Wednesday Watch

Evening Headlines
Bloomberg:

• Madness in Spain Lingers as Ireland Chases Recovery: Mortgages. From atop the stone walls of Avila, Spain, a medieval city an hour's drive northwest of Madrid, beyond the parking lots and empty playgrounds and thousands of vacant new apartments, a construction crane can be seen moving on the horizon as building continues. "Avila isn't an exception," said Jesus Encinar, co-founder of Madrid-based Idealista, Spain's largest property website, and an Avila native. "It's a small-scale example of the madness that gripped the whole real estate industry." In the stages of death of a real estate boom, Spain is still in denial.
• Europe Puts at Record Versus S&P 500 Before Elections: Options. Traders have never paid so much to protect against European stock losses relative to the U.S. as investors prepare for weekend elections in France and Greece. Implied volatility for three-month contracts closest to the level of the Euro Stoxx 50 (SX5E) Index was 54 percent higher yesterday than the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. The gap widened from a 2012 low of 18 percent on March 13, the data show. Investors are insuring equities on concern the elections will undermine plans to contain the debt crisis. French voters pick a president on May 6, the same day as Greece holds parliamentary elections. Francois Hollande, who topped Nicolas Sarkozy in the first round of French voting, has criticized the president’s attempt with German Chancellor Angela Merkel to quell the crisis through budget cuts.
  
• ECB Immunity on Greek Debt Blunts Bond-Buying Tool: Euro Credit. European Central Bank President Mario Draghi's insistence on shielding his institution from losses on Greek debt risks blunting his crisis-fighting tools.
  
• Goldman(GS) Says Rule Curbing Counterparty Links Risks Jobs. Goldman Sachs Group Inc. (GS) said a proposed Federal Reserve rule seeking to limit links between banks could cut U.S. economic growth by as much as 0.4 percentage point and eliminate as many as 300,000 jobs. The estimate, the most specific so far in reaction to the Fed’s proposed rule, was based on New York-based Goldman Sachs’s own research and assessment of how it would affect the corporate debt market, according to an April 30 letter to the Fed that was made public yesterday. “The impact on the corporate bond market alone could drive the elimination of 150,000 to 300,000 American jobs,” wrote Goldman Sachs Chief Risk Officer Craig W. Broderick. “Smaller companies that lack access to alternative sources of capital -- and that drive job creation -- would be hardest hit.”
• Three Fed Policy Makers See No Need to Ease. Three voting members of the Federal Open Market Committee said they don’t see a need to ease policy further as the U.S. economy maintains its expansion. Federal Reserve Bank of Richmond President Jeffrey Lacker said in Washington that more monetary stimulus risks stoking inflation while doing little to strengthen the recovery. San Francisco’s John Williams said the outlook he expects doesn’t warrant more bond buying, and Atlanta’s Dennis Lockhart repeated that he’s skeptical of the benefits of such action.

Wall Street Journal:

• Mexico Balks at Fed Proposal. Mexico joined Wall Street firms in criticizing a Federal Reserve proposal to limit the exposure of banks to individual companies, governments and other banks. Bank of Mexico governor Agustín Carstens knocked the Fed's decision to exempt Treasurys but not the debt of other governments from financial-firm exposure limits, and he urged the U.S. central bank to revisit its decision in a letter dated April 26 that the Fed posted on its website Tuesday.
• The Big Doubt Over Facebook(FB). Facebook Inc. has built a $3 billion-a-year advertising business by convincing marketers to buy new forms of advertising designed to create buzz around their brands. But some advertisers with big spending accounts are wondering whether they're getting their money's worth.
• White House Efforts to Relax Gun Exports Face Resistance. U.S. homeland-security and law-enforcement agencies have objected to Obama administration proposals to relax export restrictions on high-powered firearms, threatening a centerpiece of the president's trade and national-security agenda. The agencies, in internal memos viewed by The Wall Street Journal, warn the changes could help arm drug cartels and terrorists and make it harder for the U.S. to crack down on gun-trafficking.
• Blahous and Capretta: Exposing the Medicare Double Count. The same money can't be spent twice. ObamaCare tries to do precisely that, and the government will have to borrow the difference.

Business Insider:

• INSIDE PINTEREST: An Overnight Success Four Years In The Making.
• Occupy Wall Street Completely Took Over Union Square In A Rally Thousands Of Protesters Strong.
• China HSBC Manufacturing PMI Climbs To 49.3, Employment Down At Fastest Rate In 3 Years.
• JIM CHANOS: 'Natural Gas Is Undergoing A Revolution In The US'.
• There's More And More Evidence That Spain Is The New Greece.

Zero Hedge:

• Total US Debt Soars To 101.5% Of GDP. (graph) There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling.
• A Different Way of Looking At China.
  

