Stocks Falling into Final Hour on More Weak US Economic Data, Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Tech Sector Optimism

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 19.19 +9.28%
  
• ISE Sentiment Index 79.0 -28.83%
  
• Total Put/Call 1.01 unch.
  
• NYSE Arms 1.71 +8.88%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.75 +2.77%
  
• European Financial Sector CDS Index 244.39 +1.98%
  
• Western Europe Sovereign Debt CDS Index 273.51 -.06%
  
• Emerging Market CDS Index 247.63 +1.94%
  
• 2-Year Swap Spread 29.0 +.75 basis point
  
• TED Spread 39.5 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -41.5 +1.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 basis point
  
• Yield Curve 162.0 -4 basis points
  
• China Import Iron Ore Spot $144.10/Metric Tonne -.55%
  
• Citi US Economic Surprise Index -23.40 +.8 point
  
• 10-Year TIPS Spread 2.21 -5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -205 open in Japan
• DAX Futures: Indicating -12 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 breaks convincingly below its 50-day moving average on rising Eurozone debt angst, less financial/tech sector optimism, high energy prices, rising global growth fears and less US economic optimism. On the positive side, Utility and Airline shares are slightly higher on the day. Oil is falling -4.0%. The Belgium sovereign cds is down -2.7% to 237.89 bps and the Italian/Germany 10Y Yld Spread is falling -.97% to 385.02 bps. On the negative side, Coal, Oil Tanker, Alt Energy, Oil Service, Steel, Software, Networking, Defense, Internet, Semi, Bank, Energy, Biotech and HMO shares are under significant pressure, falling more than -2.25%. Financial/Tech shares have lagged throughout the day. As well, cyclical shares are relatively weak again. Copper is falling -.46%, Gold is gaining +.43% and Lumber is down -.94%. Major Asian indices were mostly lower overnight, led down by a -1.9% decline in India. The Sensex broke down technically, closed below its 200-day moving average and is down -9.1% since Feb. 22. Major European indices are falling -1.75%, led down by a -1.95% decline in Germany. Italy is down another -1.55% and is now down -18.8% since March 19. As well, Russia is plunging -4.1% on the decline in oil and is breaking down technically. The Bloomberg European Bank/Financial Services Index is down -.8% and is now down -17.0% since March 19. The Portugal sovereign cds is rising +4.0% to 1,010.51 bps, the Russia sovereign cds is gaining +1.9% to 189.02 bps, the Brazil sovereign cds is up +2.3% to 122.75 bps and the US sovereign cds is gaining +1.4% to 40.07 bps. Moreover, the European Investment Grade CDS Index is jumping +2.7% to 144.72 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. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -5.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. 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 -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +603.0% 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. I continue to believe there is a fairly high level of complacency among US investors regarding the rapidly deteriorating situation in Europe. The Citi Eurozone Economic Surprise Index is falling another -6.9 points today to -34.7, which is the lowest since mid-November of last year. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades over the coming weeks. The 10Y T-Note continues to trade too well, copper continues to trade poorly and the euro has turned lower the last 3 days despite weaker US economic data. Oil is falling to the lower end of the range it has been trapped in for the last few months. I expect oil to fall another $10/bbl+ by the fall assuming no serious supply disruptions. Fitch is out warning today of a Eurozone breakup. As well, a senior official of the Greek Ministry of Finance is saying today that “Greece will exit from the Euro.” I continue to believe that the ECB’s LTRO plan will be viewed in a very negative light over the coming months and that the Eurozone will not exist in its current form over the intermediate-term. Given the upcoming US “fiscal cliff”, intensely negative political rhetoric and likely reigniting of the European debt crisis, more equity investor caution is warranted into the second half of the year. 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 rising Eurozone debt angst, less US economic optimism, high energy prices, rising global growth fears, more shorting, profit-taking and less financial/tech sector optimism.

