Today's Headlines

Bloomberg:

• U.K.’s Top Credit Grade Cut by Fitch on Economy, Fiscal Outlook. Britain lost its top credit grade at Fitch Ratings, which cited a weaker economic and fiscal outlook as it became the second company to cut the country’s rating within two months. Fitch lowered the U.K. to AA+ from AAA with a stable outlook, it said in a statement in London today. It cut its growth projection and forecast that debt would peak at 101 percent of gross domestic product in the fiscal year 2015-2016. “Despite the U.K.’s strong fiscal financing flexibility underpinned by its own currency with reserve-currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with an AAA rating,” Fitch said. 
• Prodi’s Presidential Bid Vulnerable in Secret Ballot. Romano Prodi failed to win the Italian presidency in a parliamentary vote today as his wounded party was unable to maintain discipline and resistance from rival forces intensified. Prodi, the two-time ex-prime minister and former European Commission president, as defections left him more than 100 votes short of a majority in the parliamentary vote in Rome. It was the fourth inconclusive ballot since voting started yesterday and dealt Pier Luigi Bersani, head of the Democratic Party, another defeat in his bid to unlock the impasse.  
• Weidmann Says ECB Would Only Cut Rates If Data Worsen. European Central Bank Governing Council member Jens Weidmann said the bank would only cut interest rates if economic data worsen. “We didn’t change interest rates at our last meeting as they are currently appropriate and in accordance with our assessment of economic developments, price stability and our monetary analysis,” Weidmann, who heads Germany’s Bundesbank, said today at a press conference in Washington. “Of course, we will reassess the adequacy of the rates if the data change.”
• BofA(BAC) Sees ‘Impossible Trinity’ in Markets as Risks Underpriced. Commodities, stocks and bonds are sending conflicting signals on the health of the global economy, an “impossible trinity” that may end with a surge in market volatility, according to Bank of America Corp. The S&P GSCI Spot Index of 24 raw materials has retreated 10 percent in the past two months, while the Standard & Poor’s 500 Index rose 1.4 percent and bond yields in emerging markets and so-called peripheral European nations declined. Commodities are signaling a slowdown in global growth, while stocks reflect expectations of strong U.S. consumer spending and credit markets anticipate greater demand from Japanese households for high-yielding assets, David Woo, the head of global rates and currencies research at Bank of America Merrill Lynch, wrote in a note dated yesterday. It’s unlikely all these markets will prove correct and investors are underestimating the risk of a “major re-alignment” of prices, Woo said. “Something will have to give,” Woo wrote.
• SAP's(SAP) McDermott Sees Choppy Public Spending in U.S., China. SAP AG (SAP), the largest maker of business-management software, projected a difficult market for its government business amid cuts in U.S. federal spending and China’s transition to a new leadership. “It’s going to be choppy out there in the public sector,” co-Chief Executive Officer Bill McDermott said in a telephone interview today. “Chinese purchasing patterns have definitely slowed down.”
• U.S. Hospitals Told to Be on Lookout for H7N9 Bird Flu. U.S. hospitals are being urged to head off a spread of the new H7N9 avian influenza by looking out for people exhibiting flu-like symptoms who have traveled to China or had contact with someone who has the illness.
• Copper Falls to Lowest Since October 2011, Entering Bear Market. Copper slumped into a bear market in London on concern slowing economies from China to the U.S. will reduce demand as supply of the metal expands. Copper for delivery in three months fell 1.4 percent to $6,990 a metric ton by the close on the London Metal Exchange today. That was below the level of $6,992 marking a 20 percent drop from the February 2012 closing high, a common definition of a bear market.
• GE(GE) Falls Most Since 2011 After Power Unit Saps Industrial Profit. General Electric Co. fell the most since 2011 after a first-quarter slide in its Power & Water business pulled total industrial earnings down 11 percent. Profit at GE’s manufacturing businesses fell to $2.94 billion as sales slid 5.7 percent to $22.7 billion, the company said in a statement. The decline was led by a 39 percent drop in earnings at the power and water unit, which makes products including gas-powered and wind turbines. “We planned for a continued challenging environment in Europe, but conditions weakened further,” Chief Executive Officer Jeffrey Immelt said in the statement, with manufacturing and service revenue in the region declining 17 percent.
• Flu Experts Probe H7N9 Outbreak as Cases Double in a Week. Influenza specialists from around the world are converging on China to help authorities identify how people are catching the new H7N9 bird flu strain after the number of reported cases there doubled in the past week. China recorded its 88th H7N9 infection yesterday. Seventeen of the cases have been fatal and “several” patients are in critical condition, according to the World Health Organization. “That’s a fairly high mortality rate,” Michael O’Leary, the WHO’s China representative, told reporters in Beijing today. Less severe cases may have escaped detection, he said. “What we don’t know is the size of the iceberg under this tip.

