Today's Headlines

Bloomberg:

• Merkel Backs Draghi's Call for Growth to Combat Debt Crisis. Chancellor Angela Merkel backed European Central Bank President Mario Draghi’s call to focus on spurring economic growth, as German officials rejected charges they are fixated on budget austerity to fight the debt crisis. Europe needs growth “in the way that Mario Draghi, the president of the European Central Bank, said it today, that is in the form of structural reforms,” the chancellor told a conference of her Christian Democratic bloc in Berlin today. Hollande called the remarks helpful and said France won’t ratify the fiscal pact in its current form if he is elected. “The main risk at this time is that the European economy remains in a recession because not enough credit is provided to companies,” the Socialist candidate told a news conference in Paris today.
• Hollande Vows Not to Ratify Euro Pact, Auguring Merkel Clash. French Socialist Francois Hollande, the leading presidential candidate, said France won’t ratify the European agreement pushed by Germany to tighten budget rules if he’s elected. “There will be a re-negotiation,” Hollande told journalists today in Paris. “Either there will be a new treaty, or there will be a modification of the existing treaty. It’s about negotiation.” The comments put Hollande on a collision course with German Chancellor Angela Merkel, who has championed debt reduction as the key to ending the region’s fiscal crisis. Hollande, who has also pledged to eliminate France’s budget deficit, is aiming to use popular support at home to strengthen his hand in talks to promote an alternative. Merkel and her ruling party are standing firm on German-led remedies, including the commitment to cut debt that was signed last month by all 17 euro-area leaders, among them Hollande’s opponent, President Nicolas Sarkozy. “If Mr. Hollande were to say that he wants to increase government spending and save less, he’ll lose the confidence of the financial markets,” Peter Altmaier, the parliamentary whip of Merkel’s Christian Democrats, said in an interview in Berlin yesterday. “We will stick to our fundamental principles because there’s really no alternative.”
• Credit Suisse Chief Says April Market Conditions Less Favorable. Credit Suisse Group AG (CSGN) Chief Executive Officer Brady Dougan said market conditions worsened in April from the first quarter, when its investment bank returned to profit after a 2011 loss. “So far in April market conditions haven’t been as favorable as they were in the first quarter,” Dougan said in an interview with Bloomberg Television in Zurich today. “We’re pretty constructive about what we hope we’ll see for the rest of the year. We certainly have to be prepared for volatility in the markets.”
• EAA Confounds Schaeuble's Debt Reduction Plan, Handelsblatt Says. Erste Abwicklungsanstalt, the so- called bad bank formed to wind down assets of German state-owned lender WestLB, will confound Finance Minister Wolfgang Schaeuble’s plan to reduce the country’s debt load, Handelsblatt newspaper said, citing people it didn’t identify. EAA expects WestLB to transfer a portfolio of about 100 billion euros ($132 billion) in the next months, of which about 50 billion euros will be added to the government’s debt, the newspaper said. The amount isn’t included in a debt-reduction plan that Schaeuble sent to European authorities in Brussels and may boost Germany’s debt load to 84 percent from 82 percent of gross domestic product this year, Handelsblatt said.
• Barclays Accused Over Libor Fixing in U.K. Rate Swaps Lawsuit. Barclays Plc (BARC) was accused of undermining the integrity of the London interbank offered rate in a lawsuit filed by a care home company which claims it was sold unfair interest rate swaps linked to the measure.
• Fed Says Economy Will 'Pick Up Gradually'; Policy Unchanged. Federal Reserve policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. “The committee expects economic growth to remain moderate over coming quarters and then to pick up gradually,” the Federal Open Market Committee said in a statement today at the conclusion of a two-day meeting today in Washington. “Despite some signs of improvement, the housing sector remains depressed.” Policy makers led by Chairman Ben S. Bernanke are holding off on additional steps to boost the economy amid signs the more than two-year expansion is gaining strength. Still, the jobless rate isn’t declining fast enough to satisfy central bankers, who repeated their view today that borrowing costs are likely to remain “exceptionally low” at least through late 2014. “Strains in global financial markets continue to pose significant downside risks to the economic outlook,” according to today’s statement. The Fed has cited the risk from strains in global markets in its previous five meetings. In March it said those strains had “eased.”
• China Auto Scraps IPO After Struggling to Lure Investors.
• Caterpillar(CAT) Revenue Misses Estimates as China, Brazil Sales Slow. Caterpillar Inc., the largest maker of construction and mining equipment, reported a gain in first- quarter revenue that missed analysts' estimates as sales of construction equipment fell in China and Brazil. Revenue climbed 23 percent to $16 billion, the Peoria, Illinois-based company said in a statement today. The average of 13 estimates compiled by Bloomberg was for $16.1 billion. Net income rose to $2.37 a share, beating the $2.13 average of 21 estimates. Caterpillar raised its full-year profit forecast while maintaining its projected 2012 revenue. The shares fell in pre-market trading in New York. "They still reported a big number but lower than expected on near-term softness in China and Brazil," Larry De Maria, a New York-based analyst for William Blair & Co. who recommends buying the shares, said in an interview.
  

