Evening Headlines
Bloomberg:
- Europe’s Future Central Bankers Confront Draghi’s Policy Dilemma. Europe’s central bankers of
tomorrow already know how hard Mario Draghi’s job is. High school students from across the euro area spent the
past six months analyzing the state of the 17-nation economy and
preparing proposals on how Draghi’s European Central Bank should
respond to the region’s debt crisis. The winners of the second
annual “Generation Euro Students’ Award” will attend an awards
ceremony hosted by Draghi in Frankfurt today. “There is no clear solution,” Alejandro Goffa Martinez, a
winning student at IES Josep Sureda i Blanes school in Palma de
Mallorca, Spain, said in an interview. “The lack of credit is
decisive because credit is the mechanism that is essential for
growth. Lowering interest rates even more wouldn’t really
help.”
- Cleaning ‘Toxic’ Assets Slovenia’s Primary Concern, Moody’s Says. Quickly cleaning up Slovenian banks
and transferring “toxic” assets to a new institution designed
to deal with them should be the government’s main goal, Moody’s
Investors Service said. Slovenia, the euro-area’s fourth-smallest economy, is
trying to avoid becoming the currency-region’s sixth member to
seek a bailout after international lenders agreed to help
Cyprus. The Cabinet is offering 500 million euros ($657 million)
in 18-month Treasury bills today as it tries to raise confidence
that it can recapitalize banks without seeking outside aid. While Slovenia’s situation isn’t as bad as Cyprus, the
“trends are certainly negative,” Jaime Reusche, a sovereign-
debt analyst at the ratings company, said in an April 15
interview in Prague.
- Monte Paschi Prosecutors Seek Seizure of $2.4 Billion. Prosecutors in Italy are seeking to seize 1.8 billion euros
($2.4 billion) of assets from Nomura Holdings Inc. (8604) as part of an
investigation into Banca Monte dei Paschi di Siena SpA’s use of
derivatives to hide losses. Sadeq Sayeed, Nomura’s former
European head, and Raffaele Ricci, a managing director in fixed-income
sales, are also being probed for colluding to obstruct regulators and
making false statements, prosecutors in Siena, where the bank is based,
said in a statement yesterday. They are also sequestering 14.4 million
euros of assets from three former Monte Paschi managers already under
investigation, including Chairman Giuseppe Mussari, General Manager
Antonio Vigni and finance chief Gianluca Baldassarri.
- China Set to Deepen N. Korea Ties as Yalu River Bridge Rises.
Across the Yalu River dividing China and North Korea, towers that will
support a sleek suspension bridge rise south of one that U.S. bombers
targeted during the Korean War to prevent China from supplying its ally.
The bridge into the northeastern Chinese city of Dandong, set to
open next year, is a bet that trade will swell even as the U.S.
pressures Communist Party leaders to exert economic leverage on the
North to abandon its nuclear program. Secretary of State John Kerry said
last week China needs to “put some
teeth” into restraining Kim Jong Un’s regime.
- Bird Flu Fears Mount in China as Herbal Remedies Run Out.
A popular herb called ban lan gen, or blue root, has been flying off
pharmacy shelves across China as local governments encourage people to
consider traditional remedies to ward off the latest bird flu virus. With scientists so far unable to pinpoint the H7N9 influenza virus’ animal
host, locals are preparing for a possible pandemic by stocking up on
popular plant remedies as well as face masks and hand sanitizers and
other over-the- counter remedies.
- China’s Stocks Drop, Led by Banks; Moutai Rises Before Earnings. Chinese stocks fell, led by banks,
on speculation new lending will slump this month. China Minsheng
Banking Corp. (600016), the nation’s first privately owned bank, slid
2.6 percent after the China Securities Journal said new lending may
slide to 800 billion yuan ($129.4 billion) this month. “China’s banks will suffer from falling demand for loans
as the old growth model of relying on investment cannot be
sustained,” said Wang Zheng, Shanghai-based chief investment
officer at Jingxi Investment Management Co., which manages $120
million.
- Asia Stocks Gain First Day in Three.
Asian stocks advanced for the first time in three days as new-home
construction in the U.S. jumped more than forecast, the International
Monetary Fund raised its forecast for Japanese growth and the yen
weakened.
- Hog Glut Gains as U.S. Exports Drop Most in Decade: Commodities. U.S. hog farmers are poised to
produce a record amount of pork at a time when exports are
slumping the most in more than a decade, prolonging a global
glut into a fifth consecutive year. The 10.66 million metric tons produced will be the most
since at least 1970, the U.S. Department of Agriculture
estimates. Exports fell 14 percent in the first two months, the
most for the period in government data since 2000. Futures may
drop 19 percent to 72 cents a pound by the end of the year on
the Chicago Mercantile Exchange, based on the median of nine
trader and analyst estimates compiled by Bloomberg.
- Rebar Near Lowest in Four Months as Iron Ore Price Declines. Steel reinforcement-bar futures
fell to near the lowest level in more than four months as the
price of iron ore, used to make the building material, fell. The contract for delivery in October on the Shanghai Futures Exchange dropped as much as 0.8 percent to 3,722 yuan ($603) a metric ton and traded at 3,727 yuan at 10:40 a.m. local
time.
- Rubber Heads for Five-Month Low as China Demand Seen Faltering.