Wall Street Journal: 

• Boston Gripped by High-Stakes Manhunt. Suspect Still at Large Is Identified as 19-Year-Old of Chechen Background; Older Brother Killed in Shootout. The Boston area remained on lockdown into the afternoon Friday as authorities conducted a manhunt for one of two brothers of Chechen background suspected in Monday's Boston Marathon bombings and a deadly showdown that began unfolding Thursday night. Authorities identified one suspect as 26-year-old Tamerlan Tsarnaev, who was killed in a confrontation with police in Watertown, Mass., according to a U.S. law-enforcement official. A manhunt was on for the second suspect, identified as Dzhokhar Tsarnaev, 19 years old. Both brothers were believed to be involved in the fatal shooting of a Massachusetts Institute of Technology campus police officer during Thursday night's chaotic series of events. Police warned residents that the at-large suspect was armed and dangerous. "We believe this to be a terrorist," said Boston Police Chief Ed Davis. "We believe this to be a man who's come here to kill people. We need to get him in custody."
• The Boston Bombings: Live Updates. 
• Texas Plant Explosion: Live Updates.
• Regulators Worry Mortgage REITs Pose Threat to Financial System.
• Boy Scouts Propose Lifting Gay Ban on Kids, but Not Adults. The Boy Scouts of America on Friday proposed to change their membership policy to allow gay youth into its programs for the first time, but continue to ban gay adults.

Fox News:

• Pakistan's Musharraf lashes out at accusers following arrest. Former Pakistani military ruler Pervez Musharraf criticized allegations against him as "politically motivated" Friday, following his arrest in a case involving his decision to fire senior judges while in power. Musharraf was arrested a day after he made a dramatic escape from a court in Islamabad on Thursday to avoid being detained. Musharraf fled the Islamabad High Court in a speeding vehicle and holed up in his home on the outskirts of the city after a judge rejected his bail and ordered his arrest. It was a new low in Musharraf's troubled return from self-imposed exile last month to attempt a political comeback in the upcoming parliamentary election.

CNBC: 

• McDonald's(MCD) Profit Rises; Falls Short of Wall Street's Hopes. McDonald's on Friday reported first-quarter profit that rose but fell short of market expectations, undermined by weaker international sales and U.S. consumers that appeared to dine out less. 
• IBM's(IBM) Ominous Sign to the Stock Market. IBM's poor earnings performance in the first quarter likely foretells a rough time ahead for the stock market.
• Wall St. Redux: Arcane Names Hiding Big Risk. The alchemists of Wall Street are at it again.
  The banks that created risky amalgams of mortgages and loans during the boom — the kind that went so wrong during the bust — are busily reviving the same types of investments that many thought were gone for good. Once more, arcane-sounding financial products like collateralized debt obligations are being minted on Wall Street.

Zero Hedge: 

• Letter Bomb Intercepted At German President's Residence. 
• The Chart Making The Fed Nervous.
• German Stocks Have Worst Week In 10 Months. (graphs)
• According To 'French' Fitch, France Is Now Rated Higher Than The UK. (graphs)
• Chechen President Statement On Boston Bombers: "Seek The Roots Of Their Evil Inside America".