Wall Street Journal:

• EU Parliament President: Collapse of EU "Realistic Scenario". The collapse of the European Union has become a "realistic scenario," with national governments claiming back more power, xenophobia increasing, calls to reintroduce border controls and concerns about the euro emerging, the president of the European Parliament said Wednesday.
• Gingrich to End GOP Bid, Endorse Romney. Newt Gingrich plans to end his presidential campaign and endorse Mitt Romney next week at an event in Washington, aides to the former House speaker said.
• 5 Cities Where Home Prices Hit New Lows.
  

CNBC.com:

• Lloyd Blankfein: 'We Haven't Gotten Everything Right'. In his first interview in two years, Goldman Sachs CEO Lloyd Blankfein told CNBC Wednesday, "We haven't gotten everything right in how we deal with the public." In the March 14 piece, Greg Smith, head of Goldman's U.S. equity derivatives business in Europe, the Middle East and Africa, said the firm put its own profits ahead of clients, with some executives disparaging some clients as "muppets."
• Investors Face 'Bumpy Journey' as Euro Crisis Grows: El-Erian. "Bimodal" conditions mean that those employing the simple "risk-on" or "risk-off" approaches are missing both opportunities and dangers, El-Erian said during an interview on CNBC's "Squawk Box." "We are on this bumpy journey to this unusual destination, which is three to five years" long, said El-Erian, co-chief investment officer at Pimco, which runs the largest bond fund in the world. "The length depends on policymakers, and policymakers have been postponing the deleveraging, which makes this journey even more uncertain."
• UK Slides Back Into Recession in First Double Dip Since 1970s. Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on Prime Minister David Cameron's embattled coalition government.

Business Insider:

• Even Liberal Justice Sonia Sotomayor Shredded The Government's Arizona Immigration Arguments Today.
• The Bank Bailout Wasn't "Profitable" - It Will Cost Taxpayers $120 Billion.
• Meet The Man Revealing The Huge Scandals That The Chinese Government doesn't Want You To Know.
• Dylan Grice Warns: Australia's Credit Bubble Is Built On An Even Bigger Chinese Credit Bubble.
• The Radical Implications of America's Dirt-Cheap Natural Gas.
• Yes, You Should Be Astonished By Apple(AAPL)...
  

Zero Hedge:

• Has America Been Crippled by Intellectual Idiots?

Reuters:

• Plunge in Durable Goods Orders Clouds U.S. Outlook. Demand for long-lasting manufactured goods tumbled by the most in three years in March and businesses cut back on spending plans, suggesting the economy slowed as the first quarter drew to a close. Durable goods orders dropped 4.2 percent, the largest decline since January 2009 when the economy was nose-diving, Commerce Department data showed on Wednesday. Economists had expected a drop of just 1.7 percent.February orders were revised to show only a 1.9 percent increase instead of the previously reported 2.4 percent rise."This adds to the evidence that momentum in the economy sort of fell flat in March," said Ellen Zentner, a senior U.S. economist at Nomura Securities in New York. Although non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 0.8 percent in March, the prior month's figure was revised up to show a 2.8 percent gain from a 1.7 percent increase. In addition, shipments of non-defense, non-aircraft capital goods orders, which go into the calculation of gross domestic product, rose 2.6 percent after increasing 1.4 percent in February. "Unexpected weakness in core orders in March suggests less growth of equipment and software spending in the second quarter, and more first-quarter inventory investment suggests a larger decline in inventory investment in the second quarter," said Ben Herzon, an economist at Macroeconomic Advisers in St. Louis. The drop in orders for durable goods and an expected rise in inventories in the first quarter could set the economy up for a soft patch heading into the middle of the year. Orders for durable goods last month were dragged down by a 12.5 percent plunge in bookings for transportation equipment - the most since November 2010 - as aircraft orders tumbled. Boeing received only 53 orders for aircraft, according to the plane maker's website, down from 237 in February. Orders for motor vehicles barely rose last month. Excluding transportation, orders fell 1.1 percent after a 1.9 percent rise in February.

Xinhua:

• The capital sufficiency levels of China Guangdong's property developers in the 1Q are at their lowest since 2009, citing a report by the province's real estate industry association.

Shanghai Daily:

• Slower Expansion Seen Through 2015. HAVING experienced an economic slowdown for the past five quarters, China may lag the growth rate of the global commercial vehicle industry through 2015, an industry study shows. The revenue of medium and heavy-duty commercial vehicle sector, which is affected by a country's business circle, may grow 3.2 percent within three years in China against the estimated 4.3 percent for the world, according to a study by consulting firm AlixPartners. China's commercial vehicle sector posted an explosive revenue growth of 45 percent in 2010 after the government introduced a 4 trillion yuan (US$634 billion) stimulus package in 2009 .
  