Rubber declined for a fourth day,
heading for a five-month low reached yesterday, on concerns that a
slowing economy and rising inventories in China, the biggest buyer, will
reduce demand for the commodity used in tires. The contract for delivery in September lost as much as 1.2
percent to 254.5 yen a kilogram ($2,590 a metric ton) on the
Tokyo Commodity Exchange, before trading at 255.7 yen by 11:28
a.m. local time. Futures, which lost 7 percent in the past three
days, plunged to 247 yen yesterday, the lowest since Nov. 15.
- Reid: Letter to U.S. Senator Containing Ricin Found. Postal officials intercepted a letter sent to a U.S. senator
from Mississippi that contained poisonous ricin, with lawmakers
learning of the incident as they were being briefed on yesterday’s
bombings at the Boston Marathon. Investigators have identified a
suspect in the mailing, a person who “writes to a lot of members,”
Senator Claire McCaskill, a Missouri Democrat, told reporters. The
letter was postmarked from Memphis, Tennessee, and tested positive for
ricin, Senate Sergeant-at-Arms Terrance Gainer said in an e- mail.
Authorities have “no indication” of any other suspicious letters, he
said. Still, the timing of the letter’s discovery following the
Boston bombings evoked memories at the Capitol of anthrax mailings that
targeted lawmakers in 2001.
Wall Street Journal:
- Boston Bomb Clues Surface. Lethal Devices Believed Built From Pressure Cookers; Hotels, Rentals Canvassed. Authorities investigating the Boston Marathon blasts that killed three
and injured more than 175 believe the two bombs were assembled from
household pressure cookers, a crude but effective explosive that has
been thwarted before in U.S. terror plots. Investigators are exploring whether the bombs were assembled not far
from the scene of Monday's horrific explosions since transporting such
improvised devices over any significant distance could trigger a
premature detonation, according to a law-enforcement official with
knowledge of the matter.
- Firms Pinch Payments to Suppliers.
Procter & Gamble Co.(PG) is planning to add weeks to the amount of
time it takes to pay its suppliers, a shift that could free up as much
as $2 billion in cash for the consumer products giant, people familiar
with the matter said. P&G
could use that cash to fund investments in new factories overseas or to
help pay for stock buybacks. That added flexibility, however, will come
at the expense of the companies that supply P&G with materials or
services. The suppliers will have to tie up more of their own cash in
receivables or eat the interest costs charged by banks to bridge the gap
until P&G pays its bills.
- Reinhart-Rogoff Response to Critique. A new paper by Thomas Herndon, Michael Ash and Robert Pollin calls into question
research on public debt and its effects on growth by Harvard University
economists Carmen Reinhart and Kenneth Rogoff. This is their response:
Fox News:
- FBI, Boston police say range of suspects, motives remains 'wide open'. The FBI and state and local police are intensifying their probe into
Monday's bombing at the finish line of the Boston Marathon, vowing a
"worldwide investigation" and appealing to the public for tips and
cellphone pictures that might yield clues about who was behind the
horrific attack. "At this time there are no claims of responsibility," FBI officials
said in a press conference Tuesday. "The range of suspects and motives
remains wide open."
MarketWatch.com:
CNBC:
- China Local Authority Debt 'Out of Control'. A senior Chinese auditor has warned that local government debt is
"out of control" and could spark a bigger financial crisis than the U.S.
housing market crash. Zhang Ke said his accounting firm,
ShineWing, had all but stopped signing off on bond sales by local
governments as a result of his concerns. "We audited some local
government bond issues and found them very dangerous, so we pulled
out," said Mr. Zhang, who is also vice-chairman of China's accounting
association. "Most don't have strong debt servicing abilities. Things
could become very serious." The International Monetary Fund, rating agencies and investment banks
have all raised concerns about Chinese government debt. But it is rare
for a figure as established in the Chinese financial industry as Mr.
Zhang to issue such a stark warning.
Zero Hedge:
Business Insider:
IBD:
USA Today:
- Bond guru Gundlach calls for investors to get defensive. Jeffrey Gundlach is warning investors against joining the stampede of
euphoria overwhelming the stock market, making him a startling contrast
to the bulls pushing stocks markets higher. During a meeting
with money managers in the Los Angeles, the head of money management
firm DoubleLine Capital cautioned many bets investors are making based
on aggressive actions by central banks around the world may backfire.
Chasing stocks and avoiding relatively safe government bonds, an
increasingly popular trade, will likely not result in a happy ending.
Reuters:
- EU trade chief seeks backing to investigate China's Huawei, ZTE - diplomats. The European
Union's trade chief will seek the backing of EU states to investigate
Chinese telecoms equipment makers Huawei and ZTE, even without a
complaint from European manufacturers, EU diplomats said on Tuesday.
The European Commission, the
EU's executive body, has been collecting evidence to prepare a possible
case against Huawei and ZTE over state subsidies it says allows the
companies to undercut European firms.
- U.S. Republicans press Fed on when regulators can break up a bank. U.S.
Republican lawmakers on Tuesday pressed a Federal Reserve official on
how to tell if any banks pose a "grave threat" to the financial system, a
finding that would allow regulators to take drastic steps such as
forcing a bank to sell assets. The 2010 Dodd-Frank financial
oversight law gives the Federal Reserve authority to impose tough
restrictions on individual firms it feels could shatter the financial
system. But this authority could create uncertainty in financial markets if regulators do not explain what types of threats could
trigger the tougher oversight, Republican members of a U.S.
House of Representatives subcommittee said on Tuesday.