Today's Headlines

Bloomberg:

• Schaeuble Says Germany Will Negotiate With Hollande on Growth. The German government will allow a victorious Francois Hollande to “save face” while expecting him to uphold French commitments to Europe’s budget treaty, Finance Minister Wolfgang Schaeuble said. Schaeuble’s comments are the clearest indication yet that Chancellor Angela Merkel’s government is preparing for a Hollande victory at France’s presidential election May 6 after publicly backing Nicolas Sarkozy to win a second term. Earlier today, the German government said that diplomatic contact had been made with the Hollande camp. “We’ve told Mister Hollande that the fiscal pact has been signed and that Europe works along the principle of pacta sunt servanda,” meaning agreements must be kept, Schaeuble said in a speech in the western German city of Cologne today. “I’ve said that everybody who gets freshly elected into office must be able to save face,” Schaeuble said. “So we will discuss this with Hollande in a very friendly way. But we won’t change our principles.”
• Majority of Germans Back Merkel's European Austerity, Welt Says. A majority of Germans support Chancellor Angela Merkel’s austerity policies for Europe, Die Welt reported today, citing a poll by Infratest Dimap. Some 55 percent of the population in Germany are in favor of “stern austerity” in Europe rather than growth programs financed with new credit, the German newspaper said, citing the Infratest Dimap poll of 1,004 people taken between April 30 and May 1.
• Barclays Recommends Banks' CDS to Protect Against Europe Risks. Investors should buy protection on the debt of financial firms to guard against the risks from an escalation of Europe's debt crisis amid signs this year's credit market rally is stalling, according to Barclays. "Financials appear most attractive as cost-effecitive macro hedges," the strategists led by Jeffrey Meli and Bradley Rogoff wrote today. "We recommend buying CDS protection on a basket of financial credits as an alternative to hedging with the CDX Index."
  
• European Stocks Fall on US Payrolls Data. Hays Plc (HAS) and Randstad Holding NV (RAND) led losses in recruitment companies, sinking more than 5 percent. Wacker Chemie AG (WCH), the world’s second-biggest maker of solar-grade silicon, slumped 6.1 percent after net income dropped. Taylor Wimpey Plc (TW/), a U.K. homebuilder, slid 7.7 percent as the nation’s house prices fell the most in 1 1/2 years. BHP Billiton Ltd. (BHP) and Rio Tinto Group led mining companies lower. The Stoxx Europe 600 Index (SXXP) retreated 1.8 percent to 253 at the close of trading, the lowest level since April 23. The benchmark gauge tumbled 2.4 percent this week, trimming its 2012 advance to 3.5 percent, as Spain entered a recession and reports on U.S. business activity and services-industry growth trailed economists’ forecasts.
• UK Home Prices Drop the Most in 1 1/2 Years as Recession bites. U.K. house prices dropped the most in 1 1/2 years in April as a stamp-duty exemption for first-time buyers ended and the economy fell into its first double-dip recession since the 1970s, Halifax said. Prices dropped 2.4 percent from March, the largest monthly decline since September 2010, to an average 159,883 pounds ($258,700), the mortgage unit of Lloyds Banking Group Plc (LLOY) said in a statement in London today. Prices had risen 2.2 percent in March. From a year earlier, values were down 0.6 percent.
• Banks May Have to Disclose Profits From ECB Emergency Loans. Banks may have to disclose profits from carry trades derived from 1 trillion euros ($1.3 trillion) in European Central Bank loans and exclude the money from bonus pools, under draft proposals from European Union lawmakers. Profit from carry trades, where investors borrow money at a low interest rate to buy higher yielding securities, “should not count toward computation of remuneration and bonus pools” at banks, under plans being weighed by European Union lawmakers, according to a document obtained by Bloomberg News. The measure is one of dozens of proposed amendments to legislation to implement global capital and liquidity rules for EU lenders.
• Employers in U.S. Added Fewer Jobs Than Forecast in April. American employers added fewer workers than forecast in April and the jobless rate unexpectedly fell as people left the labor force, adding to concern the economic expansion is cooling. Payrolls climbed 115,000, the smallest increase in six months, after a revised 154,000 gain in March that was larger than initially estimated, Labor Department figures showed today in Washington. The median estimate of 85 economists surveyed by Bloomberg News called for a 160,000 advance. The jobless rate fell to a three-year low of 8.1 percent, and earnings stagnated. Transportation and warehousing, government agencies and construction all cut jobs in April. Bloomberg survey estimates ranged from increases of 89,000 to 210,000 after a previously reported 120,000 rise in March. The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. It has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948. The participation rate, which indicates the share of working-age people in the labor force, fell to 63.6 percent, the lowest since December 1981, from 63.8 percent. The report showed a drop in long-term unemployed Americans. The number of people out of work for 27 weeks or longer fell as a percentage of all jobless, to 41.3 percent. Average hourly earnings were $23.38 in April, essentially unchanged from the month before, today’s report showed. It was the first time without an increase since August. Compared with April of last year, earnings climbed 1.8 percent, matching January as the smallest in a year. The average work week for all workers held at 34.5 hours. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- held at 14.5 percent.
• S&P 500 Poised for Worst Week in 2012 on US Jobs Report. U.S. stocks declined a third day, sending the Standard & Poor’s 500 Index toward its worst week in 2012, as data showing employers added fewer jobs than forecast intensified concern about the pace of economic recovery. “The data point to sluggish job growth, declining labor market participation and for those employed, stagnant purchasing power,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. “Consumption is less dynamic at a time when headwinds from Europe and a potential fiscal cliff are still material.”
• U.K. Ready to Down Planes Threatening Olympics, Standard Says. Defense Secretary Philip Hammond said U.K. ministers are prepared to order the shooting-down of a hijacked airliner if it presents a Sept. 11-style terror threat to the London Olympics, the Evening Standard newspaper reported. “The decision to engage would be made at the highest levels of government,” Hammond told the newspaper in an interview published today. “I’m certainly prepared to make decisions.” Britain’s armed forces have been mounting exercises around London this week to rehearse security for the games, which open on July 27. Anti-aircraft missile batteries will be located around London, while Typhoon jets have flown practice sorties from a Royal Air Force base in northwest London. “Anyone who is thinking malign thoughts should be aware that there will be the latest and most sophisticated military hardware ready and able to defend the games,” the Standard cited Hammond as saying.
• Oil Falls to Lowest Since February on Disappointing US Jobs Report. Oil fell below $100 a barrel for the first time since February as U.S. employers added fewer workers than forecast, stoking concern that demand won’t be enough to cap inventories at their highest level in 21 years. Futures declined as much as 4.9 percent after Labor Department figures showed payrolls climbed 115,000, the smallest gain in six months. Crude oil for June delivery dropped $4.82, or 4.7 percent, to $97.72 a barrel at 12:58 p.m. on the New York Mercantile Exchange. The contract touched $97.51, the lowest level since Feb. 10. Prices are down 6.9 percent this week, heading for the biggest weekly decline since September. Brent oil for June settlement fell $3.66, or 3.2 percent, to $112.42 a barrel on the London-based ICE Futures Europe exchange.
• Facebook(FB) at 99 Times Profit Exceeds 99% of S&P 500 Index. Facebook Inc. (FB) is betting its growth prospects will persuade investors to pay 99 times earnings for its initial public offering, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index. The world’s most popular social-networking site will seek a market value of as much as $96 billion, offering shares at $28 to $35 each, a regulatory filing showed yesterday. The Menlo Park, California-based company will begin meeting investors next week and is scheduled to price the offering on May 17, data compiled by Bloomberg show.
• Drugmakers' Deal With Obama Said to Be Probed by House. Pfizer Inc. (PFE) and Merck & Co. (MRK) are being pulled into an expanding congressional investigation into the agreement drugmakers reached with the Obama administration to support the Democrats’ overhaul of the U.S. health-care system, according to three people familiar with the talks.