CNBC:

• Cut Tax Rate, Save Small Business: Fiorina. The U.S. marginal tax rate is the highest in the world, and that is putting a big hit on small business, former Hewlett-Packard CEO Carly Fiorina said Tuesday. Small businesses are what drive the U.S. economy and provide jobs, the CNBC contributor told Closing Bell. "I would both lower the marginal rate and close the loopholes. It’s actually small business I’m worried about, not big business," she said of the tax rate on the last dollar of income earned. While big business can "put their jobs and factories anywhere" to avoid paying high U.S. taxes, "net new job creation comes from small business, not large business" and more small businesses have been failing and fewer starting than at any time in the last 40 years," she said.

IBD:

• Lululemon(LULU) Stretches To New Heights With Yoga Apparel.

Reuters:

• International business weighs on OpenTable(OPEN) revenue. OpenTable Inc forecast full-year revenue that fell short of Wall Street estimates, as the online restaurant reservation services provider's international business takes longer than expected to integrate the recent acquisition of a rival. Shares of the company were down 16 percent in extended trading after closing at $43.68 on Tuesday on the Nasdaq.
• Broadcom(BRCM) outlook for profit margin disappoints. Chip maker Broadcom Corp said its gross profit margin for the current quarter would drop from the first quarter because of acquisition-related costs, and its shares fell as much as 1.9 percent in after-hours trade.
• Sturm Ruger(RGR) profit doubles on new gun launches. Gun maker Sturm Ruger and Co Inc's first-quarter profit nearly doubled as sales of its rifles and guns were boosted by strong demand for new products, sending its shares up 4 percent in extended trading.

Financial Times:

• Commodities Prices Dent Company Profits. High oil and commodities prices are starting to dent the profitability of the world’s largest industrial and consumer goods companies, with businesses from Procter & Gamble in the US to BASF in Europe warning of a strong headwind. As companies release their results for the first quarter, executives are warning that rising raw materials prices, particularly oil, are now a problem.

Telegraph:

• Electoral silence on France's slow economic decline. France's economy has weathered the global crisis of the last five years deceptively well, shielded by a Leviathan state and the postponement of hard choices. Yet the underlying decline that began 30 years ago has gathered speed. France's share of eurozone exports has dropped from 17pc to 13pc since 2000.
• Europe needs creativity not billions of euros, says German Chancellor Angela Merkel. Angela Merkel has said Europe needs "political courage and creativity rather than billions of euros" in a thinly disguised rejection of Francois Hollande's pledge to re-write the fiscal pact if he wins the French presidential election on Sunday.

China Securities Journal:

• China New Lending May Have Fallen 30%. New yuan loans may total 700b yuan last month vs 1.01t yuan in March. Th big four banks extended only 101.7b yuan of new loans as of April 25. The big four banks lost >1t yuan of deposits in the first two weeks of April. April new lending was restricted by government loan quotas and a slowing economy.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +1.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 163.0 -2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 135.50 -1.0 basis point.
  
• FTSE-100 futures -.25%.
  
• S&P 500 futures +.13%.
  
• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CBE)/1.00
• (AB)/.24
• (BZH)/-.42
• (ENR)/1.08
• (IACI)/.46
• (WXS)/.91
• (CVS)/.63
• (RDC)/.34
• (TWX)/.64
• (WCG)/.51
• (CVD)/.60
• (ALL)/1.12
• (WFM)/.59
• (IPI)/.29
• (GMCR)./64
• (HTZ)/.00
• (ONXX)/-.78
• (SYMC)/.38
• (WLT)/.80
• (V)/1.51
• (APKT)/.17
• (HIG)/.91
• (TSO)/.27
• (MRO)/.87
• (MA)/5.30
• (AGN)/.87
• (CLX)/1.03
• (CMCSA)/.42
• (DVN)/1.43
• (SPW)/.24
• (SKYW)/-.16
• (ICE)/2.02

Economic Releases
8:15 am EST

• ADP Employment Change for April is estimated to fall to 170K versus 209K in March.
  

10:00 am EST

• Factory Orders for March are estimated to fall -1.7% versus a +1.3% gain in February.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +3,978,000 barrel gain the prior week. Distillate supplies are estimated to fall by -350,000 barrels versus a -3,052,000 decline the prior week. Gasoline inventories are estimated to fall by -1,500,000 barrels versus a -2,235,000 decline the prior week. Finally, Refinery Utilization is estimated to rise by .4% versus a +.1% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Lacker speaking, Fed's Tarullo speaking, ISM New York and the weekly MBA mortgage applications report could also impact trading today.
  

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

Stocks Rising into Final Hour on More US Economic Optimism, Short-Covering, Investor Performance Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.26 -5.19%
  
• ISE Sentiment Index 142.0 +31.48%
  
• Total Put/Call .85 -3.41%
  
• NYSE Arms .77 -36.54%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.55 -1.29%
  
• European Financial Sector CDS Index 233.63 -3.34%
  
• Western Europe Sovereign Debt CDS Index 275.25 unch.
  
• Emerging Market CDS Index 244.59 -2.73%
  
• 2-Year Swap Spread 27.75 -1.25 basis points
  
• TED Spread 38.5 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -45.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -1 basis point
  
• Yield Curve 169.0 +3 basis points
  
• China Import Iron Ore Spot $145.40/Metric Tonne unch.
  