Bear Radar

Style Underperformer:

• Large-Cap Value +.29%

Sector Underperformers:

• 1) Steel -.52% 2) Energy -.34% 3) Coal +.09%

Stocks Falling on Unusual Volume:

• CAT, CHRW, JOY, ZIP, BVSN, SLAB, ATMI, IVN, ICON, SCHL, CRDN, WIRE, FMBI, BIDU, CTCT, NFLX, IRBT, LIFE, ANGI, ASTE, HSTM, HIT, JNY, HES, OC, GD, FTI, AXE, JNPR, LO and AH
  

Stocks With Unusual Put Option Activity:

• 1) HES 2) NOV 3) ALL 4) AKAM 5) PNRA
  

Stocks With Most Negative News Mentions:

• 1) ACI 2) CRDN 3) HOG 4) DPS 5) XOM
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +2.19%

Sector Outperformers:

• 1) Hospitals +2.73% 2) Computer Hardware +2.09% 3) Agriculture +1.89%

Stocks Rising on Unusual Volume:

• MANH, AAPL, BSFT, ROC, GRA, ONXX, GEOI, PNRA, BWLD, FTNT, CRUS, AVGO, OPTR, BRCM, WCRX, KND, PHG, UIS, RHI, EW, TKR, DBD, GNC, HK, AFL, EGN, GLW, SWKS, LL, MSI, MOS, HOG, JBL, SPPI, TMO, WHR and WYN
  

Stocks With Unusual Call Option Activity:

• 1) QLD 2) ITMN 3) TTWO 4) HES 5) MIPS
  

Stocks With Most Positive News Mentions:

• 1) NSC 2) T 3) ETH 4) AFL 5) BCR
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Rising Italy-to-Spain Yields Keep Banks on Life Support. European lenders, more reliant than ever on emergency aid after borrowing $1.3 trillion from their central bank, may need additional cash infusions until policy makers stem the crisis engulfing Spain and Italy. After more than 30 bond sales in the first quarter, no bank has sold unsecured debt this month, and the cost of insuring against default has soared to levels last seen in January. Financial stocks, which rallied 20 percent following the European Central Bank’s December decision to provide unlimited three-year loans, are now 2 percent lower since then. Investors are balking after some lenders used the ECB cash to boost holdings of sovereign debt and governments struggled to rein in deficits. Because banks post collateral in exchange for the ECB loans, the amount unsecured bondholders would get back in a default has shrunk. That has raised funding costs for what Morgan Stanley estimates is about 700 billion euros ($924 billion) of debt lenders must refinance by the end of 2013.
• Spain Lowers Central Budget Deficit as Montoro Threatens Regions. Spain’s central-government budget deficit narrowed in the first quarter, Budget Minister Cristobal Montoro said, as he threatened to intervene in regional governments that fail to cut spending. In comparable terms, the central government budget shortfall was 0.83 percent of gross domestic product, compared with 0.93 percent last year, the Budget Ministry said yesterday. Including the impact of transfers to regions that were paid early this year, the deficit was 1.85 percent, compared with 1.06 percent a year earlier.
• German Shipping Funds Die as Investors See Losses Rise: Freight. When Germany’s Container Flotten- Fonds filed for insolvency last year, more than 1,000 investors who had been promised annual returns of as much as 15 percent instead lost 37.5 million euros ($49 million). The collapse of the fund, which was raised in 2005 and used a mix of private capital and bank loans to finance four vessels, is just one of at least 10 shipping funds that have become insolvent in Germany in the past two years, according to the Association of Non-Tradable Closed-End Funds, as the maritime industry was beset by rising fuel prices, excess capacity and falling freight rates.
• Solar Silicon Falling 9% Widens Slump That Hit Solyndra. Polysilicon, the raw material used to make most solar panels, is forecast to fall another 9 percent from its lowest in a decade as a supply glut narrows margins throughout the industry. The average spot price of the material will finish this year at about $22.10 a kilogram, according to the median of seven analysts surveyed by Bloomberg News. The price, which four years ago topped $475, tumbled about 70 percent in the 12 months to $24.27 on April 16, the lowest since at least 2002.
• South Korea Halts Customs Clearance of U.S. Beef. South Korea will halt customs clearance of U.S. beef imports after the first U.S. case of mad cow disease in six years was found in a dairy cow in central California, an agriculture ministry official said. The government will release details of inspections “soon,” Park Sang Ho, an official at South Korea’s agricultural ministry, said by phone. The agriculture office shortly after issued a statement saying it will take the “necessary measures.”
• Syrian Army Presses Attack Amid UN Cease-Fire Monitoring. Syrian security forces attacked anti-government neighborhoods with sniper fire and heavy machine guns yesterday, as United Nations special envoy Kofi Annan said the regime has “severely” tested the UN’s patience.