Business Insider: 

• Dad Wants Bomb Suspect To 'Surrender Peacefully' But Vows That 'All Hell Will Break Loose' If He Is Killed.
• Video From The Crazy Shootout Between Police And Boston Suspects.
• Jim Chanos's New China Presentation Will Have You Convinced The Country Is Doomed For A Hard Landing.
• ANALYST: The Most Shorted Stocks In The Market Are Making A 'Scalded Dog Formation'. 
• 12 Signs The Economy Is Slowing Down.
• PC Makers Are Privately Grumbling That Microsoft(MSFT) Is 'Destroying' The PC Market With Windows 8.
• POLICE CHASE TERROR SUSPECTS ACROSS BOSTON [PHOTOS].

Reuters:

• Fed's Stein backs putting price on bank access to liquidity. Regulators should keep an "open mind" about making banks pay up front for access to central bank liquidity as part of new rules to ensure that big firms can withstand severe financial stress, a senior U.S. Federal Reserve official said on Friday. Fed Board Governor Jeremy Stein, weighing in on the complex issue of liquidity coverage ratios being worked on by the Basle banking committee, also said it made no sense to allow unpriced access to central banks' 'lender of last resort' capacity.
• METALS-Copper falls on economic growth concerns, rising supply.
• INVESTMENT FOCUS-Yen slide echoes '97 emerging crisis for some. While many investors have greeted the prospect of new Japanese money flooding world markets as a windfall, some strategists warn a sliding yen could yet shock Asia and developing countries. 

Telegraph: 

• ECB should limit amount of liquidity in the eurozone, says Wolfgang Schaeuble. The European Central Bank should try to limit the amount of the liquidity in the eurozone, Germany's finance minister has said, as he warned that pumping money into crisis hit economies would not create growth if they were not matched by reforms.

Handelsblatt:

• German Companies See Sustained Weak Euro Area. German small- and medium-sized companies expect euro area economies to remain weak in M/T, potentially impacting cross-border investment plans, citing a TNS Infratest survey for Commerzbank. 81% of 4,000 companies expect weak economic growth in euro area. 68% of respondents expect increasing finance problems for companies.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.16%

Sector Underperformers:

• 1) Computer Services -6.3% 2) Coal -4.88% 3) Disk Drives -1.32%

Stocks Falling on Unusual Volume:

• IBM, FIO, GE, WTI, PFMT, AIRM, SAP, GCC, DELL, HUBG, GPC, ISRG, SLW, WLT, CTSH, HGSH, SSNC, EMC, HMSY, BHI, SLB, BMI, EVEP, NSIT, BTU, ACN and ACTG

Stocks With Unusual Put Option Activity:

• 1) CTL 2) FL 3) MGM 4) IBM 5) CRM
  

Stocks With Most Negative News Mentions:

• 1) CAT 2) PAY 3) IBM 4) CTSH 5) ALV
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +1.28%

Sector Outperformers:

• 1) Biotech +3.97% 2) Homebuilders +2.45% 3) Gaming +1.75%
  

Stocks Rising on Unusual Volume:

• UBS, EFII, OSTK, VRTX, IMOS, CMG, ALGN, CE, CPHD, RNF, COF, MAN, TSM, NPSP, EMN and IPG

Stocks With Unusual Call Option Activity:

• 1) CTL 2) VRTX 3) NLY 4) SWKS 5) ALGN
  

Stocks With Most Positive News Mentions:

• 1) NRG 2) KBH 3) BX 4) HON 5) COF
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg: 

• Italy Impasse Deepens as Bersani Bowed by Failed Berlusconi Deal. Italy’s political deadlock deepened over the selection of the next president, raising the threat of snap elections after Democratic Party lawmakers refused orders to back a compromise candidate. Party head Pier Luigi Bersani signaled he will abandon his nominee, Franco Marini, after his allies rebelled over the choice, leading to two failed ballots yesterday. Voting resumes today at 10 a.m. in Rome. “This challenge of keeping the party together is clearly growing more acute,” said Peter Ceretti, a Eurasia Group analyst in New York. “If a consensus candidate can’t be elected politically things become much more uncertain." 

