Today's Headlines

Bloomberg:

• Draghi Signals ECB Stands Ready to Ease Policy If Needed. European Central Bank President Mario Draghi said the bank stands ready to cut interest rates if the economy deteriorates further, and officials are considering additional measures to boost growth as the debt crisis enters its fourth year. “Our monetary policy stance will remain accommodative for as long as needed,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at a record low of 0.75 percent. “We will assess all the incoming data in the coming weeks and we stand ready to act.”
• European Stocks Drop for a Second Day on Draghi Comments. European stocks retreated, posting the biggest two-day slump in more than four months, as European Central Bank President Mario Draghi said that the economic recovery in the euro area remains subject to downside risks. Banca Generali (BGN) SpA lost 5.1 percent after Assicurazioni Generali SpA sold part of its stake in the lender. European Aeronautic, Defence & Space Co. dropped 2.7 percent as an investor offered to sell shares worth 384 million euros ($494 million) in the owner of Airbus SAS. BTG Plc (BTG) gained 1 percent after increasing its sales forecast for 2013. The benchmark Stoxx Europe 600 Index (SXXP) declined 1.1 percent to 291.71 at the close in London.

MarketWatch:

• Bloomberg Integrates Live Twitter Feeds with Financial Platform.
• Fed's George says current policy is 'overly' easy.
• Stockman: Central Banks Providing 'Heroin'.

CNBC: 

• Central Bank Efforts May 'End in Tears': Pimco CEO El-Erian. (video)

Zero Hedge: 

• Initial Jobless Claims Soar, Biggest Miss Since November. (graph)
• 97% Of Spanish Social Security Pension Fund In Domestic Bonds. (graph)
• Mario Draghi Responds To Zero Hedge: "There Is No Plan B".
• French Stocks To Drop 33% On Macro Recoupling. (graph)
• CEO Of Italy's Largest Bank Says Haircuts Of Uninsured Depositors "Acceptable", Should Become A Template.

Business Insider:  

• Obama's Disapproval Rating Hits Highest Level Since The Election.
• Facebook(FB) Unveils Home For Android.
• Microsoft(MSFT) Could Be Completely Irrelevant In Four Years, Warns Analyst.
• TOP US COMMANDER IN SOUTH KOREA: 'We've Got To Be Ready To Go' With North Korea.
• Kyle Bass Slams The 'Macro Tourists' Who Are Buying Up Japanese Stocks.
• 'SLIPPING INTO SLOWDOWN': The 9 Scariest Slides From Goldman's New Presentation On The Weakening Global Economy.

Dallas Business Journal:

• Job cuts in March are up 30 percent over a year ago. March saw 49,255 job cuts announced by the nation's employers, but that's down from the number announced in February, according to a report from outplacement consultancy Challenger, Gray & Christmas Inc. Challenger said 55,356 jobs were cut in February. Quarterly job cuts were the highest since 2011, Challenger said. The job cuts in March were an increase of 30 percent over March 2012, when companies announced plans to trim 37,880 workers.

Telegraph:

• French service firms suffer steep downturn. French businesses suffered their worst downturn since the nadir of the recession, surveys revealed on Thursday, as Germany - the eurozone powerhouse - also slowed. 

Les Echos:

• France is shooting itself in the foot by backing transaction tax proposed by EU, Paul-Henri de La Porte du Theil, Chairman of French asset managers association AFG, said. Proposed tax on transactions of shares, bonds and derivatives may cost French asset managers EU6b, including EU4b for money market funds.

Expansion:

• Europe May Force Losses on Covered Bonds in Bailouts. Europe may consider forcing losses on covered bond investors in future bank rescues. If a bond is worth more than the assets that guarantee it, it should be possible to apply haircut to the part not covered, citing Sharon Bowles, chairwoman of European Parliament's economic and monetary affairs committee.