Wall Street Journal:

• Moody's Hears It From Banks on Potential Downgrades. In the latest sign that U.S. banks are bridling at tighter oversight that began after the financial crisis, a handful of big lenders have been jawboning Moody's Investors Service ahead of potential downgrades expected this spring. Bank of America Corp.(BAC) Chief Executive Brian Moynihan and Citigroup Inc.(C) CEO Vikram Pandit have argued against downgrades in person, people familiar with the talks said. An executive at Goldman Sachs Group Inc.(GS) last week publicly questioned Moody's methods on a conference call with analysts and investors.
• China Escalates Crackdown On Internet Amid Scandal. China has stepped up its campaign to clamp down on the Internet, which has emerged as a virtual town square for exchanging information about the Bo Xilai scandal and the nation's biggest political upheaval in years.
• Apple(AAPL) Rides iPhone Frenzy. Apple Inc.'s AAPL -2.00% quarterly profit nearly doubled as iPhones and iPads continued to fly off shelves, putting to rest recent worries that the company can't maintain its momentum. Shares gained more than 7%, or $40.55, to $600.83 in after-hours trading Tuesday—after falling in 10 of the past 11 regular trading sessions amid concerns about a potential iPhone slowdown. Instead, iPhone shipments jumped 88% in the quarter, as Apple continued to penetrate new markets like China.
• Romney Marches Toward GOP Nomination. Mitt Romney claimed victory in the Republican presidential nominating contest Tuesday after decisively sweeping five East Coast primaries, saying his triumph marked "the beginning of the end of the disappointments of the Obama years.'' Mr. Romney gave what amounted to an acceptance speech for the nomination after sweeping to primary victories in New York, Pennsylvania, Connecticut, Delaware and Rhode Island.
• Head of Bundesbank: No Apologies. Germany's central-bank chief rejected calls for the European Central Bank to back off from its push for fiscal austerity, batting down mounting concern that the strategy is causing deep economic pain and escalating political upheaval across Europe. In an interview with The Wall Street Journal, Bundesbank President Jens Weidmann also made no apologies for his repeated warnings that some ECB anticrisis policies, including government-bond buying and looser collateral rules, threaten financial stability and may generate inflation. "The crisis can only be solved by embarking on often-painful structural reforms and following up on fiscal consolidation," Mr. Weidmann said.
• Europe's Phony Growth Debate. Growth or austerity? That's the choice facing Europe these days—or so the Keynesian consensus keeps saying. According to this view, which has dominated world economic councils since the 2008 crisis began, "growth" is mainly a function of government spending. Spend more and you're for growth, even if a country raises taxes to pay for the spending. But dare to cut spending as the Germans suggest, and you're for austerity and thus opposed to growth. This is a nonsense debate that misconstrues the real sources of economic prosperity and helps explain Europe's current mess. The real debate ought to be over which policies best produce growth.

Business Insider:

• Here Are The Slimy New Details About John Edwards' Affair.

Zero Hedge:

• Steve Keen On Europe's Delusion And Why The Entire World Is Turning Japanese.

CNBC:

• Apple(AAPL) Earnings Surprise: Why Was Wall Street So Wrong? Apple posted quarterly results that blew past expectations Tuesday, silencing numerous skeptics and making investors wonder how Wall Street could have been so wrong on the tech giant.
• Bank Stocks to Have 'Long, Hot Summer': Bove. Though he has been telling investors to buy bank stocks with all their might, analyst Dick Bove says this summer could require a strong stomach for those who followed the advice.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. (graph) The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that Mitt Romney earns 48% of the vote, while President Obama attracts support from 44%. Four percent (4%) would vote for a third party candidate, while another 4% are undecided.

Reuters:

• Exclusive: SEC Probes Movie Studios Over Dealings in China. U.S. regulators are investigating major U.S. movie studios' dealings with China as the entertainment companies try to get a greater foothold in one of the fastest-growing movie markets in the world. The letters ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China, said the person, who was not authorized to speak publicly about the letters. The Chinese film market is seen as one of the largest potential markets for Hollywood, but it has also historically been tightly controlled by the state-owned China Film Group.
• FINRA to propose fee hike due to "significant loss". The Financial Industry Regulatory Authority plans to increase certain fees it charges to brokerages due to a "significant loss" it suffered last year, the regulator's chief wrote in an email to brokerages. A "broader economic downturn" continues to affect the securities industry's trading volumes revenues, which "has led to a decrease in FINRA's revenues and resulted in a significant loss for fiscal year 2011," Richard Ketchum, FINRA's chairman and chief executive, wrote in an email on Monday that was also posted on the regulator's website.
• Baidu(BIDU) Revenue Forecast at Low-End of Street View. Baidu Inc shares slid more than 10 percent on Tuesday after the Chinese Internet search company forecast a second-quarter revenue range at the low end of Wall Street expectations. The disappointing guidance raised questions about whether Baidu's business is being affected by economic conditions in China or whether company-specific issues are to blame, analysts said. Baidu shares fell more than 10 percent in after-hours trading to $121.50 from a close on the Nasdaq of $135.83.

Telegraph:

• Nightmare Week for Angela Merkel as Austerity Bloc Crumbles. Europe's political centre is starting to crumble, replicating the pattern of the early 1930s as the crisis ground into its third year under a similar mix of fiscal and monetary contraction.
• German Chancellor Angela Merkel defends austerity in face of open rebellion in Europe. Angela Merkel launched a staunch defence of Europe's fiscal pact as politicians from the Netherlands, Spain and Greece scrambled to keep their own austerity measures on track.