Wall Street Journal:

• U.S. Jobs Data Add to Fears of Spring Slowdown. U.S. job growth slowed again in April and more Americans dropped out of the work force, a fresh sign that the economy could be settling into a sluggish spring.
• Deal Sought for Chinese Activist to Study in U.S. Blind Chinese activist Chen Guangcheng would move to the U.S. with his family to study law under a new deal being discussed between Washington and Beijing, according to U.S. officials. A New York University professor who is an adviser to Mr. Chen said he had an offer from that school. Also on Friday, the Chinese government released a statement saying that Mr. Chen could apply to study abroad "like other Chinese citizens."
  

CNBC.com:

• Australia Heading for 'Mother of All Hard Landings': Pros. Australia is headed for the “mother of all hard landings,” according to Société Générale strategist Albert Edwards, who says the country’s “credit bubble” could burst if China’s economy suffers a sharp slowdown.
• Fitch CEO: Another US Debt Downgrade Unlikely Before Election.
  

Business Insider:

• New Dan Loeb Letter On Yahoo(YHOO): Fire Scott Thompson By Monday.
• Here's Everything You Need to Know About The Greek Elections That Could Determine the Fate of the Euro.
• The Euro Area Economy Is Deteriorating At A Disastrous Pace. (graph)
  

Zero Hedge:

• Norway Sovereign Wealth Fund Purges All Insolvent Eurozone Debt Holdings, US Hedge Funds Buying.
• Lack of Trust - Caused by Institutional Corruption - Is Killing the Economy.
• The 2 Scariest Charts From Today's Jobs Report, Or The Real "New Part-Time Normal".
• Real U-3 Unemployment Rate: 11.6%. (graph)
• Bank of America(BAC) Facing $6.2 Billion Collateral Call.
  