• Citi US Economic Surprise Index -12.80 +1.2 points
  
• 10-Year TIPS Spread 2.28 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +54 open in Japan
• DAX Futures: Indicating +11 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Tech, Medical and Retail sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Merkel Rejects Stimulus Package for Growth, Abendblatt Reports. German Chancellor Angela Merkel rejected the introduction of stimulus packages to create economic growth in Europe, Hamburger Abendblatt reported in a preview of an article that will run tomorrow, citing Merkel. It is “important that we break with the idea that growth always costs a lot of money and must be the result of expensive stimulus programs,” Merkel said in answer to questions posed by Abendblatt. She instead proposed programs that need “political courage and creativity rather than billions of euros,” the newspaper reported. Europe must implement structural reforms that eliminate growth obstacles and improve competition and should focus on education, research, a sensible salary development and the opening up of job markets to achieve sustainable growth, Abendblatt cited Merkel as saying. The way out of Europe’s crisis rests on two pillars -- solid finances and measures for growth and employment, the German chancellor said. Germany is willing to strengthen the European Investment Bank to help it provide more support, Merkel told Abendblatt.
• ECB Loans Plant Sees of European Disintegration. European Central Bank measures to stem the region’s debt crisis threaten instead to undermine the euro. ECB loans worth more than $1.3 trillion have been recycled into government bonds, capping borrowing costs. As Italy’s reliance on its local institutions increases and Spanish banks accelerate purchases of domestic government securities, however, the economic ties that bind the fate of euro members to each other loosen, weakening the incentives for cross-border support to defend the currency union. “As the local bond markets have become owned only by domestic institutions, there is less and less incentive for the other countries to support and bail out one of those,” said Stephane Monier, who helps manage more than $150 billion as head of fixed income and currencies at Lombard Odier Investment Managers. “Basically you’re planting the seeds for the disintegration of the euro zone.”
• Manufacturing in U.S. Grows at Fastest Pace in a Year: Economy. Manufacturing grew in April at the fastest pace in almost a year, propelled by a pickup in orders that signaled factories will remain a source of strength for the U.S. expansion. The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey and the best reading since June, the Tempe, Arizona-based group’s report showed today.
• Fed Said to Criticize Banks on Risk Models in Stress Test. The Federal Reserve criticized how some of the 19 largest U.S. banks calculated potential losses and planned dividends in this year’s stress tests, people with knowledge of the process said. The critiques will be part of feedback letters sent to the lenders this week that cover everything from data collection to risk measurement, said three of the people, who declined to be identified because communications with the Fed are private. Flaws included marking down all housing prices at the same rate, rather than matching them to specific regions, and planning dividends that could drain needed capital.
• Iraq's credit risk surged to the highest in almost two years as a dispute between the central government and authorities in the Northern Kurdish region threatens to undermine the Arab nation's oil exports. 5-year credit default swaps for the country sitting on the world's fifth-largest crude deposits reached 467 on April 23, the highest since August 2010, according to CMA. The contracts jumped 108 basis points from the lowest level in more than four months on March 19, surpassing a 17 basis-point gain in average Middle East credit risk, excluding Iraq, and a 41 basis point advance for nations in central and eastern Europe in that period.
• Oil Rises to One-Month High. Crude oil for June delivery gained $1.16, or 1.1 percent, to $106.03 a barrel at 11:29 a.m. on the New York Mercantile Exchange. It touched $106.32, the highest intraday level since March 28. Prices climbed 1.8 percent in April and are up 7.3 percent this year. Brent oil for June settlement gained 29 cents, or 0.2 percent, to $119.76 a barrel on the London-based ICE Futures Europe exchange.
• Indian Exports Shrank in March for First Time Since 2009. Indian exports fell in March for the first time in two and a half years as Europe’s debt crisis and slower Chinese growth hurt demand. Merchandise shipments dropped 5.7 percent from a year earlier to $28.7 billion, the government said in a statement in New Delhi today. Imports rose 24.3 percent to $42.6 billion, leaving a trade deficit of $13.9 billion. Exports last shrank year-on-year in September 2009. India’s trade deficit surged to a record $184.9 billion in the fiscal year ended March 31 as elevated crude oil prices stoked import bills and a struggling global recovery hurt exports. “The fragile global economy doesn’t augur well for Indian exports,” Rupa Rege Nitsure, an economist at state-owned Bank of Baroda (BOB) in Mumbai, said before the report. “The widening trade deficit and slowing economic growth pose significant risks to India’s macroeconomic stability.”
• Man Group Has $1 Billion Outflow; Shares Fall on Lower Cash. Man Group Plc (EMG), the world’s biggest publicly traded hedge fund manager, reported that clients withdrew a net $1 billion in the first quarter, while costs such as employee bonuses ate up more cash than analysts expected. The shares slid as much as 8 percent as analysts cut their earnings forecasts for the company. Clients redeemed $4.1 billion from Man’s investment funds, which was partly offset by $3.1 billion of sales, the London-based company said today.
• Gross Says Credit Expansion to Create Inflation, Slow Growth. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said structural distortions brought by central bank credit expansion will limit growth and accelerate the risk of inflation. Pimco favors bonds in the five-year maturity range, as well as dividend-paying stocks that yield 3 to 4 percent and recommended that real assets and commodities be part of an investor portfolio, Gross said in his monthly investment outlook posted on the Newport Beach, California-based company’s website today. “Not suddenly, but over time, gradually higher rates of inflation should be the result of QE policies and zero-bound yields that will likely continue for years to come,” Gross said, referring to the Federal Reserve’s balance sheet through debt purchases, or quantitative easing, known as QE.
• Electronic-Records Goals Aren't Met by 80% of U.S. Hospitals. More than 80 percent of hospitals have yet to achieve the requirements for the first stage of a $14.6 billion U.S. program to encourage doctors to adopt electronic medical records, the industry’s largest trade group said. The program is too ambitious and goals may not be met, Rick Pollack, executive vice president of the American Hospital Association, said yesterday in a 68-page letter to the Health and Human Services Department. He cited “the high bar set and market factors, such as accelerating costs and limited vendor capacity.”
• Dallas Fed Urges Removal of CEOs of Bailed-Out Banks. The Federal Reserve Bank of Dallas said taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts and the removal of chief executive officers and boards of directors. “A set of harsh, non-negotiable consequences” for requesting U.S. Treasury assistance might also include “clawbacks” to gain cash and stock bonuses paid the top management team during the prior two years, the Dallas Fed said today in a slide presentation on its website. The proposal reflects Dallas Fed President Richard Fisher’s view that large U.S. banks need to be split apart because they operate with an implied government safety net that puts their risks of failure on taxpayers. The “institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism,” Fisher said in an essay in the Dallas Fed’s 2011 annual report posted online.
• Bolivia Seizing Unit of Spanish Power Company Red Electrica. Bolivia is seizing the local assets of Spain’s Red Electrica Corp. to give the government control of the Andean nation’s electricity grid. President Evo Morales signed the nationalization decree today, Communications Minister Amanda Davila said in a telephone interview from La Paz. The Alcobendas, Spain-based company’s investment in its Bolivian unit was inadequate and the energy industry should be controlled by the government, Davila said.
• Lacker Says Fed May Have to Tighten Even With Unemployment at 7%. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said the central bank may have to raise interest rates when the unemployment rate is at 7 percent or higher. Speaking in an interview today at the Bloomberg Washington Summit hosted by Bloomberg Link, he said the Fed will probably have to raise rates in mid-2013. Adding more monetary stimulus now would raise inflation risks without doing much to boost growth, he said. “It could well be above 7 percent, and I think we have to prepare for that,” Lacker said. “I think it’s a misconception to think we have to get unemployment all the way down to 5 or some number like that before we raise rates.” Lacker has cast the only dissenting vote at each of the FOMC’s policy meetings this year. He has opposed the Fed’s statement that economic conditions will probably warrant “exceptionally low” levels of the federal funds rate at least through late-2014. Lacker said it is “really tricky” for the Fed to find “that time when interest rates need to rise to prevent inflation pressures from emerging, before you see them emerge, before you see inflation move up steadily.”
• Einhorn Says Fed Rate Stance 'No Longer Useful,' Risks Inflation. Hedge-fund manager David Einhorn said Federal Reserve policy intended to stimulate the economy and create jobs is “no longer useful” because it risks inflation. Investors including Pacific Investment Management Co.’s Bill Gross have said Fed policy makers may be adding the risk of future economic disruption. The central bank has kept interest rates near zero since late 2008.