The Independent:

• Hamish McRae: 'Austerity fatigue' is spreading from Europe's fringes to its very core. Can the centre hold? We are used to worrying about the fringe of Europe, but now "austerity fatigue" seems to be striking the core. The Netherlands retains its AAA credit rating, but its government has just fallen because it could not agree on its budget programme. And France, recently downgraded by Standard & Poor's, has had an election with a massive protest vote and the prospect of a new president who has promised to fight the financial markets. What I find interesting about both countries is that they are seeing a push-back against austerity before it has really been imposed, or at least while it is still in the early stages. So re-establishing fiscal discipline is no longer just a political problem for the fringe; it has moved closer to the core. Only Germany remains committed to reaching fiscal balance and also has the political support to achieve it.

Sueddeutsche Zeitung:

• The budgetary committee of Germany's parliament asked Bundesbank President Jens Weidmann to explain the role of his institute in the IMF's planned trillion-dollar rescue fund, citing an invitation letter.

Financial Times Deutschland:

• The European Banking Authority is asking individual euro-zone banks to show how they plan to refinance themselves without access to additional funds from central banks, citing a person familiar with the process.

Economic Information Daily:

• China will improve measures to curb the expansion of industries with overcapacity. Punitive power prices and restricted energy use will be among the measures.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 166.0 -3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 135.75 +.25 basis point.
  
• FTSE-100 futures +.09%.
  
• S&P 500 futures +.39%.
  
• NASDAQ 100 futures +1.38%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HES)/1.54
• (NOC)/1.59
• (AN)/.53
• (PX)/1.36
• (GD)/1.69
• (GLW)/1.28
• (LCC)/-.23
• (DAL)/-.04
• (OC)/.30
• (DPS)/.48
• (DBD)/.34
• (WLP)/2.29
• (LLY)/.78
• (WYN)/.55
• (HOG)/.71
• (CAT)/2.13
• (BA)/.93
• (AKAM)/.38
• (CAKE)/.36
• (XLNX)/.41
• (WMB)/.36
• (EQR)/.62
• (TSCO)/.52
• (LVS)/.60
• (CLF)/1.12
• (OI)/.67
• (VAR)/.96
• (RYL)/-.09
• (SLG)/1.08
• (JNY)/.15

Economic Releases
8:30 am EST

• Durable Goods Orders for March are estimated to fall -1.7% versus a +2.2% gain in February.
• Durables Ex Transports for March are estimated to rise +.5% versus a +1.6% gain in February.
• Cap Goods Orders Non-def Ex Air for March are estimated to rise +1.0% versus a +1.2% gain in February.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,800,000 barrels versus a +3,856,000 barrel gain the prior week. Distillate inventories are estimated to rise by +500,000 barrels versus a -2,908,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,500,000 barrels versus a -3,671,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +.8% gain the prior week.
  

12:30 pm EST

• The FOMC is expected to leave the benchmark fed funds rate at .25%.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, German 3Bln EUR 30Y Bund Auction, 5Y T-Note Auction and the weekly MBA mortgage applications report could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open higher and to weaken into the afternoon, finishing modestly higher. The Portfolio is 50% net long heading into the day.

Stocks Rising Slightly into Final Hour on Euro Bounce, More Financial Sector Optimism, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 18.55 -2.21%
  
• ISE Sentiment Index 106.0 +29.27%
  
• Total Put/Call .90 +9.76%
  
• NYSE Arms .95 -52.06%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 99.85 -1.09%
  
• European Financial Sector CDS Index 256.28 +1.84%
  
• Western Europe Sovereign Debt CDS Index 280.35 -1.35%
  
• Emerging Market CDS Index 265.59 -.32%
  
• 2-Year Swap Spread 31.25 -.25 basis point
  
• TED Spread 38.50 -1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -46.0 +1.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% +1 basis point
  