• Dutch Recession Woes Haunt Rutte as Deficit Breach Persists. Record unemployment in the Netherlands is compounding Dutch Prime Minister Mark Rutte’s dilemma on how far to push austerity measures needed to curb the country’s deficit. Consumer confidence due today and statistics on house prices, consumer spending and manufacturers’ confidence next week will confirm just how far the slump has damaged sentiment in the euro-area’s fifth largest economy. Data yesterday showed the jobless rate reached an 18-year high of 8.1 percent in March, with 643,000 people out of work.

• South Korea’s Hyun Says Yen Bigger Issue Than North Korea. South Korean Finance Minister Hyun Oh Seok said Japan’s weakening yen is hurting his country’s economy more than North Korean threats, an example of a “spillover” that merits discussion. “Japan’s economic policies are doing their part to help the world economy recover,” Hyun said yesterday in an interview in Washington before a meeting of Group of 20 finance chiefs. “But if this causes problems, and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time.”

• China’s Anti-Carrier Missile Now Opposite Taiwan, Flynn Says. The Chinese military has deployed its new anti-ship ballistic missile along its southern coast facing Taiwan, the Pentagon’s top military intelligence officer said today. The missile, designated the DF-21D, is one of a “growing number of conventionally armed” new weapons China is deploying to the region, adding to more than 1,200 short-range missiles opposite the island democracy, U.S. Army Lieutenant General Michael Flynn, the Defense Intelligence Agency director, said in a statement to the Senate Armed Services Committee.

• Li Ka-Shing’s Striking Port Workers Lose Jobs as Protest Widens. Some port workers at Li Ka-shing’s Hong Kong terminals were told they will lose their jobs, as a three-week strike over wage demands at the world’s third-biggest container port escalates. 

• Asian Stocks Rise as Commodity Companies Pare Weekly Drop. Asian stocks rose, erasing earlier losses, as commodity companies pared their worst weekly decline since August. Taiwan Semiconductor Manufacturing Co. and Lenovo Group Ltd. led technology shares higher. The MSCI Asia Pacific Index (MXAP) gained 0.3 percent to 136.29 as of 11:26 a.m. in Tokyo, reversing a decline of 0.3 percent. A gauge of material producers in the measure climbed 1.1 percent, paring its weekly loss to 4.3 percent, the most since August.

• Boston Bombing Victim in Iconic Photo Helped Identify Attackers. Minutes before the bombs blew up in Boston, Jeff Bauman looked into the eyes of the man who tried to kill him. 

• Copper Set for Weekly Drop Amid High Stockpiles, Economic Woes. Copper declined in London, poised for the biggest weekly drop in 16 months as inventories swelled to the highest level since 2003 and the outlook for the global economy weighed down metals prices. Aluminum, zinc, nickel and lead also dropped. Copper for delivery in three months lost as much as 1.7 percent to $6,966.75 a metric ton on the London Metal Exchange, before trading at $6,970 by 9:41 a.m. Shanghai time, putting on course for a weekly decline of 6 percent.

• Rebar Rises to Pare Weekly Loss, Supported by Iron Ore, Demand. Steel reinforcement-bar futures rose for the first time in three days, paring a weekly loss, supported by iron ore prices and as rising demand helped draw down inventory. The contract for October delivery on the Shanghai Futures Exchange gained as much as 1 percent to 3,687 yuan ($597) a metric ton, before trading at 3,666 yuan at 10:23 a.m. local time. Futures have lost 4.5 percent this week.

Wall Street Journal: 

• Boston Bombings: Live Updates.

• Texas Fertilizer Plant Explosion: Live Updates.