Washington Post:

• The Fiscal Cliff Cometh by Mohamed A. El-Erian. Economists are rightly starting to warn that the United States faces a worrisome “fiscal cliff” at year’s end. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling — and the failure of the “supercommittee” that followed — along with across-the-board tax increases would derail the U.S. recovery and undermine the well-being of the global economy. We should be avoiding the edge of this cliff — and politicians should not believe that they have until the end of this year to act.

Cleveland.com:

• Mitt Romney Issues Ohio Challenge to President Obama. Dear Mr. President, Welcome to Ohio. I have a simple question for you: Where are the jobs?

FXStreet.com:

• Fitch Warns on Risk of Eurozone Breakup. Fitch rating agency published a report in which it implies that the Eurozone might be at risk of a breakup, especially in case of Greece's secession, which would trigger contagion among peripheral countries such as Italy, Spain, Ireland, Portugal and Cyprus. According to Fitch's report the possibility of such a breakup is low, but the risk is nevertheless present. If Greece was forced to leave the Eurozone or did it voluntarily, it would bring about an immediate rating cut for Italy, Spain, Ireland, Portugal and Cyprus.

Reuters:

• Misery builds for the euro zone. The euro zone economy worsened markedly in April, according to business surveys that clashed with the prospect of a gradual recovery augured by European Central Bank President Mario Draghi this week. Friday's purchasing managers indexes (PMIs), primarily covering services, suggested a recession across Europe's currency union could now extend to mid-year and be deeper than previously thought.
• Analysis: Spain Bad Loan Mess Revives Debate On Who Should Pay. Spain's plan to rid banks of toxic real estate assets is reviving the politically heated debate over how creditors and taxpayers should share the vast losses still being incurred by the euro zone debt crisis. Nowhere is the issue in sharper relief than in Ireland.
• Copper Dips to Lowest In More Than a Week on Weak US Jobs Report.
• S&P Cuts Ratings of 7 Spanish Regions.
• Fed May Exit Sooner if Growth Beats Forecasts - Williams. The U.S. Federal Reserve could move away from its years-long, zero-rate policy sooner than expected if growth exceeds forecasts or inflation rises above the central bank's 2 percent target, a top Fed official said on Friday. "All else being equal, that's a sign that you would want to raise rates sooner," San Francisco Federal Reserve Bank President John Williams told reporters on Friday.

Financial Times:

• Wealthy French Eye Cross-Channel Move. The “soak the rich” rhetoric that has punctuated the presidential campaign has prompted a sharp rise in the numbers weighing a move across the Channel, according to London-based wealth managers, lawyers and property agents specialising in French clients. François Hollande, the Socialist candidate who leads the presidential race after the first round of voting last week, wants to impose a tax rate of 75 per cent on income above €1m and at the launch of his bid in January said: “My true adversary in this battle has no name, no face, no party ... It is the world of finance.”

Telegraph:

• Debt Crisis: Live.
• Eurozone Services Sector Contracts Sharply in April. The final reading of April's Markit Eurozone Services PMI came in at 46.9, a full point lower than the preliminary reading of 47.9 reported two weeks ago, which itself was far weaker than any economist polled by Reuters had expected. It was the steepest downward revision to the PMI since October 2008 - a month after Lehman Brothers collapsed - and a sharp fall from 49.2 in March.

Linkiesta:

• Translated Interview: "Unless things change, Greece has no chance to survive in the euro zone." - senior executive of the Hellenic Ministry of Finance.

Kathimerini:

• Greek Banks' Bad Loans Rise to 17% of Total. Greek banks collectively saw the level of non-performing loans rise to 17% of their total loan portfolio at the end of the first quarter from 14.7% at the end of the third quarter of 2011. Bad mortgages climbed to 16% of the total, or 12.5 billion euros, from 14%, citing Greek banking officials. Bad consumer loans increased to 29%, or 9.6 billion euros, from 26.4% and bad business loans rose to 15%, or 18 billion euros, from 13%, it said.
• Greek Election Set to Rock Shaky Euro Zone. Either they will secure just enough to work together, albeit uncomfortably and with a very slim majority, or steps will have to be taken to form a broad coalition with minor parties firmly opposed to the European Union's austerity measures. That in turn will increase the pressure on the new government to renegotiate parts of the second bailout programme, an ambitious deal struck in February that aims to clear the way for Greece to return to financial markets by 2015. Some economists take the view that Sunday's election could push Greece back to the nadir it touched in November last year, when there was widespread talk of an exit from the euro zone. The contagion effect would drive Spanish and Italian bond yields straight back into the danger zone, economists say.