Xinhua:

• China reports 5th death from H7N9 bird flu. Authorities in Shanghai said Thursday night that another person has died from H7N9 bird flu, bringing the death toll from the new deadly strain to five around the country. The city has reported six infections to date, and four have died, said the Shanghai Municipal Health and Family Planning Commission. Of the rest two, there was a four-year-old, the agency said. The baby was recovering from mild illness, it added.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.30%

Sector Underperformers:

• 1) Coal -2.01% 2) Road & Rail -1.52% 3) Computer Services -1.23%
  

Stocks Falling on Unusual Volume:

• HK, BTE, SU, BP, IBM, AAPL, MBT, AVA, TDC, GNE, GBX, MIND, XXIA, ADT, CALL, UAN, BEAM, NSR, BTE, HCSG, CCL, THC, TRN, CJES, HCA, GWR, SIG, OIS, SU, BWA, NSC, HMIN, AAXJ, CPWR and UCO

Stocks With Unusual Put Option Activity:

• 1) HUN 2) HIG 3) BBY 4) MCD 5) PRU
  

Stocks With Most Negative News Mentions:

• 1) ARUN 2) XOM 3) ATI 4) LULU 5) KMP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +.38%

Sector Outperformers:

• 1) Retail +1.10% 2) REITs +.98% 3) Utilities +.78%
  

Stocks Rising on Unusual Volume:

• HMC, TM, ALLT, STL, FNSR, JOSB, BBY, PNRA and HUN

Stocks With Unusual Call Option Activity:

• 1) CRK 2) UUP 3) TIVO 4) FIO 5) SLM
  

Stocks With Most Positive News Mentions:

• 1) PANL 2) FNSR 3) PNC 4) JCI 5) SKT

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg: 

• North Korea Warns U.S. It’s Authorized Nuclear Attack. North Korea escalated its threats against the U.S, saying a law ratified this week authorizes the military to use a “cutting-edge smaller, lighter and diversified nuclear strike.” Kim Jong Un’s regime, which hasn’t demonstrated it is capable of putting a nuclear device on a ballistic missile, didn’t specify what kind of weapon would be used in a statement by a military spokesman in the state-run Korean Central News Agency early today. In response to recent North Korean threats, the Pentagon yesterday said it will deploy a missile defense system to Guam in coming weeks as a “precautionary move.” 

• Asian Stocks Drop With Metals Before BOJ Decision as Won Weakens. Asian stocks fell to a five-week low and metals declined as the Bank of Japan (8301) concludes a two-day policy meeting, while Australia’s dollar rose. South Korean shares and the won dropped as North Korean tensions escalated. The MSCI Asia Pacific Index lost 0.9 percent at 12:20 p.m. in Tokyo. Japan’s Nikkei 225 Stock Average fell 1.7 percent and South Korea’s Kospi index slumped 1.6 percent.

• Draghi Considers Plan B as Sentiment Dims After Cyprus Fumble. European Central Bank President Mario Draghi is under pressure to reveal Plan B. A botched attempt to rescue Cyprus last month sent bank shares tumbling across the euro area and rattled confidence in policy makers’ ability to tame the sovereign debt crisis. With doubts growing about Draghi’s forecast for a second-half economic recovery, he’s considering his options. They range from an interest-rate cut to a new round of long-term loans to banks, to a plan to encourage lending to companies, three officials with knowledge of the deliberations said. They stressed that such action may not be announced today. “They have to start thinking about a plan for unconventional measures if the recovery does not materialize,” said Martin van Vliet, senior euro-area economist at ING Bank NV in Amsterdam. “It may be too early for them to do that this month, but I’d expect Draghi to acknowledge that the economy is not improving and the chances of a surprise are bigger than they were.”

• RBS Rides Euro's Decline as Most Accurate Forecaster: Currencies. Royal Bank of Scotland Plc was most-accurate foreign-exchange forecaster in the first quarter after predicting Europe's bond-buying plan would fail to boost the euro as the region's economy wilted. The firm sees the 17-nation currency declining 7.4% over the rest of 2013.

• Hollande Economic Push Threatened by Minister Account Disclosure. President Francois Hollande’s effort to ask the French to tighten their belts was dealt a blow this week after the minister he’d charged with fighting tax evasion admitted to a secret overseas bank account. Jerome Cahuzac, who resigned as Hollande’s budget minister two weeks ago, said on April 2 that he was caught in a “spiral of lies” about the 600,000 euros ($770,000) he held in an offshore account for years. In a rare, unscheduled television appearance yesterday, Hollande said Cahuzac lied to him and the French parliament and that his actions were “unforgivable.” 