• Blackstone(BX) Ends Pursuit of Dell(DELL). Blackstone Group LP has ended its pursuit of Dell Inc. less than a month after the private-equity firm said it would try to top a leveraged buyout by the computer maker's founder and a rival private-equity firm. Blackstone had been putting together a bid for Dell to top the offer from founder Michael Dell and private-equity firm Silver Lake Partners. Blackstone's offer would have kept part of the company in the hands of public shareholders. Blackstone, in a letter to the special board committee handling the deal negotiations for Dell, cited declining personal-computer sales industrywide as a factor in its decision, along with concerns about declines in Dell operating income, according to people familiar with the matter. 

• FAA Expected to Clear 787. Agency Is Likely to End Three-Month Grounding of Boeing's Dreamliner Amid Rising Pressure.

CNBC: 

• IRS Workers Get Caught With Their Hands in Cookie Jar. Twenty-four current and former Internal Revenue Service employees have been charged with stealing government benefits, federal prosecutors said Wednesday. The IRS employees were indicted on charges that they illegally received more than $250,000 in benefits, including unemployment insurance payments, food stamps, welfare, and housing vouchers, the U.S. attorney's office in Memphis said in a news release. Prosecutors say 13 of the IRS employees face federal charges of lying about being unemployed while applying for or recertifying their government benefits. They each face up to five years in prison if convicted of making false statements to receive the benefits. Eleven others face state charges of theft of property over $1,000, a felony that can carry a sentence of probation up to 12 years in prison if they are convicted.

Zero Hedge: 

• Goldman(GS) Confirms Slowdown Accelerating. (graph)

• Photos And Video Of Boston Bombing Suspects Released.

• Are Earnings Expectations Realistic?

• McDonalds(MCD) Hikes Japanese Burger Prices By 20%.

• What Exactly Did Obama Say To Wall Street's CEOs Last Thursday?

Business Insider: 

• Jim Chanos Uses Gruesome Cartoon To Illustrate How China Is Generating Growth.

• Here's What We Know About The Sad State Of Wall Street Now That Earnings Are All In.

• As Many As 40 Dead In Massive Explosion At West, Texas Fertilizer Plant.

• IBM(IBM) WHIFFS.

• Microsoft(MSFT) Earnings Beat And Revenue Is Pretty Much In Line.

• CHART OF THE DAY: The S&P Falls Beneath A Horizontal Line And A Diagonal Line. 
  

Reuters: 

• Lenovo says in potential M&A talks; report of IBM server deal. Lenovo Group said on Friday it was in preliminary talks about a potential acquisition, following a media report that IBM Corp was negotiating the sale of its x86 server hardware business to the Chinese computer maker. IBM wants $5 billion to $6 billion for the business, which sells low-priced servers traditionally used to power large corporate data centers, said technology news site CRN, citing a high ranking industry executive. Lenovo did not identify the acquisition target.

• Google(GOOG) Internet business solid despite Motorola losses. Google Inc's core Internet business grew net revenue 23 percent in the first quarter, softening the effect of a sharp decline in its Motorola mobile phone division. Shares of Google, which reached an all-time high of $844 in March, were up 1.5 percent to $777.75 in after hours trading on Thursday.

• Intuitive Surgical(ISRG) narrows 2013 forecast, shares fall. Intuitive Surgical Inc on Thursday narrowed its 2013 forecasts for growth of revenue and procedures using its da Vinci surgical robots rather than raising them as it often does when reporting quarterly results, and its shares fell. 

• Vertex(VRTX) shares up after successful cystic fibrosis trial. Vertex Pharmaceuticals Inc said its experimental drug improved lung function in adults with cystic fibrosis in a mid-stage trial, sending its shares 54 percent higher in after-hours trading. 

• U.S. Fed balance sheet grows to record again in latest week. The U.S. Federal Reserve's balance sheet hit a new record in the latest week on increased holdings of U.S. government debt and mortgage-backed securities, Fed data released on Thursday showed. The Fed's balance sheet - a broad gauge of its lending to the financial system - stood at $3.252 trillion on April 17, up from $3.210 trillion on April 10. The Fed's holdings of Treasuries totaled $1.825 trillion as of Wednesday, April 17, versus $1.814 trillion the previous week.