• Yield Curve 170.0 +2 basis points
  
• China Import Iron Ore Spot $146.70/Metric Tonne -.95%
  
• Citi US Economic Surprise Index 4.20 -.1 point
  
• 10-Year TIPS Spread 2.26 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +47 open in Japan
• DAX Futures: Indicating -21 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Tech and Retail sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite Eurozone debt angst, less tech sector optimism, high energy prices, rising global growth fears and less US economic optimism. On the positive side, Oil Tanker, Oil Service, Telecom, Homebuilding, Road & Rail, Airline and REIT shares are especially strong, rising more than +1.0%. The Transports and Financials have traded well throughout the day. Lumber is rising +1.97% and Copper is gaining +1.2%. The 10Y Yld is rising +3 bps to 1.96%. Major European indices rose around +1.75%, led by a +2.5% gain in Italy. The Bloomberg European Bank/Financial Services Index rose +2.0%. The Germany sovereign cds is down -3.0% to 87.50 bps, the France sovereign cds is down -3.5% to 198.0 bps, the Spain sovereign cds is down -3.8% to 490.66 bps and the Italy sovereign cds is down -3.0% to 454.42 bps. Moreover, the European Investment Grade CDS Index is down -2.7% to 145.31 bps. On the negative side, Software, Semi, HMO, Retail, Restaurant, Education and Internet shares are under pressure, falling more than -.75%. Tech shares have traded poorly throughout the day again. Oil is rising +.4% and the UBS-Bloomberg Ag Spot Index is rising +.4%. Major Asian indices were mixed overnight as a +.65% gain in India was offset by a -.78% decline in Japan. The Portugal sovereign cds is gaining +.4% to 1,023.19 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 -6.0% 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 -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -19.2% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +668.0% ytd. China's March refined-copper imports fell -8.0% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. The recent weak/erratic technical action in shares of (AAPL), a market-leader and the largest company in the world, remains a concern. Long AAPL. Bonds still trade too well, copper continues to trade poorly and the euro currency can't sustain a bounce. Comments from German officials today lead me to conclude that a new French president would clash greatly with Merkel, which will become a major problem during the next escalation phase of the region's debt crisis. There remains a fairly high level of complacency among US investors regarding the rapidly deteriorating situation in Europe, in my opinion. I still believe more European bank/sovereign downgrades are likely on the horizon. Overall, the major averages are not responding well to a better-than-expected earnings season so far. (TXN) gappped higher after-hours yesterday on a "good report" only to fall throughout the day and finish near session lows, down -1.7%. For the recent equity advance to regain 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. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, less US economic optimism, high energy prices, rising global growth fears, weakness in some key market leaders and less tech sector optimism.

Today's Headlines

Bloomberg:

• Merkel Stands Firm on Crisis Austerity, CDU Ally Altmaier Says. German Chancellor Angela Merkel won’t budge from her insistence on budget austerity in Europe as unavoidable to resolving the debt crisis, a senior lawmaker in her party said. “The chancellor is pretty resistant to pressure,” Peter Altmaier, the chief whip of Merkel’s Christian Democratic Union, said in an interview today in Berlin. France’s presidential vote and the Dutch government’s fall don’t change the fact “there’s no money in Europe, only deficits everywhere you look.” Socialist challenger Francois Hollande, who leads President Nicolas Sarkozy in polls for France’s runoff election on May 6, said yesterday that austerity measures across Europe are leading to “desperation” and that he will refocus the euro area’s second-biggest economy on growth. Altmaier warned that Hollande risked alienating investors if he were to divert from the course of austerity. “If Mr. Hollande were to say that he wants to increase government spending and save less, he’ll lose the confidence of the financial markets,” Altmaier said. “The same financial markets that say they’re concerned about austerity will say, ‘My God, this is not serious,’ if Hollande stops austerity and does deficit spending.” Merkel will await the election outcome in France and then “try to come to an understanding with the new government, regardless of who leads it,” Altmaier said. “We will stick to our fundamental principles because there’s really no alternative.’”
  