Wall Street Journal:

• There's Plenty of Money for Junk. Banks and investors are showering junk-rated companies with easy money, the latest sign that risk-taking is spreading through parts of the financial markets. Lenders are making more loans with few restrictions on borrowers—known as covenant-lite loans—to riskier companies than they did just a few months ago. Some $11.5 billion of these loans were issued in April, up from $3.6 billion in all of the first quarter, according to Thomson Reuters, making April the busiest for covenant-lite deals since last May.
• PF Chang's(PFCB) Reaches Deal to Be Taken Private. P.F. Chang's China Bistro Inc. has reached a deal with private-equity firm Centerbridge Partners LP to be taken private for about $1.1 billion. The company's shares jumped 30% to $51.44 Tuesday morning on the news. Through Monday's close, shares were up 28% this year.
• GE(GE) Says China Is 'Hard,' Aims at Resource Hubs. For General Electric Co., Australia is the new China. The continent of 22 million people is set to generate more revenue for the industrial conglomerate this year than will the Middle Kingdom, with 1.3 billion. The shift stems in part from Chief Executive Jeff Immelt's shuffling of the company's business lines to emphasize energy. But it also reflects a significant rethinking of China's value for GE, which, after years of missed targets and slow growth in the country, has turned its attention to resource-rich locations that have friendlier rules for investing and fewer national champions as rivals.