- Rate spike may lead to US muni 'Armageddon'-SEC member. Investors in the $3.7
trillion U.S. municipal bond market could soon face an
"Armageddon" if interest rates spike, a member of the Securities
and Exchange Commission said on Tuesday. Commissioner Dan Gallagher told a roundtable of market
participants hosted by the SEC that recent bankruptcies in
California pose the threat of losses to bondholders. "You tack that on to rising interest rates and we've got a
real Armageddon on our hands here," he said.
- CSX(CSX) profit rises despite coal struggles.
CSX Corp, the No. 2 U.S. railroad, said on Tuesday that quarterly
profit rose as it cut expenses and saw shipment volumes of some
merchandise rise, helping the company fight a still-weak coal business.
Telegraph:
Xinhua:
- China
Should Be Vigilant About Financial Overheating. Main challenge for the
Chinese economy is how to convert to sustainable and consumption-driven
growth, citing Jorg Decressin, the deputy director of the IMF's
research department, as saying. Emerging economies should prevent capital inflow risks, he said.
China Securities Journal:
- Foreign investors may continue to short Chinese banks, citing an unidentified person from PE industry in city of Chenzhen.
Evening Recommendations
Night Trading
- Asian equity indices are -.25% to +.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 114.50 -2.5 basis points.
- Asia Pacific Sovereign CDS Index 90.75 -2.5 basis points.
- NASDAQ 100 futures -.28%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,200,000 barrels versus a +250,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -800,000 barrels versus a +1,699,000 barrel build the prior week. Distillate inventories are estimated to fall by -350,000 barrels versus a -169,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a +.5% gain the prior week.
2:00 pm EST
Upcoming Splits
Other Potential Market Movers
- The Fed's Stein speaking, Fed's Bullard speaking, Fed's Rosengren speaking, China property price data, Bank of Canada rate decision, weekly MBA mortgage applications report and the BoE minutes could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and automaker shares in the region. I expect US stocks to open mixed and weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.
Broad Market Tone:
- Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Market Leading Stocks: Outperforming
Equity Investor Angst:
- ISE Sentiment Index 85.0 +16.44%
- Total Put/Call .87 -23.01%
Credit Investor Angst:
- North American Investment Grade CDS Index 82.26 -3.62%
- European Financial Sector CDS Index 166.92 -2.40%
- Western Europe Sovereign Debt CDS Index 103.01 -.12%
- Emerging Market CDS Index 231.54 +1.97%
- 2-Year Swap Spread 14.0 -.75 bp
- 3-Month EUR/USD Cross-Currency Basis Swap -16.50 +.75 bp
Economic Gauges:
- 3-Month T-Bill Yield .06% unch.
- Yield Curve 150.0 +4 basis points
- China Import Iron Ore Spot $139.40/Metric Tonne -1.06%
- Citi US Economic Surprise Index 4.10 -7.1 points
- 10-Year TIPS Spread 2.40 unch.
Overseas Futures:
- Nikkei Futures: Indicating +199 open in Japan
- DAX Futures: Indicating +29 open in Germany
Portfolio:
- Slightly Higher: On gains in my biotech/tech/medical/retail sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
- Market Exposure: Moved to 50% Net Long
Bloomberg:
- SNB’s Danthine Says Economy Vulnerable to Credit Bubble. The Swiss economy is vulnerable to
instability in the banking sector caused by an unsustainable
rise in mortgage debt, the central bank’s vice president said.
- Peugeot Bank Cut to Junk at Moody’s on Europe Car Market. PSA Peugeot Citroen (UG)’s wholly owned bank was cut to one level below investment grade by Moody’s
Investors Service, which said the auto-financing unit can’t
escape the European car-market contraction plaguing its parent. The long-term rating on Banque PSA Finance’s debt was
lowered by one step to Ba1 from Baa3, Moody’s said in a
statement today. The outlook is stable, indicating the rating
won’t be reduced again soon.
- European Stocks Slide as German Confidence Falls. European
stocks fell for a third straight day as German investor confidence
declined more than forecast and the International Monetary Fund cut its
global growth outlook. Michael Page International Plc (MPI) slumped
the most in 11 months after the U.K. recruiter reported lower profit.
LVMH Moet Hennessy Louis Vuitton SA (MC) retreated to a five-month low
as sales of fashion and leather goods slowed. Danone (BN) rallied to the
highest in five weeks as the food company posted first-quarter sales
growth that beat analysts’ estimates. The Stoxx Europe 600 Index
(SXXP) sank 0.8 percent to 288.16 at the close of trading, extending the
decline over the past three days to 2.3 percent. “The ZEW and other
data shows that Germany is facing a slowdown,” Soeren Steinert, who
helps manage about $24 billion as associate director for equities
trading at Quoniam Asset Management GmbH in Frankfurt, wrote in an
e-mail. “That will affect
Europe for sure.”
- China Cities Fail to Resist Out-of-Control Property: Mortgages. All
real estate markets are local, says the industry axiom, one that
China’s central government is painfully aware of as its efforts to rein
in home prices are undermined by uncooperative municipal authorities.
Former Premier Wen Jiabao, in his final endeavor to make housing
affordable, set an April 1 deadline for higher down payments and
interest rates for second-home loans in cities with “excessively fast”
price gains and ordered stricter
enforcement of taxes on sales. Thirty-five provincial-level cities
responded with measures insufficient to curb prices that climbed 150
percent from 2003 to 2012. “The local governments are just making a
gesture to show they are following the orders,” said Ding Shuang, a
senior China economist with Citigroup Inc. in Hong Kong. “Some of the
targets are almost like jokes. The government’s enforcement of policies
will be compromised.” Local officials lack the resolve to cool
the market because proceeds from land sales contribute about a quarter
of their fiscal income and are needed to fund infrastructure and other
spending. Their reluctance to act decisively poses a challenge to
Premier Li Keqiang, who replaced Wen on March 15 and inherited rising
prices that aggravate
social unrest by putting homes out of the reach of many Chinese.