The Hindu:

• India's Sensex Dips Below 17,000 After Four Months. Falling for the third session in a row, the BSE benchmark Sensex on Friday closed 320 points down, slipping below the psychologically important 17,000 levels amid heavy selling by foreign funds due to fresh concerns over the Mauritius tax treaty review and a weak rupee. The 30-share Sensex, which had lost 168 points in last two trading sessions, plunged further by 320.11 points, or 1.87 per cent to 16,831.08, its lowest level since January 30, 2012.

Bear Radar

Style Underperformer:

• Large-Cap Growth -1.91%

Sector Underperformers:

• 1) Oil Service -4.01% 2) Steel -2.94% 3) Networking -2.70%

Stocks Falling on Unusual Volume:

• PBR, RIO, MANT, DRIV, KOS, SWN, IVN, SU, DELL, NRG, CPN, BODY, CHEF, CBOU, QLGC, ROVI, ANIK, MTSC, FSYS, TRMB, PEGA, INWK, AREX, MKTX, MGRC, MFLX, BLKB, RZV, IRF, MTD, ACM, TDC, MD, SKUL, AIG, SYNA, NCMI, CACI, FSLR, USO, CLR, CROX, PVH, EL, KBR, AON, FRAN, LAMR, WRC, TKR, CF, TAL, BPL, UCO, MTW and INVN
  

Stocks With Unusual Put Option Activity:

• 1) CI 2) DTV 3) LYB 4) FITB 5) XHB
  

Stocks With Most Negative News Mentions:

• 1) BODY 2) JPM 3) PRU 4) TGT 5) SBUX
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -1.21%

Sector Outperformers:

• 1) Airlines +.63% 2) Gold & Silver +.19% 3) Utilities +.18%

Stocks Rising on Unusual Volume:

• MHK, POWI, SPRD, GMCR, HAIN, ZAGG, LF, DLB, DGI, LNKD, VHC, HAIN and CFN
  

Stocks With Unusual Call Option Activity:

• 1) ALXA 2) DTV 3) WU 4) SPRD 5) MPEL
  

Stocks With Most Positive News Mentions:

• 1) ESV 2) ALL 3) DLB 4) MAR 5) SPWR
  

Charts:

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

Friday Watch

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:

• Company Startup Rates In The US Have Fallen To A Record Low.
• An Amazing Moment Just Happened: Blind Chinese Activist Spoke To The US Congress Via Cellphone.
• One Of The Best Economic Indicators There Is Flashing A Warning Sign.
• FIRST SOLAR(FSLR) POSTS BIG LOSS AS REVENUE COLLAPSES.
• LinkedIn(LNKD) Beats.
  

Zero Hedge:

• Facebook(FB) Details IPO Details, Issues Amended S-1.
• The Unabridged And Illustrated Federal Budget For Dummies - Part 1: Spending. (graphs)
• The Unabridged And Illustrated Federal Budget For Dummies - Part 3: Debt & Deficits. (graphs)
  
• Michael Pettis Revisits 12 Predictions On China.

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 Note
Company/Estimate

• (DDS)/1.67
• (NVDA)/.16

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

• None of note
  

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.

Stocks Falling into Final Hour on Less US Economic Optimism, Rising Global Growth Fears, Eurozone Debt Angst, Less Tech Sector Optimism

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.87 +5.86%
  
• ISE Sentiment Index 112.0 +.90%
  
• Total Put/Call 1.0 unch.
  
• NYSE Arms 1.73 +10.57%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.95 +2.27%
  
• European Financial Sector CDS Index 239.66 +.69%
  
• Western Europe Sovereign Debt CDS Index 273.79 -.58%
  
• Emerging Market CDS Index 243.03 -.25%
  
• 2-Year Swap Spread 28.25 -.25 basis point
  
• TED Spread 39.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -42.75 +.75 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 166.0 +1 basis point
  
• China Import Iron Ore Spot $144.90/Metric Tonne +.21%
  
• Citi US Economic Surprise Index -24.20 -3.8 points
  
• 10-Year TIPS Spread 2.26 -1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a -115 open in Japan
• DAX Futures: Indicating -21 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Tech, Biotech and Retail sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 25% Net Long