Evening Headlines
Bloomberg:
- Euro Risks Highlighted as Votes Show Swing in Political Pendulum. Four elections this weekend have the potential to reshape the European political map and show how the response to the financial crisis remains hostage to the whims of voters on both sides of the region’s economic divide. Recession-weary Greeks will pick a new government and polls show the French will probably install a Socialist president for the first time since 1981. Local elections will test Italy’s political pulse, and voters in a northern German state may deal a symbolic blow to Chancellor Angela Merkel’s coalition. The May 6 elections capture the popular agitation in debtor and donor countries alike, after emergency loan packages worth 386 billion euros ($508 billion) and a focus on deficit reduction failed to halt the debt crisis. Instead, Europe has been sundered in two economically, with Greece’s unemployment rate of 21.7 percent contrasting with Germany’s 6.8 percent. “We have to look out for political risk still in Europe,” Julian Callow, chief European economist at Barclays Capital in London, said on Bloomberg Television. “We’ve been in a situation frankly in the last year where the politics has really been quite favorable to push through structural economic reforms, to push through fiscal tightening. My concern is the political pendulum is starting to swing back.” The vote in Greece, the epicenter of the euro crisis, may amplify the mutiny against the wage and spending cuts and tax increases that are conditions for drawing on financial aid and staying in the currency.
- Hollande ‘Pragmatic’ on Fiscal Pact, Sueddeutsche Zeitung Says. French Socialist presidential candidate Francois Hollande would be ready for a “pragmatic solution” to a disagreement with German Chancellor Angela Merkel over the so-called fiscal pact that would limit government spending in European Union countries, Sueddeutsche Zeitung said. Hollande’s team has “concrete proposals” on how the fiscal pact can be complemented by measures to stimulate economic growth, the newspaper said, citing notes documenting talks between German diplomats and Hollande aides. Merkel would agree to such an amendment, which may be decided at an EU leaders’ summit in Brussels at the end of June, the newspaper said without citing anyone. Hollande is aware that he would have to speak “tough truths” at the beginning of his term and that there’s no way around pushing France’s budget deficit below 3 percent of gross domestic product next year, the newspaper said, citing notes on the talks.
- Euro Set For Biggest Weekly Decline In A Month. The euro was set for the biggest weekly decline in a month amid concern leadership changes at elections in France and Greece this weekend could derail the region’s austerity efforts. The 17-nation currency was 0.2 percent from an almost two- year low versus the British pound before a private report that may confirm the region’s output of services and manufacturing shrank for a third month. The Dollar Index was poised for a weekly gain before a U.S. data forecast to show employment increased last month in the world’s biggest economy.
- U.K. Commercial Real Estate Falls for Second Straight Quarter. U.K. commercial property values declined by 0.7 percent in the first three months of 2012, the second consecutive quarter of decline, Investment Property Databank said. Values are 31 percent below 2007 levels, making it difficult to refinance five-year loans that are in negative equity and are maturing, London-based IPD said today in a statement. The last time prices fell for two straight quarters was in the first half of 2009.
- Freddie Mac Says Mortgage Refund Demands Hit $3.2 Billion. Freddie Mac, the mortgage-finance company operating under U.S. conservatorship, said its pending requests to lenders for refunds on faulty mortgages rose about 19 percent in the first quarter to $3.2 billion. The new total included 38 percent that were outstanding for more than four months, the McLean, Virginia-based company said today in a securities filing. The sum represents the unpaid balance on requests to sellers and servicers of single-family home loans, and the increase is measured from the end of 2011.
- When Cupcakes Are The Enemy of Schoolkids. Public school students in Maryland’s Montgomery County know they’d better not even think of holding a bake sale to raise money for the football team or math club. Selling sweets is outlawed during the school day, and officials make the rounds to ensure no illicit cupcakes are changing hands. “If a bake sale is going on, it’s reported to administration and it’s taken care of,” says Marla Caplon of the county’s food and nutrition services. “You can’t sell Girl Scout cookies, candy, cakes, any of that stuff.”
- Romney Says Missteps Create ‘Shame’ for Obama in Chen Case. Presumptive Republican presidential nominee Mitt Romney criticized the Obama administration’s handling of a diplomatic dispute with China, saying it failed to protect Chinese dissident Chen Guangcheng. Romney said today missteps by U.S. diplomats led the blind human rights lawyer to leave the American embassy in Beijing, putting him in danger of retribution from Chinese authorities. “If these reports are true, this is a dark day for freedom and it’s a day of shame for the Obama administration,” Romney said during a campaign appearance in Portsmouth, Virginia. “We should stand up and defend freedom wherever it is under attack.”