• Fiat Turns to Germany as Italy Sales Seen Worst Since ’66. The bottom was already falling out of the Italian auto market. Then the political turmoil hit. After an inconclusive election more than five weeks ago sent weak demand spiraling further downward, sales in 2013 could drop as much as 21 percent to 1.11 million cars, the lowest since 1966, said Gian Primo Quagliano, head of automotive researcher CSP in Bologna. The plummeting deliveries are upending Italy’s auto industry and will hit Turin-based Fiat SpA (F) especially hard. Hundreds of dealerships are closing and factories are running at half capacity. To offset the woe in Italy, which accounts for 56 percent of its European deliveries, Fiat is seeking to boost sales in Germany by offering steeper discounts than any other automaker there. Now, even German demand is weakening: Results released yesterday showed that, in March, deliveries tumbled 17 percent, the biggest monthly drop since October 2010, limiting options for Fiat and other European carmakers to offset declines elsewhere.

• Schwab(SCHW) Says China to Tighten After Brazil Raises Rates. Faster inflation will prompt Brazil to be the first emerging market to raise interest rates before the end of this year and lead China to also tighten monetary policy, according to Charles Schwab Corp.’s Michelle Gibley. “Inflation is stubbornly high in some of the larger countries, Brazil in particular,” Gibley, director of international research at San Francisco-based Charles Schwab (SCHW), which has $2.04 trillion in assets, said in a phone interview. “There’s potential they could be the first to start tightening. In China, we’re also seeing the central bank somewhat concerned about inflation. The next move is probably more likely to be tightening than an easing move.” Brazilian inflation accelerated to 6.31 percent in February, putting the annual rate above the midpoint of the central bank’s target for a 30th month. Quickening inflation may spur the central bank to raise the 7.25 percent Selic rate as early as this year, Gibley said.

• Iron Ore Bear Market Looms as Supply Swamps Demand: Commodities. Iron ore is heading toward its first surplus in at least a decade as output expands and Chinese steel mills, the biggest buyers, boost production at the slowest pace in five years. Seaborne supply will advance 9.1 percent and demand 8.3 percent in 2013, led by exporters from Perth-based Fortescue Metals Group Ltd. (FMG) to Vale SA (VALE5), Morgan Stanley forecasts. A surplus will emerge in 2014 and keep widening until at least 2018, the bank predicts. Prices will slump as much as 34 percent to $90 a ton by the end of December, according to the median of seven analyst estimates compiled by Bloomberg. Exports of the biggest seaborne cargo after oil are surging the most since 2010 after prices jumped as much as sevenfold in the past nine years. Goldman Sachs Group Inc. expects China’s imports to climb 4 percent in 2013, the least in three years. Its steel output will expand 2.6 percent as the nation’s economy grows at the second-slowest pace in the past decade, according to estimates from Morgan Stanley and economists surveyed by Bloomberg. 

• Copper Declines to Eight-Month Low After U.S. Data Disappoints. Copper slumped for a fifth day to the lowest level in eight months as worse-than-estimated U.S. economic data spurred concern that growth is slowing in the world’s second-biggest user amid increasing stockpiles. The contract for three-month delivery slid as much as 0.4 percent to $7,356.25 a metric ton on the London Metal Exchange, the lowest price since Aug. 3, and traded at $7,370 by 10:22 a.m. in Tokyo.

• Rubber Slumps to Four-Month Low on Strong Yen, Demand Concerns. Rubber dropped the most in two weeks as the Japanese currency strengthened to near a one-month high, cutting the appetite for yen-based commodities. The contract for delivery in September slumped as much as 3.5 percent to 252.5 yen a kilogram ($2,716 a metric ton), the lowest since Nov. 19 for a most-active contract on the Tokyo Commodity Exchange, and was at 252.8 yen at 11:12 a.m. Futures have fallen 16 percent this year and passed the threshold into a bear market on April 1.