MarketWatch:

• Chrysler April Sales Soar; GM(GM) Ford(F) Down.
• Trepp April CMBS Delinquency Rate Reaches Second Highest Level Ever: Delinquencies Rise for Second Straight Month. The delinquency rate for U.S. commercial real estate loans in CMBS rose 12 basis points in April to 9.80%. The value of delinquent loans is now $59.3 billion. Loans that were newly delinquent -- about $3.8 billion in total -- put upward pressure on the rate of about 64 basis points. In addition, the increase in the delinquency rate was driven by a big increase in office loans, as all other major property types improved in April. The office delinquency rate is up 82 basis points to a new all-time high of 10.23% -- the first time the office rate has ever hit double digits.

CNBC.com:

• States Scaling Back Worker Pension to Save Money.

Business Insider:

• Gasparino: The Feds Are Looking At A Major Financial Journalist Over Possible Insider Trading.
• Occupy Wall Street Plunges Into Madness With 'Very Physical' Arrests At Roosevelt Park.
• 34 Depressing Facts About The Job Market For College Grads.
• Chart of the Day: The Coming Taxmageddon Is Like Nothing The Economy Has Ever Seen Before.
• Citi: The US Fiscal Cliff Is 'So Ridiculously Large'.
  

Zero Hedge:

• Art Cashin Issues His Latest Warning On Egypt. Art Cashin is one person who has been following this underreported hotbed of geopolitical tensions and has just issued his third warning of what he calls another "nose to nose" in the middle east. Issue is this particular nose has all the leverage courtesy of a little canal that has a huge impact on the most important asset price in the world.
• The Europe Crisis From A European Perspective.
• The Other Credit Crunch.
  

New York Times:

• Euro Stress Crosses Border Into The Netherlands. Of all the people rocked by the debt and austerity tumult rattling Europe, the famously prudent but prosperous Dutch were seldom on anybody’s watch list. Until now.

paidContent:

• Digital Circulation Up 63% For U.S. Newspapers.

Absolute Return + Alpha:

• The Hedge Fund 100.

Advanced Trading:

• How the JOBS Act Will Impact Hedge Funds. The new regulation is likely to drive consolidation among asset managers, and small hedge funds are in danger of being forced out of the game.

cnet:

• iRobot(IRBT) Military Bots Learn How to Phone Home. Semiautonomous robots start to take the field with the ability to find their way home and right themselves when knocked over. And soon they'll be able to create mesh networks.

CharlotteObserver:

• Charlotte to Curb Protests at Duke Energy(DUK), Bank of America(BAC) Meetings. The city of Charlotte said Monday that upcoming Duke Energy and Bank of America shareholders meetings will represent the first test of expanded police powers that grant officers more leeway to stop and search people in or near protests. The meetings have been designated “extraordinary events,” which were approved by the Charlotte City Council in January in preparation for September’s Democratic National Convention. The city also said police will have extra power during the Speed Street festival in May and the 4th of July celebration uptown.
  

Reuters:

• News Corp(NWSA) Slams Partisan Commentary in UK Report. The company criticized what it described as the "unjustified and highly partisan" nature of commentary by several members of the Select Committee at a press conference after the event on Tuesday.
• US Foreclosures Rise on Month.
• Supply Glut Drives Europe Coal Prices to 2-Year Lows. European coal prices slumped to a two-year low on Tuesday with market players citing growing oversupply as large shipments from the United States and Colombia aggravated a glut in the region after an unusually warm winter.

Financial Times:

• Those Increasing iTraxx Tranches, Behind the Scenes. It also prompted us to take a closer look at the recent, and rather remarkable, growth in trading in standardised credit tranches since the beginning of 2012. Such trades are effectively highly leveraged bets/hedges on the creditworthiness of corporations. So what’s behind this particular resurgence, whereby the net notional volumes outstanding have doubled?

Telegraph:

• Debt Crisis: Live. US protestors from the Occupy movement took to the streets on May Day, as thousands of workers across Europe protested against spending cuts in a wave of rallies.

MailOnline:

• SEALs Slam Obama for Using Them as 'Ammunition' in Bid to Take Credit for Bin Laden Killing During Election Campaign. Serving and former US Navy SEALs have slammed President Barack Obama for taking the credit for killing Osama bin Laden and accused him of using Special Forces operators as ‘ammunition’ for his re-election campaign. The SEALs spoke out to MailOnline after the Obama campaign released an ad entitled ‘One Chance’. Besides the ad, the White House is marking the first anniversary of the SEAL Team Six raid that killed bin Laden inside his compound in Abbottabad, Pakistan with a series of briefings and an NBC interview in the Situation Room designed to highlight the ‘gutsy call’ made by the President.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.69%

Sector Underperformers:

• 1) Education -.73% 2) Steel +.15% 3) Airlines +.29%

Stocks Falling on Unusual Volume:

• HLF, AVP, PCL, NSANY, HMC, SNE, FST, NIHD, TLM, TEO, ECOL, SREV, LPLA, STBZ, PRXL, VPHM, OTEX, SIMO, CPLA, XRAY, IPXL, CALL, SCHL, RIMM, PBY, DPZ, WMS, CIX, ARW, ZAGG, CMI, URI, EXAS, ONE, JEC, BKS, EMR, BPI, NUS, SREV and PBY
  

Stocks With Unusual Put Option Activity:

• 1) NWSA 2) HLF 3) STP 4) COF 5) EFA
  

Stocks With Most Negative News Mentions:

• 1) COST 2) TXN 3) EXPE 4) GM 5) F
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.39%

Sector Outperformers:

• 1) Alt Energy +2.65% 2) Disk Drives +2.58% 3) HMOs +2.22%

Stocks Rising on Unusual Volume:

• HES, CHK, CCJ, PFCB, NUVA, VECO, FIRE, CAR, AEIS, MNST, CATM, SFLY, MPWR, TXRH, BRKR, SHLD, ALLT, UBNT, CAKE, GET, IPGP, GWR, BGC, AGCO, MOH, MAS, ADM, ANF, DDD, SCSS, NI, AKAM, PAY, CERN, TEN and APC
  

Stocks With Unusual Call Option Activity:

• 1) FIRE 2) PLX 3) VECO 4) ACAS 5) HTZ
  

Stocks With Most Positive News Mentions:

• 1) LMT 2) VECO 3) NUVA 4) TMO 5) AGCO
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• ECB Loans Plant Seeds of European Disintegration: Euro Credit. European Central Bank measures to stem the region's debt crisis threaten instead to undermine the euro. ECB loans worth more than $1.3 trillion have been recycled into government bonds, capping borrowing costs. As Italy's reliance on its local institutions increases and Spanish banks accelerate purchases of domestic government securities, however, the economic ties that bind the fate of euro members to each other loosen, weakening the incentives for cross-border support to defend the currency union. "As the local bond markets have become owned only by domestic institutions, there is less and less incentive for the other countries to support and bailout one of those," said Stephane Monier, who helps manage more than $150 billion as head of fixed income and currencies at Lombard Odier Investment Managers. "Basically you're planting the seeds for the disintegration of the euro zone."
• Bonds Prove Only Winners for First Time Since 2008 on Contagion Fears. For the first time since the start of 2008, bonds were the only investments to provide positive returns amid renewed concern the global economy is slowing and as widening deficits in Europe threaten contagion. Fixed-income assets -- from Australian government debt to U.S. Treasuries to global junk bonds -- gained 0.57 percent last month through April 27 including reinvested interest, according to Bank of America Merrill Lynch index data. The MSCI All- Country World Index of stocks lost 1.1 percent including dividends while the Standard & Poor’s GSCI Total Return Index of metals, fuels and agricultural products fell 0.5 percent. The U.S. Dollar Index dropped 0.29 percent. “Concerns of an economic slowdown and renewed risks over Europe are the biggest drivers,” Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $330 billion, said April 26 in a telephone interview. “There’s renewed concerns about Europe, and Spain in particular.”
• Reinhart, Rogoff See Huge Output Losses From High Debt. The U.S. and other developed economies with high public debt potentially face “massive” losses of output lasting more than a decade, even if their interest rates remain low, according to new research by economists Carmen and Vincent Reinhart and Kenneth Rogoff. In a paper published today on the National Bureau of Economic Research’s website, they found that countries with debts exceeding 90 percent of the economy historically have experienced subpar economic growth for more than 20 years. That has left output at the end of the period a quarter below where it would have been otherwise. “The long-term risks of high debt are real,” they wrote. “Growth effects are significant” even when debtor nations are able to borrow “at relatively low real interest rates.”
• JPMorgan’s(JPM) Zubrow Says Fed Risk Rule May Hurt Markets. JPMorgan Chase & Co. (JPM) said a Federal Reserve proposal to cut risk by capping a bank’s dealings with any one lender, corporation or foreign government fails to strike the “correct balance” and may harm financial markets. The plan “could destabilize markets,” Barry Zubrow, executive vice president of corporate and regulatory affairs for JPMorgan, said yesterday in a comment letter to the central bank. The Fed is reaching “well beyond” the Dodd-Frank reform legislation with “disruptive” standards that duplicate or conflict with other rules and directives, he wrote.
• Obama Fails to Stem Middle-Class Hollowing Out. Barack Obama campaigned four years ago assailing President George W. Bush for wage losses suffered by the middle class. More than three years into Obama’s own presidency, those declines have only deepened. The rebound from the worst recession since the 1930s has generated relatively few of the moderately skilled jobs that once supported the middle class, tightening the financial squeeze on many Americans, even those who are employed. “It started long before Obama, but he hasn’t done anything,” said John Forsyth, 58, a railroad-car inspector and political independent from Lebanon, Ohio. “He kept pushing this change, change, change, and he hasn’t done anything.”
• Infants Born Addicted to Opiates Tripled in Past Decade. The number of babies born dependent on prescription painkillers like Oxycontin tripled in the last decade along with higher costs to treat their withdrawal symptoms, research showed. The surge in newborns with withdrawal symptoms from 2000 to 2009 was accompanied by a five-fold increase in the number of mothers using the opiate drugs during pregnancy, according to a study today in the Journal of the American Medical Association. The average hospital bill to treat the babies jumped 35 percent to $53,400 in the same period, the research found. Sales of opiate painkillers such as Oxycontin and Vicodin increased four-fold during the decade, according to the study.