- RBA Cuts Growth, Inflation Forecasts on Weaker Jobs. The Reserve Bank of Australia cut growth and inflation forecasts as weak labor and housing markets keep price gains in check, underscoring its decision this week to cut interest rates by the most in three years. “Labor market conditions have continued to be on the soft side to date, with large increases in employment in mining and some service industries roughly offset by declines in the manufacturing, hospitality and retail sectors,” the central bank said today in its quarterly monetary policy statement. “A recovery in housing construction is unlikely in the near term.”
- Bank Loan Bundling Investigated by Biden-Schneiderman: Mortgages. New York Attorney General Eric Schneiderman and Delaware’s Beau Biden are investigating banks for failing to package mortgages into bonds as advertised to investors, three months after a group of lenders struck a nationwide $25 billion settlement over foreclosure practices. The states are pursuing allegations that some home loans weren’t correctly transferred into securitizations, undermining investors’ stakes in the mortgages, according to two people with knowledge of the probes. They’re also concerned about improper foreclosures on homeowners as result, said the people, who declined to be identified because they weren’t authorized to speak publicly. The probes prolong the fallout from the six-year housing bust that’s cost Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders more than $72 billion because of poor underwriting and shoddy foreclosures. It may also give ammunition to bondholders suing banks, said Isaac Gradman, an attorney and managing member of IMG Enterprises LLC, a mortgage-backed securities consulting firm. “The attorneys general could create a lot of problems for the banks and for the trustees and for bondholders,” Gradman said. “I can’t imagine a better securities law claim than to say that you represented that these were mortgage-backed securities when in fact they were backed by nothing.”
Wall Street Journal:
- Protesters Target Buffett Meeting To Air Burlington Concerns. The tens of thousands of Warren Buffett acolytes descending on Omaha for the company’s annual meeting Saturday will find the eight-foot tall, paper-mache inhaler outside the gathering at the city’s CenturyLink Center. It’ll be set up there by protesters from Southern California who object to plans by a Berkshire subsidiary, the railroad Burlington Northern Santa Fe, to build a massive new rail facility near their homes.
- Heat's on Triparty Repos. U.S. bank regulators are turning up the heat on the financial industry to reduce risk in an obscure but massive corner of the credit market known as triparty repos, where many large institutions get funding for their trading businesses. This $1.7 trillion market came under deep duress during the 2008 financial crisis and the Federal Reserve has been pressing big players—most notably Bank of New York Mellon Corp. and J.P. Morgan Chase & Co.—to reduce their exposure to the market.
- Goldman(GS) Takes Steps to Protect Bond Turf. Goldman Sachs Group Inc. is preparing to roll out a bond-trading platform on which it will charge lower fees than on typical bond trades, according to people familiar with the matter, a move that could help retain customers tempted by rival trading venues being set up by BlackRock Inc. and others. The New York securities firm has been developing an electronic platform called GSessions over the past year, according to a person familiar with its plans.
- New Ripples for Gupta Case. The Galleon Group hedge fund wasn't alone in piling into Goldman Sachs Group Inc. stock hours before the bank announced a $5 billion investment from Warren Buffett's firm at the height of the financial crisis, trading records show.
- Dubai Rethinks Growth Ambitions. Dubai's sky-high ambitions are coming back down to earth as its government reassesses economic development plans hatched near the peak of the boom five years ago. Years after the emirate's economy hit a wall and its corporate flagship, Dubai World, was forced to restructure nearly $25 billion in debt, Dubai is scaling back the double-digit growth goals it set for itself in 2007.
- Greek Elections Seen Leading to Instability. Angry Voters Are Set to Punish Main Parties, Leading to New Polls Within Months and Threatening Bailout Package.
- Moscow Raises Alarm Over Missile-Defense Plan for Europe. Russia's defense establishment rolled out computer-generated images of hypothetical warfare on Thursday to illustrate its fear of a planned Europe-based missile-defense shield and warned of a possible a pre-emptive strike on elements of the system, underscoring the biggest source of tension in U.S.-Russia relations.
Business Insider:
Zero Hedge:
CNBC:
- Hugh Hendry Predicts Crisis Will Spread to Asia. Hugh Hendry, one of the hedge fund industry's most outspoken managers, has warned that the economic crisis is headed for Asia, with the region's largest economy, China, struggling under a bursting property bubble and tumbling demand for its exports.