• Cohn Says Banks Other Than Goldman, JPMorgan Retrenching. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among the only top banks in the world that aren’t reducing capacity, Goldman Sachs President Gary Cohn said. “You’re seeing big international banks, outside of ourselves and JPMorgan, really taking a pretty substantial step back from the markets, and we hadn’t seen that in the entire history of banking,” Cohn, 52, told journalists today at Goldman Sachs’s office in Sao Paulo. 

• Lululemon(LULU) Product Chief to Step Down After Pants Recall. Lululemon Athletica Inc., the yoga- wear maker that last month recalled shipments of women’s pants for being too sheer, said Chief Product Officer Sheree Waterson is stepping down. Waterson, who had been with the company since 2008, will leave on April 15, the Vancouver-based company said today in a statement. The company said in a separate release that it was restructuring its internal product organization.

• Big Banks’ Success Could Spell Their Doom. Is Washington likely to break up the country’s biggest banks? No, not right now. But perhaps soon.

Wall Street Journal: 

• U.S. Dials Back on Korean Show of Force. Administration 'Playbook' Outlined Publicized Exercises, but Officials Change Course Over Worries of North's Response. After a high-visibility display of military power aimed at deterring North Korean provocations, the White House is dialing back the aggressive posture amid fears that it could inadvertently trigger an even deeper crisis, according to U.S. officials. The U.S. is putting a pause to what several officials described as a step-by-step plan the Obama administration approved earlier this year, dubbed "the playbook," that laid out the sequence and publicity plans for U.S. shows of force during annual war games with South Korea. The playbook included well-publicized flights in recent weeks near North Korea by nuclear-capable B-52 and stealth B-2 bombers, as well as advanced F-22 warplanes.

• Big Investors Rethink Rosy Outlook on Euro-Zone Debt.  Several large institutional investors are starting to question the European Central Bank's ability to stay true to its pledge last July to "do whatever it takes" to support the euro zone. With the ECB set to meet Thursday, investors have started to dial back their positions in euro-zone debt amid concerns that the region's problems aren't abating. Italy remains in political limbo and its financial industry is suffering, while Cyprus last month became the fourth nation in the region to receive a bailout. The ECB's reassurances have muffled fears over a breakup of the euro zone, but the unresolved issues could eventually require more action from the central bank. Investors complain the ECB has lagged behind the Federal Reserve and the Bank of Japan in making economic stimulus moves.

• Doubts Cast on Chinese Exports. A discrepancy between China's export data and Hong Kong import numbers is raising doubts about what appeared to be booming overseas demand for Chinese goods, amid uncertainty about the strength of the recovery in the world's second-largest economy. Some exporters, trade agents and economists said the export numbers were likely to be inaccurate because of false reporting by exporters and local governments. They point in particular to mismatching trade figures with Hong Kong, the first destination for many mainland Chinese goods. In the three months through February, mainland customs reported $94.9 billion in exports to Hong Kong, but Hong Kong customs reported only $58.7 billion in imports from the mainland. The discrepancy during the period was greater than at any other time in recent years. China's export growth for February could have been overstated by around seven percentage points, based on an analysis of data discrepancies, Louis Kuijs, China economist at RBS, estimated.

• Audit says Katrina aid may have been misspent. Federal investigators said Wednesday that as much as $700 million in federal aid intended to help some 24,000 Louisiana families elevate their homes after Hurricanes Katrina and Rita in 2005 may have been misspent. A report by the Housing and Urban Development Department's inspector general said some homeowners who got grants of up to $30,000 used the money for something else, and that others didn't provide sufficient documents to state officials to show that the work was done. "The state did not have conclusive evidence" that $698.5 million in disaster recovery aid was used to elevate homes, the auditors wrote.

• Tip on Policy Shift Jolted Health Shares. Alerted by a private message about a potential coming change in government health-care policy, certain investors earlier this week sparked a frenzy of trading in some of the industry's largest companies. The last-minute action, which drove the shares sharply higher before the close of trading, is throwing a spotlight on the controversial "political intelligence" industry, the subject of a report due Thursday by the investigative arm of Congress.

