajoy Denies Bailout Need. Spain borrowing costs rose at a sale of one-year and 18-month bills for the first time since November as Prime Minister Mariano Rajoy battles to convince investors the country won't need a bailout. Spain sold 12-month bills at 2.623 percent, up from 1.418 percent at the last auction on March 20, the Bank of Spain said in Madrid today. The Treasury also sold 18-month bills at 3.11 percent, compared with 1.711 percent last month. The total amount sold was more than the 3 billion-euro maximum target set for the auction. Spanish bonds extended gains after the auction with the yield the 10-year benchmark bond falling 15 basis points to 5.92 percent. That yield rose as high as 6.156 percent yesterday, the most since Dec. 1. The cost of insuring Spain's securities against default fell almost 5 basis points to 506.3 after record close of 511.2 basis points yesterday. Demand for the 12-month bills was 2.9 times the amount sold, compared with 2.14 times last month. Demand for the longer maturity notes rose to 3.77 times from 2.93. Spain's 10-year borrowing costs have jumped more than one percentage point since Rajoy said on March 2 that the nation won't meet a budget deficit target of 4.4 percent of gross domestic product set by the European Union this year.
  
• Bank of Spain Questions Budget Forecasts, Calls for Prudence. Spain's central bank chief said the country risks missing deficit estimates unveiled last month just hours after a successful bill sale dissipated some concerns that the government may have to seek a bailout. "The projected course of total revenues in the budget is subject to downside risks," Bank of Spain Governor Miguel Angel Fernandez Ordonez told a parliamentary committee today in Madrid. The comments may undermine the optimism sparked by Spain's successful bill auction just two hours previously. While 10-year bonds rose today, the yield is still close to 6 percent amid concern that Prime Minister Mariano Rajoy's government will struggle to rein in the budget deficit and shore up a banking industry facing additional charges of 50 billion euros ($66 billion.) Ordonez said revenue estimates should be "prudent" as the country suffers its second recession since 2009. The government's plan to raise 2.5 billion euros from a tax amnesty is "particularly uncertain," he told lawmakers in a session to discuss the budget, which was approved by the Cabinet on March 30 and is making its way through parliament. Spending linked to unemployment benefits may also be more than forecast as the nation suffers the highest jobless rate in the European Union, at almost 24 percent. If additional measures are needed, indirect taxes should be increased and temporary tax measures may have to be replaced by permanent ones, said Ordonez, who was appointed by the former Socialist government for a six-year term that ends this year.
• Merkel Gives Spain No Respite, Says Debt Cuts Key to Yields. Chancellor Angela Merkel opened her campaign to win back Germany's most populous state in May 13 elections by appealing to voters to endorse her message of austerity as the prime means to tackle Europe's debt crisis. "It's partly about still being able to shape our own future," Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt "are so tightly in the hands of the financial markets that they can't make independent decisions anymore. We have to watch out that high interest rates on our debt don't lead to the point where we can't decide and shape anything anymore" in Germany. Merkel's comments underscore a focus on her government's record of pressing for deficit cuts as a core campaign theme for the state elections next month even as investors and economists call for Germany to step up its response to the debt crisis now marauding Spain.
  