• Hollande Meets German Resistance in Anti-Austerity Push. French Socialist presidential candidate Francois Hollande’s campaign pledge to reverse Europe’s austerity drive met German resistance, pointing to tension between the region’s two biggest economies. Hollande has repeated his criticism of the German-advocated austerity and said the European Central Bank needs to do more to support Europe’s growth, comments that may put him at odds with France’s neighbor and Europe’s biggest economy. He says he’ll seek to add growth and investment measures to the fiscal treaty signed by its European partners. “We’re not saying that saving solves all problems,” German Chancellor Angela Merkel said at a conference in Berlin today. Still, “you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”
• Italian Borrowing Costs Rise at Auction on Crisis Concerns. Italy was forced to pay 1 percentage point more than a month ago to sell zero-coupon bonds in the first auction since Prime Minister Mario Monti’s government moved back its balanced-budget target. The Treasury sold 2.5 billion euros ($3.3 billion) of the zero-coupon 2014 debt to yield 3.355 percent, up from 2.352 percent at the previous auction on March 27. Investors bid for 1.80 times the amount offered, down from 1.86 times last month. The Rome-based Treasury also sold 943 million euros of inflation-linked bonds due in 2017 and 2019 to yield 3.88 percent and 4.32 percent, respectively. The auction’s maximum target was 3.5 billion euros. Italy’s 10-year bond, which initially rose after the auction, pared the gains to yield 5.74 percent at 12:09 p.m. Rome time, pushing the difference or spread with similar- maturing German debt to 407 basis points. That compares with 372 basis points the day before Monti announced new budget forecasts on April 18.
• Greek Economy May Contract Near 5% of GDP in 2012, Ta Nea Says. Greece’s central bank forecasts the country’s economy will contract by almost 5 percent of gross domestic product this year, which is higher than a 4.5 percent estimate made last month, Ta Nea reported, without saying where it got the information. Unemployment in 2012 is expected at 19 percent, Ta Nea reported.
• Sovereign, Corporate Bond Risk Falls, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and corporate debt fell, according to data compiled by Bloomberg. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 3.5 basis points to 281 at 9:40 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined 13 basis points to 678. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 3.5 to 146 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined six basis points to 257 and the subordinated index dropped 7.5 to 414.5.
• German Windmill Makers Suffering Similar Fate to Solar, FTD Says. German windmill makers such as Nordex SE are suffering a similar fate to solar companies as Chinese firms push into the market, Financial Times Deutschland said, citing Manfred Bayerlein, chief executive officer of wind power certification company TUEV Rheinland. While China’s technology is a few years behind, their products are already economical, Bayerlein said, according to the German newspaper. Chinese companies entering the market has contributed to a 25 percent drop in prices since 2008, FTD said. German solar companies such as Solon SE (SOO1), Solar Millennium AG (S2M) and Q-Cells SE (QCE) have filed for insolvency, while China has built up an industry with more than 400 companies, some of which are market leaders, FTD said.
• U.S. Lost AAA Rating on Danger of Liquidity Crisis, S&P's Kraemer Says. The U.S. lost its top credit grade in August because of the imminent danger of a “real liquidity crisis,” and Standard & Poor’s made no errors in its analysis, said Moritz Kraemer, managing director of sovereign ratings. “Last summer, the U.S. government got extremely close to a real liquidity crisis because the Washington establishment could not agree on the way forward that would have been required to raise the debt ceiling,” Kraemer told lawmakers on the U.K. Parliament’s Treasury Committee today in London.
• Consumer Confidence in U.S. Little Changed as Outlook Cools. Confidence among U.S. consumers was little changed in April as expectations over the outlook tempered increased optimism about the present. The Conference Board’s confidence index was at 69.2 com- pared to a revised 69.5 in the prior month, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called for a reading of 69.6. The gauge of expectations for the next six months declined to 81.1 from 82.5. The share of consumers who said jobs are currently plentiful decreased to 8.4 percent from 9 percent. The percent of respondents expecting more jobs to become available in the next six months decreased to 16.9 from 17.4 the previous month. The proportion who expect their incomes to rise over the next six months declined to 14 percent from 15.5 percent. The share of households planning to buy a car dropped to the lowest level since comparable records began in November 2010. Consumers also cut back on plans to buy houses and take vacations.
• El Nino May Cool Summer, Cutting US Electric Need. The possibility of an El Nino, a warming of the mid-Pacific Ocean, has forecasters predicting lower temperatures across the U.S. this summer, which may mean less electricity will be needed to run air conditioners.
• China Tire Demand Slows as Economy Decelerates, Bridgestone Says. Tire demand in China, the largest rubber consumer, is growing at a slower pace than last year as the nation’s economic expansion is decelerating, said an executive at Bridgestone Corp. (5108), the biggest tiremaker.

Wall Street Journal:

• Greece Risks Euro Exit if Reforms Stall. Greece's central bank governor Tuesday warned the country's politicians that any deviation from strict austerity targets after May 6 general elections would risk forcing the country out of the 17-member euro currency bloc, even as the central bank signaled that the economy would contract by a worse-than-expected 5% this year. In an unusually blunt warning that cut through much of the lofty rhetoric coming from candidates, George Provopoulos said Greece faced a stark and historic choice between overhauling its economy as a member of the currency bloc, or turning back the clock on decades of economic progress and eventual exit from the euro. "There is no easy way out of the crisis. The adjustment must be pursued with determination," Mr. Provopoulos said in a speech. "If, after the elections, there is any question about the will of the new government and society to implement the program..the country will then be at risk of finding itself very quickly in a particularly adverse situation." "What is at stake is the choice between an orderly, albeit painstaking, effort to reconstruct the economy within the euro area, with the support of our partners; or a disorderly economic and social regression, taking the country several decades back, and eventually driving it out of the euro area and the European Union," he said.
• IBM(IBM) Boosts Dividend 13%; Adds $7 Billion to Buyback Program. International Business Machines Corp.'s (IBM) board approved a 13% increase in the technology heavyweight's quarterly dividend and authorized an additional $7 billion to buy back shares as the company looks to return more of its rising cash levels to shareholders.
• Wall Street Promotes Junk Bonds as Europe Erupts. Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) are recommending junk bonds as Europe’s sovereign-debt crisis flares and concern mounts over the strength of the U.S. recovery. Morgan Stanley said last week that U.S. high-yield obligations were in a “sweet spot” as borrowers cut their debt loads. JPMorgan said junk yields will fall more than half a percentage point by year-end. Bank of America favors debentures rated in the middle tier of speculative grade.
• A Need to Know Basis: Apple(AAPL) Earnings Preview.
  

MarketWatch:

• Oil Futures Gain as Euro-Zone Worries Recede. Crude-oil prices advanced Tuesday, buoyed by better market sentiment regarding Europe and also garnering some support from a weaker dollar. Concerns about excess supply ahead of U.S. inventory data weighed negatively, however, as did mixed housing data. Crude oil for June delivery CLM2 +0.44% added 63 cents, or 0.6%, to $103.73 a barrel on the New York Mercantile Exchange.