Wall Street Journal:

• Europe, in Slump, Rethinks Austerity. Spain has joined seven other euro-zone nations in recession, according to data released Monday, providing new evidence that austerity policies are failing to spark confidence in the region's economies ahead of a week of expected anti-austerity protests and a string of important national elections. Almost every piece of new economic data in recent weeks has reinforced the impression that swaths of the European economy are contracting. The worsening economic picture is raising political tensions around the euro zone—both French and Greek elections this weekend are expected to castigate incumbents.
• Banks Ease Rules On Some Lending. Consumers found it easier to get credit cards and auto loans in the first quarter of 2012, but standards for home and business loans remained tight, the Federal Reserve said Monday. The central bank's quarterly survey of senior loan officers at American banks and foreign ones with U.S. operations also showed lending demand grew across the board as banks moderately loosened credit standards for the first three months of 2012, compared with the previous quarter.
• NYSE CEO Sees High-Speed Firms Heading For Dark Pools. Regulatory scrutiny around high-speed trading strategies appears to be pushing the business away from stock exchanges and into lesser-regulated platforms such as "dark pools," according to the top executive of NYSE Euronext (NYX).
• Egan-Jones Cuts Spain's Rating To Junk Status At BB+. Credit-rating company Egan-Jones cut its view on Spain to junk status Monday. The ratings firm now rates Spain at double-B-plus, down one notch from its previous rating at triple-B-minus. Egan-Jones, which is smaller than the world's three big ratings firms Standard & Poor's, Moody's Investors Service and Fitch Ratings, is the first to consider Spanish debt junk. Thursday, S&P cut its rating on Spain to triple-B-plus, which is three notches above where Egan-Jones rates Spain. Moody's and Fitch rate Spain even higher than S&P does. In cutting Spain to junk status, Egan-Jones said the country is dealing a "miserable trend" over the past three fiscal years of declining gross domestic product and mushrooming debt. Egan-Jones estimated Spain's debt-to-GDP level at 61% and continuing to rise. Monday, Spain said its economy contracted for the second-straight quarter during the first three months of the year putting it officially into recession. The country's economic weakness and high unemployment mean costs for social payments are surging, which makes its debt load even more unmanageable.
• Fed's Fisher: Too Soon to Talk About Tighter Policy. Although he believes the Federal Reserve has already provided too much stimulus to the economy, a veteran central banker said Monday now isn’t the time to start calling for a tightening in monetary policy. Looking at the various programs the Fed has run to expand its balance sheet by buying bonds to stimulate growth, “it’s not clear to me [the programs have] been fully productive, or even counterproductive,” Federal Reserve Bank of Dallas President Richard Fisher said in an interview with Dow Jones Newswires, held on the sidelines of the Milken Institute Global Conference in Beverly Hills, Calif.
• BofA(BAC) to Cut 2,000 Jobs. Amid the banking industry's relentless belt-tightening, even Bank of America Corp.'s moneymakers aren't safe. The Charlotte, N.C., company is planning about 2,000 staff cuts in its investment banking, commercial banking and non-U.S. wealth-management units, said people familiar with the situation.
• IRS Reviews Chesapeake(CHK) CEO's Perk. Chesapeake Energy Corp. disclosed Monday that the Internal Revenue Service was reviewing aspects of a controversial perk that allows longtime CEO Aubrey McClendon to purchase a small stake in every oil or gas well the company drills.

Business Insider:

• One Of Jim O'Neill's Favorite Economic Indicators Just Came In Awful.
• CNBC is Freaking Out Because Andrew Ross Sorkin's Ratings Are Terrible.
  