- LDK Delinquency Flags Chance of Another Solar Bust: China Credit. LDK Solar Ltd. (LDK)’s failure to fully pay notes this week has raised the prospect of China’s second
solar-industry failure this year as the company needs to repay a
loan 10 times larger by June.
- Commodities Seen by IMF Dropping 2% This Year Amid Higher Supply. Commodity prices are set to fall 2
percent this year from 2012 amid increased supplies of raw materials from crude oil to grains, the International Monetary Fund said. Energy prices probably will decline almost 3 percent as supply rebounds from outages last year,
the Washington-based IMF said today in an online report. Food prices
will drop more than 2 percent on increasing world harvests, while metals
may climb more than 3 percent on recovering world economies and
increasing demand in China, the report showed.
An IMF index of commodity prices is down 9 percent from a
peak in April 2011 while still “elevated compared with
historical levels,” according to the report. The GSCI has dropped 6.2 percent this year, compared with a
5.2 percent increase for the MSCI All-Country World Index of
equities and Treasury returns of 0.5 percent, according to a
Bank of America Corp. index.
- Gold Advances as Plunge Seen as Overdone, Central Banks May Buy. Gold rebounded as some investors
deemed a 13 percent plunge over two days to be excessive and an
Asian central banker said that policy makers may take the
opportunity to buy. Silver also advanced.
The two-day drop for gold was the biggest since January
1980, and prices reached the lowest since January 2011 earlier
today.
- Carbon Falls Most Ever After EU Parliament Rejects Fix. European carbon permits declined by the most on record to an
unprecedented low after lawmakers rejected an emergency plan to address
a surplus of allowances. Carbon for December fell as much as 45
percent to 2.63 euros a metric ton on the ICE Futures Europe exchange in
London, and German power prices for next year dropped to the lowest
since at least 2007. Ireland, which holds the European Union presidency,
vowed to continue talks on the plan after the bloc’s Parliament sent
the draft back to its environment panel. The rejection may render
Europe’s 54 billion-euro ($71 billion) cap-and-trade program
“completely toothless,” leaving prices near zero for several years, said
Patrick Hummel, an analyst at UBS AG in Zurich. Opponents of the plan,
including the Polish government and the European People’s Party, the
biggest political group in the Parliament, have argued it would raise
energy costs and artificially boost prices.
- Goldman Shares(GS) Fall as Trading Revenue Misses Estimates. Goldman
Sachs Group Inc. (GS), the Wall Street bank that generates the highest
percentage of revenue from trading, dropped as much as 3 percent after
revenue from that business fell more than its rivals. The shares slumped
2.5 percent to $142.80 in New York at 10:58 a.m., the largest decline
in the 81-company Standard & Poor’s 500 Financials Index
(S5FINL).
Wall Street Journal:
- FBI Probe Heats Up in Deadly Boston Marathon Bombings. The
FBI-led investigation into the bombings at the Boston Marathon
that killed three and wounded more than 170 intensified Tuesday, with
authorities interviewing witnesses and processing what one official
called the "most complex crime scene" the city had ever dealt with.
President Barack Obama in a brief statement Tuesday called the bombings
an act of terrorism, though he added that authorities still don't know
the identity or motive
of the perpetrators.
- Boston Bombings: Live Coverage.
- IMF: Euro Zone at Risk of Long Stagnation.
The euro zone could suffer an even more prolonged period of economic
stagnation that would make the task of reducing government and private
sector debt levels more difficult, particularly if "adjustment fatigue"
stalls needed changes, the International Monetary Fund said Tuesday. In its twice-yearly World Economic Outlook, the Fund said the euro
zone remains the weakest part of the global economy, and warned that a
long period of low growth in the currency area would weaken the
potential for expansion in the neighboring economies of central and
Eastern Europe, as well as further afield. The Fund said that in the near-term, the euro zone still poses the
greatest threat to a recovery in the global economy, citing "the fallout
from events in Cyprus" and political stalemate in Italy, as well as
"vulnerabilities" among the weaker members of the currency area. "What you have is weak banks, weak governments, low growth…and there is
always a danger that they build on each other and things go from bad to
worse."
- Germany's Debt in 2012 Rises on Bailout Payments, Building Reserves. Contributions to European rescue efforts and the building of social
insurance fund reserves helped to drive up Germany's benchmark debt
level, data provided by the country's central bank showed Tuesday. German general government debt reached 2.17 trillion euros ($2.84
trillion) at the end of 2012, the Deutsche Bundesbank said in a
statement. This equated to 81.9% of the country's economic output,
putting it well above the European Union's upper limit of 60% as defined
in the Maastricht Treaty, the 1992 agreement which helped pave the way
for the common currency. Government debt rose by EUR81 billion last year, despite the fact that
the general government balance actually recorded a surplus of EUR4
billion last year. "Of particular significance here were measures in connection with the
European sovereign debt crisis, which accounted for EUR45 billion," the
bank wrote. That amount included a EUR9 billion capital contribution to
the euro zone's permanent rescue mechanism, the ESM, and EUR36 billion
in loans via the temporary bailout fund, the EFSF. The EUR45 billion
figure counts as debt but is not included in the country's annual budget
deficit figure under European rules. This is because "in parallel with
the increase in debt, an expansion in financial assets in the same
amount is recorded," the bank wrote. Germany's contributions to bailout programs in troubled euro-zone
states are technically loans, which, in theory at least, should be
repaid in full, plus interest.