• Roy Altman: Judges For Lax Border Security. The Ninth Circuit ignores 127 years of precedent allowing U.S. agents to search those trying to enter the country.

CNBC: 

• Dow Transports Fall Hard—A Sign Market Rally Could Be Cracking. The sharp selloff in the Dow Transportation index this week is causing some strategists to wonder if the market may finally see its long-awaited pullback.

Zero Hedge: 

• A Graphical Walk-Through Of An 'Un-Fixed' Europe. 

• Saxo Bank CEO: Blame The Euro, Not Cyprus.

• David Stockman: The Keynesian Endgame.

• How A 28 Year Old Ex-Goldman Trader, Who Accounted For Up To 20% Of E-Mini Volume, Blew Up.

• Two North Korean Submarines "Disappeared".

Business Insider: 

• Kim Jong-Un Could Be Losing Control — And That's A Bad Thing.

• What A Full-Fledged Air War Would Look Like Over North Korea.

• Major British Financial Industry Leak Exposes The Rich Who Hide Money Overseas.

• Europe's Only Option Is To Split Up.

• Bernanke's Fans Will Find This Frustrating, And His Haters Will Find This Terrifying.

• REPORT: Soros Has Asked To Pull Hundreds Of Millions From Bill Ackman.

• Old People Are Leading Japan Into A Crisis.

• INFOGRAPHIC: How Facebook(FB) Could Be Unraveled By Mobile-First Teens.

Reuters: 

• Maverick Capital partner Michael Pausic to launch own firm. Maverick Capital's Michael Pausic, who oversees media and telecommunications investments at the $9 billion hedge fund, will be starting his own hedge fund, two people familiar with the matter said. Pausic, who joined Maverick in 1997, four years after Lee Ainslie founded the firm in 1993, has wanted to branch out beyond media and telecommunications for some time and will receive a significant investment from Maverick's partners to launch his own firm, one of the two people familiar with the matter said.

• Yen's persistent weakness against dollar may be near an end. Expectations the Bank of Japan will unleash sweeping new stimulus measures to dig the country out of decades of deflation has crushed the yen, but its darkest days may be over. 

• Compuware(CPWR) estimates fourth quarter results below Street. Business software maker Compuware Corp estimated fourth-quarter results way below analysts estimates, citing delays in closing several deals. The company estimated adjusted earnings of 5 cents to 6 cents per share on revenue of $237 million to $241 million in the quarter ended Mar. 31. Analysts on average were expecting adjusted earnings of 15 cents per share on revenue of $272.8 million, according to Thomson Reuters I/B/E/S. "A large number of deals we had anticipated closing in Q4 were pushed into the new fiscal year, significantly impacting our results," Compuware CEO Bob Paul said. 

• North Korea again blocks access to industry zone, Southerners remain. North Korea barred entry to a joint industrial complex it shares with the South for a second day on Thursday, Seoul's Unification Ministry said, and demanded extended notice of when hundreds of South Korean workers planned to leave. The state's KCNA news agency again threatened complete closure of the zone, a lucrative money-spinner for impoverished Pyongyang, if South Korea kept up what the agency termed its insults against the North's government.

Financial Times:

• Fed member hints at summer slowing of QE3. A leading dove at the Federal Reserve said it could start tapering off its QE3 programme of quantitative easing this summer, in a sign of how debate at the US central bank has shifted on the issue. John Williams, president of the San Francisco Fed, led the push for more asset purchases in the summer of 2012 and his willingness to consider slowing the rate of buying suggests the central bank is nearing its goal.

Yomiuri:

• China May Delay Japan, South Korea Meeting on Island Dispute. China asks to postpone meeting scheduled for May 25-26 in Seoul amid territorial dispute over islands known as Senkaku in Japanese, Diaoyu in Chinese.

Asahi:

• North Korea Moving Missile to East Side of Country. Missile may be capable of reaching continental United States, citing officials in Japan, US and South Korea. North Korea may be preparing to launch missile.