Zero Hedge:

• Treasury Forecasts $447 Billion In Funding Needs Thru End Of September - $300 Billion Shy Of Trendline.
• Questions About Europe's Band-Aid Union Reemerge.
• China Manufacturing Continues To 'Contract-And-Expand' Even As April PMI Misses Expectations. (graph)
  

CNBC:

• Pimco Planning for 'Lackluster Economy': El-Erian. "Our strategy is based on a lackluster recovery. So we are assuming it will be a lackluster economy, Pimco CEO Mohamed El-Erian told CNBC's Closing Bell on Monday. Jobs and economic data in the U.S. have been been weakening, "and that’s a problem," he told CNBC during the annual Milken Institute Global Conference. "The last thing we need is a repeat of 2008, 2009, 2010 where the year starts strong" and then declines.
• Global Investors Resume Exit From Euro Debt. Global investors resumed their exit from euro zone bond markets in April, cutting their holdings of the bloc's bonds to their lowest level in over a year as sovereign debt woes re-emerged to hit Spain and Italy again. The surveys of 55 leading investment houses in the United States, continental Europe, Britain and Japan showed holdings of euro zone bonds in balanced portfolios fell to 24.5 percent, compared with 26 percent in March and substantially lower than the 26.9 recorded at height of the crisis in November last year. "Tensions are now rising again as the ECB's tonic wears off," said Dirk Wiedmann, Head of Investment at Rothschild Wealth Management. On aggregate, the poll shows investors upping Japanese and UK bond holdings to compensate for euro zone reductions, while there was a small shift from government and investment grade allocations to speculative "junk" holdings within an overall steady U.S. debt exposure. "Elections in the euro area may spark renewed political uncertainty amid the euro debt crisis," said Giordano Lombardo, group chief investment officer at Pioneer Investments.

Real Clear Markets:

• If I Wanted America to Fail: Free Market Agitprop With a Lesson.

USA Today:

• Delta(DAL) buys oil refinery in a bid to offset rising fuel costs.

Reuters:

• Australia House Prices Fall for Fifth Quarter, Rate Cut Looms. House prices in Australia's major cities fell for the fifth straight quarter in the three months to March, underlining the weakness of the housing market in general and adding to pressure for an immediate cut in interest rates. The Reserve Bank of Australia (RBA) holds its monthly policy meeting Tuesday and is widely expected to cut its cash rate by at least 25 basis points to 4.0 percent given benign inflation and disappointing economic growth outside of mining. Housing has been particularly weak with the government's measure of prices for detached houses falling 1.1 percent in the first quarter, twice the drop forecast. Prices were down 4.5 percent on the same quarter last year, a far cry from the heady growth pace of 19 percent seen as recently as 2010.
• Greece's Venizelos says election could decide euro membership-report. Greece's Evangelos Venizelos, who will lead the ruling Socialists into the May 6 election, said in a newspaper interview on Tuesday that euro membership is not a certainty regardless of the outcome. "There are certain misconceptions that worry me: for instance, the misconception that whatever happens we are not going to leave the euro," Venizelos is quoted as saying in the Guardian.
• Fed is sugar-coating Congress's task -Fisher. The U.S. Federal Reserve's super-easy monetary policy is doing little to spur job creation and is giving Congress license to avoid tackling looming fiscal problems and the towering national debt, a top Fed official said on Monday. "By providing monetary accommodation, we are saying, in essence, 'Congress, you better eat your vegetables, or we are going to serve you a big plate of monetary cookies,'" Richard Fisher, president of the Dallas Fed, told the Milken Institute Global Conference. The Fed's program of bond purchases is pushing down the price of debt, interfering with a pricing mechanism that would otherwise force Congress to come to terms with its "fiscal misfeasance," he said. "We have children in Congress," he said. "They need to be disciplined."

Financial Times:

• Berlin Insists on Eurozone Austerity. Wolfgang Schäuble said the only way to achieve the economic growth that was needed in the region was to continue to rein in budget deficits and pay down debt, praising the tough new Spanish budget – which contains €27bn in new taxes and spending cuts – as an example. “The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation,” Mr Schäuble said at a press conference with his Spanish counterpart, Luis de Guindos. “If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.”

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 165.0 +2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 136.50 unch.
  
• FTSE-100 futures -.10%.
  
• S&P 500 futures +.11%.
  
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BDX)/1.38
• (ADP)/.91
• (BIIB/1.48
• (PFE)/.56
• (VLO)/.28
• (EMR)/.80
• (OSG)/-1.13
• (FDP)/.82
• (ACI)/.18
• (MMC)/.61
• (AVP)/.28
• (ADM)/.60
• (TRW)/1.61
• (CMI)/2.22
• (DPZ)/.50
• (PFCB)/.36
• (WBMD)/-.18
• (OPEN)/.34
• (RGR)/.67
• (BRCM)/.55
• (JLL)/.21
• (GGP)/.21
• (BXP)/1.13
• (CECO)/.25
• (CHK)/.28
• (ODP)/.05
• (KLIC)/.14
• (AGCO)/.86

Economic Releases
10:00 am EST

• Construction Spending for March is estimated to rise +.5% versus a -1.1% decline in February.
• ISM Manufacturing for April is estimated to fall to 53.0 versus a reading of 53.4 in March.
• ISM Prices Paid for April is estimated to fall to 59.0 versus 61.0 in March.
  

Afternoon

• Total Vehicle Sales for April are estimated to rise to 14.4M versus 14.32M in March.
  

Upcoming Splits

• (DGAS) 2-for-1
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Williams speaking, Fed's Lockhart speaking, Fed's Plosser speaking, China PMI and the weekly retail sales reports could also impact trading today.
  

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