As the largest contributor to euro-zone bailouts, German lawmakers are
growing increasingly frustrated with being asked to prop up the
currency zone's wobbliest states.
- The Best Indicator of U.S. Health is Wage Growth (or Lack Thereof).
- How and When Apple May Return More Cash to Shareholders.
Fox News:
- Marathon bombs likely made from pressure cookers, shrapnel, sources say. Pressure cookers – possibly activated remotely by a cellphone – are
believed to have been used to make the crude bombs that sent deadly
shrapnel hurling into a crowd of onlookers and competitors at Monday’s
Boston Marathon, experts told Fox News. Doctors treating some of the 176 injured victims believe the
explosives were packed with deadly shrapnel, including pellets, nails
and sharp metallic objects – with some patients having “40 or more” such
fragments embedded in their bodies. “Many of them have severe wounds mostly in the lower part of their
body – wounds related to the blast effect of the bomb, as well as small
metallic fragments that entered their bodies – pellets, shrapnel, nails –
that these bombs had,” George Velnahos, chief of trauma surgery at
Massachusetts General Hospital, said Tuesday. “I wouldn't exclude completely the possibility that some of these
fragments are environmental, but my opinion is that most of them were in
the bomb,” Velnahos said. “They are numerous,” he added. “There are people who have 10, 20, 30 or 40 of them in their body or more.”
- Drastic security changes coming to large-scale public events, experts say.
- Target(TGT) Shares Slip After Warning 1Q Profit will Miss Forecasts.
Shares of Target narrowed marginally on Tuesday after the retailer said
it would likely miss expectations during the quarter due to
softer-than-expected sales
trends. Target, which is expected to report first-quarter earnings on
May 22, saw shares slump 1% on the news in early trade.
- Redbook: U.S. Retail Sales Down 2.7% in First Week of April Vs. March. National chain store sales fell 2.7% in the first week of April from
March, according to Redbook Research's latest indicator, released
Tuesday. The index's fall compared with a targeted 2.1% decline. The
Johnson Redbook Index also showed seasonally adjusted sales for the
period were up 2% from last year, compared with a 2.6% targeted gain.
CNBC:
- Fed's Evans Optimistic, Dudley Less So on Jobs Outlook. Two
top Federal Reserve policy doves offered clashing views on the U.S.
economic outlook on Tuesday, although both agreed the job market has not
yet improved enough to merit any cuts to the central bank's bond-buying
program.
Zero Hedge:
Business Insider:
- Time Warner Cable Is Going To Offer Live Streaming For iPhones And iPads Out Of The Home.
- The Citi Economic Surprise Index Just Went Negative...(graph)
- MICHAEL PETTIS: Urbanization May Be The Most Misunderstood Issue About China. Debt is the key problem for China, according to Pettis, due to China’s investment-driven growth.
No one should be surprised at China’s excessive leverage, which
Pettis said substantially exceeds its published number of 80%
debt-to-GDP. “We have seen these investment-driven growth models before
and they all end up exactly the same way,” he said. The initial spate of
economically viable projects is ultimately displaced by less viable
ones, and then by unviable projects. When that happens, he said,
debt-servicing capacity becomes unsustainable. “That is why we always run into a debt problem,” he said. One of the least understood issues, Pettis said, is that urbanization will exaggerate China’s debt problems.
- Canada Has Got Problems.
- 4 Signs That The Housing Recovery Is Stalling. (graphs)
Reuters:
- Moody's still sees negative outlook for most US state, local governments. Moody's Investors Service said on Tuesday that most U.S. public finance sectors, such as state and local governments, still face a negative
outlook and will likely continue to do so until fiscal and economic
conditions strengthen.
- France warned on growth goals, fiscal targets in doubt. France's economy could shrink this year and miss future government forecasts, the country's budget watchdog and the IMF warned on Tuesday, casting doubt on
Paris's pledge to cut its deficit below 3 percent of output.
- Italy's temporary layoff scheme runs out of cash, sparks protests. Thousands of idled Italian
workers staged a sit-in in front of parliament on Tuesday and
trade unions threatened strikes unless the government steps in
to back a temporary jobless scheme which is running out of
funds. Italy's often divided union confederations united to call on
Mario Monti's caretaker government to find around 1.5 billion
euros to guarantee payments due to some 700,000 workers sent
home on reduced pay under the "cassa integrazione" scheme.
Telegraph:
Euromoney:
Chinaxwcb.com:
- China Tightens Control of News Organizations' Social Media Use.
State Administration of Radio Film and Television recently issued new
rules banning reuse of news products from overseas media and websites
without permission, according to a commentary. Editorial staff must
obtain permission to set up microblogs for work purposes. Editorial
staff mustn't release any information they acquire when on duty without
permission.