Business Insider:

• How 9 Banks Are Exposed to $200 Trillion Worth of Derivatives.
• Soros: Europe's Social, Economic, And Moral Crisis Could Result In A Soviet-Union Like Collapse.
• GM(GM) is Planning a Massive Chinese Expansion.
• Facebook(FB) IPO Could Be Delayed.
• Former BP Engineer Arrested Over Oil Spill.
• Sorry, Facebook(FB) Fans, These Latest Numbers Just Aren't That Impressive. (graph)
  

Zero Hedge:

• Case Shiller Misses Expectations, Unadjusted Home Prices Lowest In A Decade. (graph)
• G-10 Macro Data Plunges to Worst in Six Months, Turns Negative. (graph)
• Europe's Risk-ually Transmitted Disease.
• It's The Euro Repatriation Stupid.
  

New York Times:

• Cost of Spain's Housing Bust Could Force a Bailout. Since the frenzy drove Spanish home prices to a peak in 2007, they have fallen by at least one-fourth, and the bottom seems nowhere in sight. As Spain endures its second recession in three years and unemployment nears 25 percent, an increasing number of debt-heavy Spaniards can no longer meet monthly payments on the mortgages that their banks were all too eager to give. With a rising portion of Spain’s 663 billion euros, or $876 billion, in home mortgages at risk of default, many economists say it is only a matter of time before some of Spain’s biggest banks will need a bailout. And the Spanish government, staggering under its own debt and budget deficit burdens, may not have the money to come to the rescue. The implications of all this for the rest of Europe were a prime topic at last weekend’s meetings of the International Monetary Fund and the World Bank in Washington. The big fear is that the European Union will need to step in with a Spanish bailout — one much bigger than any of those already extended to Ireland, Greece and Portugal.

Washington Post:

• Home Prices Remain Near Post-Crisis Low; New-Home Sales Fall 7%. The latest survey from S&P/Case-Shiller noted basically stagnant prices from January to February. Adjusted for seasonal variations in sales, prices rose slightly in February after several months of decline. Without adjusting for seasonal differences, the survey of prices in 20 metropolitan areas fell to its lowest level since the housing market downturn began.

The Detroit News:

• GE(GE) CEO Defends Tax Rate After Protesters Disrupt Speech. General Electric CEO Jeff Immelt defended the company's payment of income taxes after protesters interrupted his speech here at the SAE World Congress.

CNN:

• Watch Out! Is The Fed Pushing Us Into Another Bubble? by Sheila Bair.
  

Reuters:

• Exclusive: North Korea's Nuclear Test Ready "Soon". North Korea has almost completed preparations for a third nuclear test, a senior source with close ties to Pyongyang and Beijing told Reuters, which will draw further international condemnation following a failed rocket launch if it goes ahead.
• Maybe No Housing Rebound for a Generation: Shiller. The Housing market is likely to remain weak and may take a generation or more to rebound, Yale economics professor Robert Shiller told Reuters Insider on Tuesday. Shiller, the co-creator of the Standard & Poor's/Case-Shiller home price index, said a weak labor market, high gas prices and a general sense of unease among consumers was outweighing low mortgage rates and would likely keep a lid on prices for the foreseeable future."I worry that we might not see a really major turnaround in our lifetimes," Shiller said. The S&P/Case-Shiller composite index of 20 metropolitan areas gained 0.2 percent in February on a seasonally adjusted basis, the first uptick in prices in 10 months. But Shiller called it "a very mixed bag." Nine of the 20 cities recorded falling or flat prices on the month.He said suburban areas in particular might endure further price declines as high gas prices increase demand for "walkable cities."
• High Gas Prices Dampen US Gasoline Demand. U.S. gasoline demand fell last week as prices held higher than levels seen a year ago, MasterCard said in its weekly Spending Pulse report on Tuesday. Gasoline demand fell 6.1 percent from a year earlier as a gallon of the fuel at the pump cost 1.3 percent more than it did last year, MasterCard data showed.
• US 'Fiscal Cliff' Makes US Fed Queasy. Federal Reserve policymakers are sounding the alarm over a "fiscal cliff" at the end of this year, when scheduled U.S. tax hikes and spending cuts could pose a big threat to the fragile economic recovery. Along with its official mandate of watching unemployment and inflation, the U.S. central bank is keeping a close eye on a potentially debilitating political fight over how to fix the budget deficit.
• US Senate Democrats Close Ranks to Fight Keystone Oil Pipeline. U.S. Senate Democrats closed ranks on Tuesday to block quick approval of the Keystone XL oil pipeline as they begin negotiations with House of Representatives Republicans on a compromise job-creating transportation construction bill.

Telegraph:

• Debt Crisis: Live. Far-right leader Geert Wilders says Dutch budget decisions are a choice between ordinary citizens or unelected bureaucrats, as MPs reject strict budget rules enshrined in a new European fiscal pact.
• Britain's National Debt Rises Above £1 Trillion. (graph) The Government met its full-year target of £126bn because of downward revisions to previous months, but the national debt rose above £1 trillion - it is now 66pc of GDP and the highest since records began in 1993.
• ARM(ARMH) Shares Drop 6% on Electronic Sales Slowdown. Shares in ARM Holdings have tumbled more than 6pc despite a sharp hike in profits, as the Cambridge-based chip designer admitted that flooding in Thailand and a slowdown in sales of consumer electronics had put the breaks on its royalty income.