• Corporate, Government Credit-Default Swaps Decline in Europe. The cost of insuring against default on European corporate and sovereign debt fell, according to BNP Paribas SA. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings fell 10.5 basis points to 669.5 at 10:20 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings dropped two basis points to 142 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 249 and the subordinated index dropped one to 406. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined three basis points to 277.9.
• European Car Sales Decline to 14-Year Low as Economy Stalls. European car sales fell to a 14- year low last month, with Fiat SpA, Renault SA and PSA Peugeot Citroen posting the biggest drops, as the region's sovereign- debt crisis caused economic growth to stall. Registrations in the 27-member European Union plus Switzerland, Norway and Iceland fell 6.6 percent from a year earlier to 1.5 million vehicles, the lowest figure for March since 1998, the Brussels-based European Automobile Manufacturers' Association said today in a statement. First- quarter sales dropped 7.3 percent to 3.43 million vehicles. France and Italy, Europe's second- and third-biggest auto markets, shrank by more than 20 percent. The regional drop was alleviated by growth at German carmakers, such as Volkswagen AG. Paris-based Peugeot is among auto manufacturers forecasting an industrywide contraction of 5 percent in Europe this year. "The extent of the beat for Germans is a bit surprising, as well as the extent of the downturn for the French," Adam Hull, a London-based analyst at WestLB AG, said by phone. French car sales plummeted 23 percent to 197,774 vehicles, while Italian registrations dropped 27 percent to 138,137, according to the association, or ACEA.
• Oil Rises to Three-Day High on Spain Debt, IMF Outlook. Crude oil for May delivery advanced $1.59, or 1.5 percent, to $104.52 a barrel at 11 a.m. on the New York Mercantile Exchange. Earlier, futures touched $105.07, the highest intraday price since April 3. Crude is up 5.8 percent this year. Brent oil for June settlement rose 11 cents to $118.79 a barrel on the London-based ICE Futures Europe exchange.
• Factories in U.S. Cool for First Time in Four Months: Economy. Production at U.S. factories dropped in March for the first time in four months as the industry cooled following the strongest surge in three decades. Manufacturing, which makes up about 75 percent of industrial output, decreased 0.2 percent last month as appliance and furniture makers cut back, data from the Federal Reserve showed today in Washington. Capacity utilization, which measures the amount of a plant in use, was little changed at 78.6 percent last month after 78.7 percent in February. It has averaged about 81 percent since records began in 1967.
• U.S. Housing Starts Unexpectedly Drop to Five-Month Low. Builders began work on fewer homes than forecast in March, signaling a sustained industry recovery will take time to get underway. Housing starts dropped 5.8 percent to a 654,000 annual rate, less than the lowest estimate of economists surveyed by Bloomberg News and the least since October, Commerce Department figures showed today in Washington. While warmer weather may have spurred home construction at the beginning of 2012, a competing supply of cheap existing properties may be steering potential buyers away from purchasing a new home. That means home construction may not help boost the economy in 2012. “Housing continues to bump along the bottom,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “The best we can hope from housing over the next couple years is that it won’t subtract from growth. The numbers in the past few months were decidedly impacted by a much milder winter, so a significant portion of construction was pulled forward.”
• Fed Priority of Rates Integrity Prompts Outlook Struggle. Federal Reserve officials are grappling with how they might eventually exit from their plan to keep interest rates low through late 2014 without jolting markets. Policy makers have relied on communications about their rate expectations to provide additional stimulus after cutting their benchmark rate to near zero in December 2008. Now, they’re seeking to link their commitment more closely to changes in the economic outlook.
• First Solar(FSLR) Will Cut 30% of Workforce, Shutter Plants. First Solar Inc. (FSLR), the largest thin- film panel maker, will cut 30 percent of its workforce, about 2,000 jobs, in response to a deteriorating European market. Most of the jobs to be eliminated will be at a factory it’s closing in Germany and in Malaysia, where it’s idling four production lines, Tempe, Arizona-based company said today in a statement. The company will pay $245 million to $370 million in severance and related costs. First Solar’s thin-film technology, which helped it become the lowest-cost panel manufacturer, generates less electricity than traditional polysilicon panels that are made mostly in China. That’s made it less popular for rooftop systems that are favored in the top solar markets in Europe, said Theodore O’Neill, an analyst at Wunderlich Securities in New York. “They don’t have a good product for the rooftop market and Europe doesn’t have the big open spaces where their panels make sense,” said O’Neill, who has a “hold” rating on the shares. “The factory closures provide some clarity going forward, but they have a lot of work to do to prevent margin erosion.”