Style Underperformer:
Sector Underperformers:
- 1) Coal -.50% 2) Networking +.24% 3) Medical Equipment +.43%
Stocks Falling on Unusual Volume:
- TKC, WTI, USB, CYBX, KEYN, NTGR, IPCM, CLI, SRPT, PBY, GS, CBI, APA, CRR, MTB, OSIS, PNRA, OPEN and SNN
Stocks With Unusual Put Option Activity:
- 1) ACI 2) HCA 3) HON 4) ALTR 5) APA
Stocks With Most Negative News Mentions:
- 1) KEYN 2) CLI 3) CBI 4) FCX 5) MTB
Charts:
Style Outperformer:
Sector Outperformers:
- 1) Airlines +2.25% 2) Road & Rail +1.44% 3) Gold & Silver +1.19%
Stocks Rising on Unusual Volume:
- HK, NGD, ING, UNXL, KO, SBGI, MJN, LCC and TSLA
Stocks With Unusual Call Option Activity:
- 1) ESRX 2) KO 3) DUST 4) SRPT 5) RDN
Stocks With Most Positive News Mentions:
- 1) FLR 2) PNFP 3) PXD 4) JNJ 5) WMT
Charts:
Evening Headlines
Bloomberg:
- Slovenia Needs Time to Fix Public Finances, Premier Says. Slovenian Prime Minister Alenka Bratusek said the government needs more time to repair public
finances as an asset-sale plan failed to quell concern that the
euro-area nation will be next to seek a rescue. Bratusek called fiscal-consolidation plans drawn up by the
previous government “ridiculous” and said assumptions in this
year’s budget were too optimistic. Slovenia’s default risk rose
to a six-month high before a planned debt sale tomorrow and bond
yields hovered close to records even after the premier announced
plans to sell shares in state-owned companies. “The situation in the budget is more serious than I
thought” when in opposition, Bratusek said last night in a
television interview in Ljubljana. “The situation is not good,
but we will take measures to improve it.”
- Labour to Demand U.K. Bankers Are Licensed Like Doctors.
Britain’s opposition Labour Party is seeking legislation to license
bankers so that they are subjected to similar checks as lawyers or
doctors. Labour will propose amendments to the Financial Service
(Banking Reform) Bill that will be debated in the House of Commons in
London later today. It will also press for greater immunity for
whistle-blowers who reveal bad behavior in the industry, the creation of
a Financial Crime Unit in the Serious Fraud Office, and greater
protection for consumers who buy gift vouchers when companies become
insolvent. “A proper licensing system would ensure that a higher
standard of qualification, training, competence -- and behavior -- could
be applied.” Chris Leslie, who speaks for the party on Treasury
affairs, said in an e-mailed statement. “It would also ensure that there
could be proper sanctions imposed if licenses
are breached.”
- Asia Stocks Fall After China Sparks Global Growth Concern. Asian
stocks fell, dragging the regional benchmark equities gauge lower for a
second day, led by raw-material producers amid concern slower growth in
China will curb the global economic recovery. BHP Billiton Ltd.
(BHP), the world’s biggest mining company, dropped 1.6 percent in
Sydney. Newcrest Mining Ltd., Australia’s largest gold producer, sank
5.8 percent as the bullion extending losses after yesterday posting its
worst slump in three decades. Softbank Corp. slumped 8.9 percent after
Dish Network Corp. topped the Japanese wireless carrier’s bid for
control of Sprint Nextel Corp. The MSCI Asia Pacific Index lost 0.9
percent to 135.83 as of 11:44 a.m. in Tokyo, with more than three shares
falling for each that rose. “The Chinese economy is heading toward
slower growth than what we’ve seen in the past decade, which means it’s a
lot less investment-intensive with less demand for commodities,” said
Nader Naeimi, Sydney-based head of dynamic asset allocation at
AMP Capital Investors Ltd., which manages $126 billion. “We’ve
reduced our equity exposure in the short-term as economic data
show signs of softening. The market needs to correct at least 10
percent.”
- China’s Stocks Drop to Three-Month Low After Commodities Plunge.
China’s stocks fell to a three- month low, led by metal producers, as
concern that global economic growth is slowing dragged commodities to
the lowest level since July. Zijin Mining Group Co., China’s biggest
gold producer, slid to the lowest level since December 2008 and Jiangxi
Copper Co. (600362) lost 3.2 percent. Dongfeng Automobile Co., which
makes light trucks in China with Nissan Motor Co., dropped for a third
day after reporting lower sales last month. The Shanghai index has
fallen 11 percent from a Feb. 6 high amid concern steps to cool property
prices will drag on economic growth.
- Commodity Open
Interest Signals More Losses: Chart of the Day. Investors are holding
the largest commodity position on record as prices slump to a nine-month
low, signaling increased bets on declines and that losses will
continue, according to FuturePath Trading LLC. The number of
contracts outstanding for the 24 commodities tracked by the S&P's
GSCI Spot Index is at the highest since the data begins in 2006. Open
interest is up 11% as of April 4, the latest figures show. Slumping
prices are signaling "death bells" for the commodity supercycle,
Citigroup Inc. said in a report on April 12. "Rising open interest in a
declining market means basically that the funds are adding to their
short positions," Paul Kavanaugh, the Chicago-based director of business
development at FuturePath Trading, said in a telephone interview.
- Industrial Metals Extend Drop as Nickel Falls to Eight-Month Low. Industrial metals extended declines
after economic data from China and the U.S., the two biggest consumers, raised concern that demand may weaken. Copper
for delivery in three months fell as much as 0.9 percent to $7,135.75 a
metric ton on the London Metal Exchange, before trading at $7,166 by
9:17 a.m. Shanghai time, putting it on course for the lowest close since
October 2011. Zinc lost 0.9 percent and nickel slumped as much as 2.2
percent to $15,350 a ton, the lowest since Aug. 16. The LME Index (LMEX)
of six primary base
metals fell 1.8 percent yesterday, after retreating 2.6 percent
on April 12. “Now it’s difficult to say where copper can find
support,” Pang Juan, an analyst at Jinrui Futures Co., said by
phone from Shenzhen. “Given slumping precious metals, I think
it’s time to re-assess the outlook of metals.”