NY Times:
- A Weight Hobbling GM(GM). Almost three years after its taxpayer bailout and bankruptcy, the nation’s biggest automaker still can’t shed the stigma of being “Government Motors.” Because the Treasury Department still owns a 26 percent stake in the company, G.M. remains saddled with pay restrictions that limit its ability to recruit new talent, a ban on corporate jets, and lingering image problems in the eyes of some consumers.
AP:
- Yahoo(YHOO) Confirms Misleading Info On New CEO's Resume. A disgruntled Yahoo shareholder questioned the qualifications and integrity of recently hired CEO Scott Thompson after exposing a misrepresentation about the executive's education. The fabrication confirmed Thursday by Yahoo Inc. gives New York hedge fund manager Daniel Loeb more artillery as he tries to topple a board of directors favored by Thompson, who became CEO of the troubled Internet company four months ago. Loeb, whose fund Third Point owns a 5.8 percent stake in Yahoo, gained more leverage when he discovered Thompson doesn't have a bachelor's degree in computer science from a small college in Easton, Massachusetts, as Yahoo stated in a regulatory filing last week.
Reuters:
- U.S. Readies Proposal to Clamp Down on Fracking. The Obama administration wants to clamp down on shale gas drilling on public lands and set standards that proponents of tougher regulation hope will provide a blueprint for drilling oversight nationwide. Industry sources said the Interior Department could propose a new rule on hydraulic fracturing, or fracking, as early as Friday.
TheAsset.Com:- Hedge Fund Performance Stays Flat in April. Early performance indicators point towards a broadly flat performance from hedge funds in April, according to investment management firm GAM. The HFRX Global Index was up by 0.05 percent through April 27, and up three percent year-to-date.
Telegraph:
- France Faces 40% House Price Slump. France faces a property slump of Anglo-Saxon proportions as the frothiest boom in French history finally tips over, threatening the country with an economic shock just as austerity hits. "It is a gigantic bubble, all the more dangerous as it is spread across France," said Pierre Sabatier, from the consultancy PrimeView. "It reached a paroxysm in the summer of 2011. There is a mix of incredulity and denial as it starts to burst but there can be little doubt that all levers propelling the market are disappearing." PrimeView said prices across France have jumped 160pc since 1998, though houshold incomes are up just 35pc. Paris has overtaken New York to become the world's third costliest city at €18,000 (£14,600) per square metre. The boom seemed to defy global gravity last year as southern Europe and the US battled property slumps. The mood has since darkened. "A number of clients tell me they think the market has topped and want to get out," said one French hedge fund manager. Standard & Poor's has told investors to brace for a 15pc correction. Credit Agricole says prices may fall 12pc by the end of next year, expecting a "gradual slide" that could last until 2016.
People's Daily:
- China's real unemployment rate is "relatively high" with a "relatively serious" hidden unemployment problem, according to an article by researchers at the Chinese Academy of Social Sciences including Yang Shengming, Feng Lei and Xia Xianliang published in today's People's Daily. China's yuan exchange rate is "almost at equilibrium," the researchers wrote. Maintaining stable currency rates and financing will be important to stabilizing the job market and alleviating unemployment, they wrote.
Hexun.com:
- Chinese Shipyards Face Bankruptcy on Falling Orders. Almost 500 Chinese shipyards out of a total of more than 1,600 may close because of falling orders and decreasing loans, citing industry data. About 80% of shipyards in the eastern Chinese province of Zhejiang either stopped production or ran at half of production capacity. New orders fell about 40% in the first two months of the year and by 52% in 2011, according to the report.
Evening Recommendations
BMO:- Rated (RHT) Outperform, target $72.
Night Trading- Asian equity indices are -.75% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 166.50 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 134.50 -.25 basis point.
- FTSE-100 futures -.35%.
- S&P 500 futures +.02%.
- NASDAQ 100 futures +.12%.
Morning Preview Links
Earnings of NoteCompany/Estimate
Economic Releases
8:30 am EST- The Change in Non-farm Payrolls for April is estimated to rise to 160K versus 120K in March.
- The Unemployment Rate for April is estimated at 8.2% versus 8.2% in March.
- Average Hourly Earnings for April are estimated to rise +.2% versus a +.2% gain in March.
Upcoming Splits
Other Potential Market Movers
- The Fed's Evans speaking and the Fed's Williams speaking could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