Xinhua:

• DPRK announces to resort to counteractions against United States. The Democratic People's Republic of Korea (DPRK) on Thursday said it would "take powerful practical military counteractions" against the United States following the latter's provocative actions in the past days, reported KCNA, the DPRK's official news agency. KCNA on Thursday ran the full text of a statement issued by the spokesman for DPRK's General Staff of the Korean People's Army ( KPA) in charge of all operations, which said the KPA Supreme Command had approved the decision. "Days and months have passed on this land amid the constant danger of war but never had the whole Korean Peninsula been exposed to such danger of a nuclear war as today," said the statement, pledging that the DPRK's army and people "are all out" to defend the sovereignty of DPRK and to "prevent a nuclear war of the U.S."

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.5% to -.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 122.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 98.5 +1.75 basis points.

• FTSE-100 futures -.35%.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AH)/.09

• (ISCA)/.36

• (RPM)/.06

• (WDFC)/.56 

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 353K versus 357K the prior week.

• Continuing Claims are estimated at 3050K versus 3050K prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The ECB's Draghi speaking, Fed's Yellen speaking, Fed's George speaking, Fed's Bernanke speaking, Fed's Evans speaking, Fed's Lockhart speaking, 10Y Spanish auction, Eurozone Services PMI, Eurozone inflation data, ECB rate decision, BoE rate decision, BoJ rate decision, Challenger Job Cuts for March, RBC Consumer Outlook Index for April, weekly Bloomberg Consumer Comfort Index, (FB) mobile event and the weekly EIA natural gas inventory report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down 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 25% net long heading into the day.

Stocks Falling into Final Hour on Rising Global Growth Fears, Asian Tensions, Eurozone Debt Angst, Homebuilding/Financial Sector Weakness

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 14.17 +10.88%

• ISE Sentiment Index 78.0 -20.41%

• Total Put/Call 1.03 +19.77%

• NYSE Arms 1.64 +52.58%

Credit Investor Angst:

• North American Investment Grade CDS Index 89.23 +1.73%

• European Financial Sector CDS Index 179.28 -3.1%

• Western Europe Sovereign Debt CDS Index 103.86 -.45%

• Emerging Market CDS Index 262.89 -2.17%

• 2-Year Swap Spread 16.0 -.25 bp

• TED Spread 22.5 +1 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -18.0 +.25 bp

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 bp

• Yield Curve 158.0 -4 bps

• China Import Iron Ore Spot $135.60/Metric Tonne -.37%

• Citi US Economic Surprise Index 8.40 -5.2 points

• 10-Year TIPS Spread 2.49 -3 bps

Overseas Futures:

• Nikkei Futures: Indicating a -130 open in Japan

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/biotech sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• German March Car Sales Drop 17% on Europe Economy Concern. German new car sales fell the most in almost 2 1/2 years last month as renewed skepticism over the handling of the sovereign-debt crisis in Europe discouraged consumers from making large purchases. Registrations in March dropped 17 percent from a year earlier to 281,184 autos, the German Federal Motor Vehicle Office, or KBA, said today in a statement. The drop was the biggest since October 2010, a spokeswoman for the Flensburg- based KBA said in an e-mail. First-quarter sales fell 13 percent to 673,957 vehicles. German unemployment rose while business confidence and an index in consumers’ willingness to buy fell in March as a botched bank bailout in Cyprus increased concerns the euro region’s recovery will falter.

• Merkel’s Italian Holiday Fans Europe’s North-South Crisis Flames. German Chancellor Angela Merkel’s vacation in Italy threatened to inflame Europe’s north-south tensions after she was snapped in a bathing suit by paparazzi and challenged by a regional leader to heed the economic woes around her. Merkel’s deputy spokesman, Georg Streiter, had to respond to reporters’ questions in Berlin today about whether the chancellor had witnessed “anti-German” sentiment during her sojourn on the island of Ischia, and if she had felt insulted by the video message made by the Campania region governor. Saying she felt “very comfortable” on Ischia, Streiter made it clear Merkel was unhappy about being photographed without her consent.