- CME Increases Margins for Gold as Prices Fall Most in 33 Years. CME Group
Inc. (CME) increased the margin requirements on gold trading after
prices plunged. The minimum cash deposit for gold futures will rise 19
percent to $7,040 per 100-ounce contract at the close of trading
tomorrow, Chicago-based CME said in a statement. For silver, the minimum
cash deposit was raised to $12,375 from $10,450. The CME’s Comex unit is making it more expensive for
speculators to trade after gold fell the most in 33 years today,
dropping to the lowest since February 2011, after prices entered
a bear market last week. Silver, also in a bear market, slumped
11 percent today and extended the year’s loss to 23 percent.
- Rebar Falls to Lowest in Over Four Months as Gold, Metals Sink.
Steel reinforcement-bar futures in Shanghai dropped to the lowest in
more than four months, pressured by a broad selloff in metals, led by
gold’s plunge. The contract for October delivery on the Shanghai Futures Exchange fell as much as 2 percent
to 3,665 yuan ($592) a metric ton, the lowest for a most-active future
since Dec. 12, before trading at 3,716 at 10:34 a.m. local time. Gold
slumped, extending the biggest decline since 1983 and deepening a bear
market while copper traded near the lowest level since December 2011 and
China’s stocks fell to a three-
month low.
- Rubber Reaches 5-Month Low as Yen Rebounds Amid Demand Concerns. Rubber plunged to a five-month low
as the yen rebounded against the dollar and concerns grew that
the global recovery may stall, sapping investor appetite for the
yen-denominated futures for the commodity used in tires. The contract for delivery in September lost as much as 4.6
percent to 247 yen a kilogram ($2,544 a metric ton), the lowest
level for a most-active future since Nov. 15. Futures traded at 252.3 yen on the Tokyo Commodity Exchange at 10:33 a.m.,
extending this year’s losses to 17 percent.
- Twitter Said to Seek Deals With Viacom, NBC to Feature TV Online. Twitter Inc. is close to reaching
partnerships with television networks that would bring more
high-quality video content and advertising to the social site,
according to people familiar with the matter. The San
Francisco-based company has held talks with Viacom Inc. (VIAB) about
hosting TV clips on its site and selling ads alongside them, said two of
the people, who asked not to be named because the discussions were
private. Twitter has also discussed a content partnership with Comcast
Corp. (CMCSA)’s NBCUniversal, said two of the people.
Wall Street Journal:
- Slower China Growth Signals Days of Miracles Are Waning. Shanghai property developer Sun Ping recalled offering a bloc of
villas for sale in 2006, a time when buyers queued overnight and traded
spots in line for money. He sold 62 houses in three hours and figures
those homeowners quickly saw their investments triple in value.
"That was a miraculous time," Mr. Sun said. A recent open house he hosted drew only a handful of shoppers. The days of miracles appear to be over in China, the world's second
largest economy. A cleanup is under way, following an economic party of
epic proportions that lifted incomes but left behind debt, corruption
and a mess of the environment.
- Blasts Across Iraq Leave Dozens Dead. More than 25 bombings across Iraq left at least 61 people dead on
Monday, adding uncertainty and instability ahead of the first elections
since U.S. troops left the country in December 2011.
- Gold Plunges as Fears Over Inflation Fade. Metal's 9.4% Drop on Comex Is Largest in 30 Years. Gold futures for April delivery fell $140.40, or 9.4%, Monday to a
two-year low at $1,360.60 an ounce on the Comex division of the New York
Mercantile Exchange. That extended their bear-market descent of more
than 20% from their 2011 all-time high. Since Thursday, gold prices have
declined by more than $203 an ounce, a record skid since the futures
began trading in the U.S. in 1974. The reversal comes as investors are grappling with signs the global economic expansion that began in 2009 is slowing.
Fox News:
- Death toll at 3 in Boston Marathon bombing seen by White House as terrorism. The deadly bombing at the Boston Marathon that killed at least three
and injured more than 130 is believed to be an act of terrorism, senior
White House officials told Fox News. Two explosions tore through the finish line of the world-famous race
just before 3 p.m., going off simultaneously as throngs of onlookers
watched runners complete the 26.2-mile trek. The timing of the blasts
immediately sparked suspicions of a deliberate act. “When multiple devices go off, that’s an act of terrorism,” a senior
administration official told Fox News, just moments after President
Obama delivered a statement to the nation and did not use the word
“terror.”
MarketWatch.com:
- Chinese woman reportedly wants to sue Federal Reserve over QE. Perhaps it was only a matter of time. With U.S. quantitative easing
seen in China as a blight on the global economy, one woman in the
southern city of Kunming has decided to act. According to a South China Morning Post report Tuesday, the woman and
her attorney son have filed a lawsuit against the Federal Reserve for
driving down the real value of her dollar holdings – totaling $250 – by
roughly 30%. And the damages sought? A $1 token fine and a promise from the U.S.
central bank to stop abusing its “monopoly” over currency creation,
according to the report. The lawyer/son, Li Zhen, contends that the Fed
qualifies as a private institution, and therefore is culpable under
China’s 2008 Anti-Monopoly Law.