Wall Street Journal:

• Obama Calls for Stricter Oil-Market Curbs. President Barack Obama on Tuesday called for increasing penalties on oil speculators and boosting oversight of U.S. energy as part of a plan to crack down on an "irresponsible few" who he says rig oil markets.
• Goldman(GS) Beats Estimates, But Keeps to Cautious Tack. Goldman Sachs Group Inc. reined in its risk taking and focused on expense controls as its first-quarter profits beat expectations, though results showed the toll that choppy markets have taken on the company's main businesses. Revenue fell 16% from the first quarter last year to $9.95 billion—not as low as the $9.48 billion analysts had forecast—and profit fell 23% to $2.11 billion. The results were a strong rebound from the lackluster fourth quarter, but executives at the Wall Street company continued to emphasize caution about the near term, given the economic recovery's "fragility."
• Spain is Back in Recession, Central Banker Warns. Spain's economy is in recession and facing an "exceptional" situation, its central bank governor warned on Tuesday, as Madrid's borrowing costs nearly doubled from a month ago and the International Monetary Fund called on Madrid to review the pace of fiscal adjustment. Speaking before a parliamentary committee, Bank of Spain Gov. Miguel Ángel Fernández Ordóñez said the euro zone's fourth-largest economy was "back in recession" after a mild recovery in early 2011, "with only exports as a positive contributor to gross domestic product."

CNBC.com:

• PIMCO and the JPMorgan)JPM) Whale: CHIP-ing Away at a Scandal. Last week, I explained how the position taken in the CDX market by Burno Iskil, the so-called London Whale of JPMorgan’s chief investment office, could be an overlay hedge attempt to raise yields on Treasury Inflation Protected Securities, or TIPS.
• Fears Over the Health of Spanish Economy Persist. (video)
• Extreme Left and Right to Cause French Election Upset?
  

Business Insider:

• Check Out Nomura's Awesome Presentation: US In The Crosshairs.
• Traveling In Europe Has Become Absurdly Expensive - And You Know The Reason Why.
• If China Gave This Rocket Launcher To North Korea It Means The UN Has Been Getting Played.
• The Women of Bloomberg TV.
• The 101 Finance People You Have To Follow On Twitter.
• Chongqing Is A Perfect Illustration Of China's Unsustainable Growth Model.

Zero Hedge:

• The Delays Begin: Italy Pushes Back Balanced Budget Target By One Year.
• The European North-South Divide Is Exploding.
  

Real Clear Politics:

• Will We Defuse Our Debt Bomb? by Senator Tom Coburn.

Reuters:

• Exclusive: China's Bo Backed, Then Blocked Murder Probe Against His Wife: Sources. Chinese politician Bo Xilai initially agreed to a police probe of his wife's role in the murder of a British businessman before abruptly reversing course and demoting his police chief, causing upheavals that led to the downfall of both men, sources said.
• IMF Says Italy to Miss Deficit Targets in 2012, 2013. Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday. The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget. The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise. Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said. Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013. The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.
• World Economy Fragile, Faces 'Uneasy Calm' - IMF. Global growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund said on Tuesday. Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the euro zone have subsided, the IMF said. "An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard told reporters as he detailed the Fund's World Economic Outlook. "Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present," he said.

Financial Times:

• The debate about "firewalls" has become a distraction from the need to get Europe's economy growing again, said World Bank President Robert Zoellick. He said the euro area's survival depends on Italy and Spain, which are too big to fail and also too big to rescue.
• What 5 Years of Crisis History Tells Us. (graphs)
• IMF Urges Eurozone to Bolster Banks.
  

Telegraph:

• Debt Crisis: Live.
  

Der Spiegel:

• Belated Reforms Cut Deep in Southern Europe. Mired in ongoing crisis, several countries in southern Europe are seeking to rapidly push through German-style labor market reforms to breathe life into their struggling economies. Yet they may not be enough to save the region's lost generation.
  

YTN:

• The U.S. is considering all potential countermeasures against a possible North Korean nuclear test, including a precision strike, citing U.S. Pacific Commander Admiral Samuel J. Locklear.