• European Stocks Fall as U.S. Payroll Data Miss Estimates. European stocks declined the most in five weeks, paring yesterday’s biggest rally for the region’s benchmark index in almost a month, as U.S. manufacturing activity fell faster than estimated, and companies in the world’s largest economy added fewer workers than forecast. Vodafone Group Plc (VOD) retreated 3.1 percent after Verizon Communications Inc. denied it’s considering a bid for the U.K. company. Kazakhmys Plc fell to its lowest price in four years as metal prices retreated. Rexel (RXL) SA increased 1.9 percent in Paris after Goldman Sachs Group Inc. recommended buying the shares. The benchmark Stoxx Europe 600 Index (SXXP) retreated 0.9 percent to 294.8 at the close of trading after climbing 1.3 percent yesterday on better-than-estimated U.S. factory orders data. 

• Ruble Tumbles Most in 14 Weeks as Europe Woes Stoke Outflows. Net capital outflow totaled $25.8 billion in the first quarter as the crisis deepened in the euro region, Russia’s biggest trading partner. Finance Minister Anton Siluanov said the government may start buying foreign currency on the open market in the second half of the year to fill its Reserve Fund.

• China Flags Risks of Weakening Yen. China said a falling yen may cause Asian neighbors to weaken their currencies and intensify trade disputes, reiterating concerns as the Bank of Japan (8301) prepares to increase stimulus under new Governor Haruhiko Kuroda. “A weakening yen may cause a beggar-thy-neighbor effect,” as economies compete in electronics, automobiles and industrial products, China’s foreign-exchange regulator said today in its annual report on international payments. “If other Asian economies follow Japan’s suit, trade disputes and policy competition may intensify to hinder regional cooperation and economic integration.” 

• China Turns Graveyard From Goldmine Hurting Ship Makers: Freight. For shipbuilders such as STX Group, China was once a goldmine. Now it’s a graveyard. China’s lower appetite for commodities undermined the group’s plan to sell its shipping line, wiping out a combined $435 million of investor wealth at the South Korea-based conglomerate’s three main companies this week. That also threatens the group’s ability to repay $1.2 billion of debt by the end of the year.

• U.S. Company Add 158,000 Workers to Payrolls, ADP Says. Companies added fewer workers than projected in March, held back by limited hiring in construction, according to a private report based on payrolls. The 158,000 increase in employment was the smallest since October and followed a revised 237,000 gain the prior month, figures from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 39 economists surveyed by Bloomberg called for a 200,000 advance. Payrolls at construction companies stagnated last month as the boost from rebuilding efforts following superstorm Sandy faded, Zandi said. Concern over the impact of changes in health- care law may have also curbed hiring at companies with around 50 employees, he said.

• Slowing Service Industries Point to Cooler U.S. Growth: Economy. Service industries expanded in March at the slowest pace in seven months and companies added fewer workers than forecast, indicating the U.S. economy is starting to cool. The Institute for Supply Management said its non- manufacturing gauge declined to 54.4 from a one-year high of 56. The index was in line with its average over the past year. Private employment rose 158,000 last month, the smallest gain since October, according to the ADP Research Institute. 

• Commodities Fall as Oil Drops on U.S. Inventories Report. Commodities fell to the lowest level in almost a month as crude dropped after data showed U.S. oil stockpiles climbed to a 22-year high. The Standard & Poor’s GSCI Index of 24 raw materials declined as much as 1.7 percent to 640.62. “Fundamentals have been bearish for crude,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “We have some economic reports that are pretty disappointing.” West Texas Intermediate oil for May delivery declined $1.94, or 2 percent, to $95.25 a barrel at 1:12 p.m. on the New York Mercantile Exchange. The contract fell as low as $94.87.

• Yen Climbs on Speculation BOJ Will Disappoint; Sterling Advances. The yen climbed versus all of its 16 most-traded peers amid speculation a decision tomorrow by the Bank of Japan (8301) will signal its monetary-easing efforts will fall short of its goals and fail to reignite inflation. The dollar weakened against the euro as a gauge of U.S. service industries dropped more than forecast.