CNBC:
- EXCLUSIVE-U.S. regulator to fault JPMorgan over Madoff accounts. U.S. regulators plan to fault JPMorgan Chase & Co, which served
as Bernie Madoff's main bank for two decades, for failing to conduct
adequate due diligence and report suspicious activity, according to a
person familiar with the matter. The Office of the Comptroller of
the Currency is expected to issue a cease-and-desist order against
JPMorgan, which will require the largest U.S. bank to put an end to the
alleged failures in its anti-money laundering practices.
Zero Hedge:
Business Insider:
New York Times:
Forbes:
- Hedge Fund Billionaires John Paulson And David Einhorn Lost $640M In Gold Market Collapse.
The gold bloodbath that hit the market over the past two trading
sessions has definitely caused a dent in the portfolio of billionaire
hedge fund managers. John Paulson and David Einhorn suffered
combined losses of more than $640 million since Friday, according to
their
latest SEC filings, with the bulk concentrated in the former’s massive
position
in the SPDR Gold ETF. Einhorn’s Greenlight took a big hit on its
holdings of
the gold miners ETF.
Reuters:
- Moody's affirms China ratings at Aa3; outlook stable from positive. Moody's Investors Service on Tuesday
affirmed China's government's bond rating of Aa3 and changed the
outlook to stable from positive.
"Progress has been less than anticipated in the process of
both reducing latent risks by making local government contingent
liabilities more transparent and in reining in rapid credit
growth; therefore, some of the upward pressure on the Aa3 rating
has eased," it said.
- Netgear(NTGR) estimates profit below analyst expectations.
Network equipment maker Netgear Inc estimated first-quarter revenue and
earnings below analysts' expectations, citing lower-than-planned
shipments of its new network attached storage product. Shares of Netgear fell as much as 8 percent in trading after the bell.
- HCA(HCA) issues first-quarter estimates, shares fall. HCA Holdings Inc, the largest U.S. for-profit hospital operator, on Monday announced a preliminary first-quarter revenue estimate that was below Wall
Street expectations and its shares fell nearly 5 percent.
- Venezuela opposition demands vote recount, protests flare. Hundreds of
protesters clashed with police in the Venezuelan capital on Monday after
opposition presidential candidate Henrique Capriles called for
demonstrations to demand a recount of votes from Sunday's election to
replace the late Hugo Chavez.
Telegraph:
South China Morning Post:
- Hong Kong expert warns new bird flu virus could become a pandemic. Hong Kong expert says H7N9 could pose a bigger threat than H5N1 and may adapt to become transmittable between humans. The
deadly new bird flu may pose a bigger threat to humans than the
H5N1 bird virus that has killed hundreds of people worldwide, a
University of Hong Kong microbiologist warned yesterday. Ho Pak-leung
became the first expert to publicly express fears it could become a
pandemic. The H7N9 strain emerged in humans only last month and is so far contained to the mainland. But it has already infected more people than the H5N1 virus has infected in the past 10 years. Ho
said the new virus showed a higher ability to be transmitted rapidly
from birds to humans and to spread geographically. And because infected
birds appeared healthy, it was also harder to detect. Ho said: "The
pathology pattern of H7N9 so far is very special and quite different
from H5N1. "But the pattern points to one alarming conclusion - it may
be a bigger health threat than H5N1." He said news that a four-year-old Beijing boy was found to have the
virus despite not showing any flu symptoms was a "warning sign" for a
pandemic.
Financial News:
- China Has Chosen
Not to Chase Faster Growth. China intentionally adjusted its policies
and money supply and chose not to chase "super high" growth, according
to a commentary by reporter Xu Shaofeng. Large cash injections into a
slowing economic slows may add inflationary pressure, the commentary
said.
Finance Asia:
- Soros likens China trusts to subprime. China
has a narrow window to prevent its shadow banking system from imploding
in a manner similar to US subprime mortgages, says George Soros. George
Soros says the immediate threat to financial markets remains the
eurozone, but the mid-term challenge is for China to come to grips with
its shadow banking system. The statesmanlike investor, speaking at the Boao Forum for Asia, says a
hard landing in the Chinese economy would force the People’s Bank of
China to raise interest rates, triggering a wave of defaults in
wealth-management products. That in turn could lead these products to
“break the buck”, if their issuers fail to make up shortfalls to
investors. That would lead to a market panic similar to when Reserve
Fund Management, the largest money-market fund in the US, saw its value
trade below par in the wake of the Lehman Brothers collapse.
Evening Recommendations
Jefferies:
- Rated (SRCL) Buy, target $127.
Night Trading
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 117.0 +2.0 basis points.
- Asia Pacific Sovereign CDS Index 93.25 +1.75 basis points.
- NASDAQ 100 futures +.71%.
Morning Preview Links
Earnings of Note
Company/Estimate
Economic Releases
8:30 am EST
- The Consumer Price Index for March is estimated unch. versus a +.7% gain in February.
- The CPI Ex Food & Energy for March is estimated to rise +.2% versus a +.2% gain in February.
- Housing Starts for March are estimated to rise to 930K versus 917K in February.
- Building Permits for March are estimated to fall to 942K versus 946K in February.
9:15 am EST
- Industrial Production for March is estimated to rise +.2% versus a +.7% gain in February.
- Capacity Utilization for March is estimated to fall to 78.4% versus 79.6% in February.
- Manufacturing Production for March is estimated to rise +.1% versus a +.8% gain in February.
Upcoming Splits
Other Potential Market Movers
- The Fed's Yellen speaking, Fed's Dudley speaking, Fed's Duke speaking, Fed's Kocherlakota speaking, Eurozone inflation data, Germany Zew Index, weekly retail sales data and the CIBC Energy Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.