• Bullard Favors Slowing QE in $10-$15 Billion Increments. Federal Reserve Bank of St. Louis President James Bullard said he favors reducing the central bank’s monthly asset purchases by $10 billion to $15 billion increments in response to changes in the economy. “I would be very comfortable moving in small amounts -- $10 or $15 billion at a time,” Bullard said on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “We are getting much closer.”

MarketWatch:

• Fed's Williams: May start tapering QE this summer. The Federal Reserve could start tapering its $85 billion -a-month asset purchase plan by the summer, said John Williams, president of the Federal Reserve Bank of San Francisco on Wednesday. The central bank has said it would continue the purchase program until it sees substantial improvement in the labor market. "Assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer," Williams said. "If that happens we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year," he added.

CNBC: 

• Why China's Economy Might Topple. Over the next decade, China's growth will slow, probably sharply. That is not the view of malevolent outsiders. It is the view of the Chinese government. The question is whether it will do so smoothly or abruptly. On the answer depends not only China's own future, but also that of much of the world. 

• Auto Lending Bubble Inflates, And the Fed May Be Responsible. Thanks largely to the U.S. Federal Reserve, Jeffrey Nelson was able to put up a shotgun as down payment on a car.

• Bank Website Attacks Reach New Highs.

• 'Too Big to Fail' for Banks Not Solved Yet: Fed Gov. Tarullo. (video)

Zero Hedge: 

• Italy Goes "Cyprus" On Sicilian Mafia, Seizes Record $1.7 Billion In Cash And Assets.

• Ex-Goldman Prop Trader Who Concealed $8.3 Billion Market Moving E-Mini Position, Turns Himself In To FBI.

• Non-Manufacturing ISM Joins All Other Economic Misses, Prints At Lowest Since August, Biggest Miss In A Year. (graph)

• Hagel Deploys Missile Defense System Amid "Real, Clear Danger" From North Korea.

• European Stocks Plunge, Catch Down To Credit. (graph)

Business Insider:  

• ART CASHIN: We Are Witnessing The Tulip Bubble In Real-Time.

• ANALYST: US Military Expects North Korean Missile Launch.

• There's Been A Surge In The Number Of Homeless Students In Detroit.

• The New Cover Of 'Money' Looks Like Bad News For Housing.

• Obama Senior Adviser Complains That The Drudge Report 'Hurts What We're Trying To Do'.

• The Stock Market's Valuation Rarely Gets This High. (graph)

Reuters:  

• Portugal govt defeats no confidence motion, warns of instability. Portugal's austerity-minded government defeated on Wednesday a no confidence motion, which nevertheless united all the opposition in parliament, showing growing resistance against further budget tightening under an EU/IMF bailout. 

• Hagel tells U.S. military to brace for further belt-tightening.

• Copper falls to 8-month low on demand concerns.

• U.S. crude stocks rise to highest since 1990-EIA.  

 AFP:

• US missile shield sent to Guam after N. Korea threat. The United States is to deploy a THAAD missile defense battery to defend its bases on the Pacific island of Guam, the Pentagon said Wednesday following threats from North Korea. The news that the ground-based system would be in place in the coming weeks came after two Aegis anti-missile destroyers were sent to the western Pacific to intercept any North Korean strike against US or allied targets.

Financial Times: 

• Bundesbank launches Deutsche(DB) probe. The Bundesbank has launched an investigation into claims that Deutsche Bank hid billions of dollars of losses on credit derivatives during the financial crisis, according to people familiar with the situation. Investigators from Germany’s central bank are scheduled to fly to New York next week as part of an inquiry into allegations that misvaluing credit derivatives allowed Deutsche to hide up to $12bn in losses, helping it avoid a government bailout.

Handelsblatt:

• Euro-Skeptic Says Germany Rushing Cyprus Vote. German FDP lawmaker Frank Schaeffler wants Bundestag President Norbert Lammert to ensure proper involvement of Germany's lower house in approving aid for Cyprus, citing letter to Lammert. Schaeffler says German law stipulates bailout must be approved in two-stage procedure, while Schaeuble has said it's legally possible to go through both stages in one plenary sitting. That view violates "wording and spirit of the parliamentary involvement" in Germany, Schaeffler said in the letter.