• FAA warns of 3.5 hour flight delays this summer. Flight delays of up to 3-1/2 hours are expected at some busy U.S. airports this summer because of furloughs of air-traffic controllers, the top U.S. aviation regulator warned on Thursday. The estimate from the Federal Aviation Administration is the first to detail, in minutes and hours, the potential delays from the agency's decision to furlough 10 percent of its staff, starting Sunday, as it struggles to meet budget cuts required under so-called sequestration.

Financial Times: 

• Osborne girds for battle with IMF. Mr Osborne believes that the change of heart at the IMF on Britain reflects a power struggle within the fund between fiscal hawks and Keynesians, including Olivier Blanchard, chief economist, and David Lipton, first deputy managing director and a former adviser to Barack Obama, US president. The chancellor believes the UK has become a pawn in a bigger game: beating up Britain over its austerity programme makes it easier for the IMF to criticise Republicans insisting on a tough US fiscal tightening.

Telegraph: 

• Britain is a 'crisis economy', says Mark Carney. Mark Carney, the incoming Bank of England Governor, has described the UK as a “crisis economy” as he sought to play down hopes that he could ride to the country’s rescue. 

• The IMF is flunking the financial crisis. By turning its fire on Britain, the IMF gives the impression it is out of ideas and solutions.

China Securities Journal:

• The city of Shenzhen may start property tax trial in near term, citing people from the real estate industry in the city.

Financial News:

• Chinese first-tier city home price surges may be driven by "hot money," according to a commentary by Financial News, run by China's central bank, written by reporter Xu Shaofeng today. Home prices in 1st-tier cities didn't fall after China issued new curbing policies earlier this year, the commentary said.

People's Daily:

• China's urbanization shouldn't be used as excuse for some local governments to accumulate excessive debt and pursue blind investment, according to a commentary today written by reporter Liu Xianyun. Governments should be aware of risks in the drop in the value of land used as collateral, slower fiscal revenue growth and shrinking investment returns, the commentary said.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are unch. to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 116.50 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 91.75 -.25 basis point.

• FTSE-100 futures +.27%.

• S&P 500 futures +.44%.

• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BHI)/.63

• (BGG)/1.04

• (GE)/.35

• (GPC)/.98

• (HON)/1.14

• (KSU)/.88

• (KMB)/1.33

• (LH)/1.77

• (MAN)/.46

• (MCD)/1.26

• (COL)/1.17

• (SAP)/.58

• (SLB)/.99

• (STT)/.93

• (STI)/.62

• (UA)/.03 

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Stein speaking could also impact trading today.

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

Stocks Falling into Final Hour on Rising Global Growth Fears, Terror Concerns, Technical Selling, Homebuilding/Tech Sector Weakness

Broad Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 18.15 +9.93%

• ISE Sentiment Index 89.0 -1.11%

• Total Put/Call 1.18 -.84%

• NYSE Arms 1.01 -65.34%

Credit Investor Angst:

• North American Investment Grade CDS Index 84.98 +1.01%

• European Financial Sector CDS Index 175.54 +2.54%

• Western Europe Sovereign Debt CDS Index 98.84 -2.31%

• Emerging Market CDS Index 241.90 +3.24%

• 2-Year Swap Spread 14.0 -.25 bp

• TED Spread 22.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -17.25 +.75 bp

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.

• Yield Curve 146.0 -1 basis point

• China Import Iron Ore Spot $138.60/Metric Tonne -.50%

• Citi US Economic Surprise Index -5.0 -1.3 points

• 10-Year TIPS Spread 2.26 -11 basis points

Overseas Futures:

• Nikkei Futures: Indicating +90 open in Japan

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts
• Disclosed Trades: None
• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Italy Fails to Elect President as Bersani Coalition Fractures. Italy's Parliament failed to elect a president today as Democratic Party leader Pier Luigi Bersani faced a revolt from his allies after he sought to compromise with former Prime Minister Silvio Berlusconi. Bersani was deserted by allies on the first ballot as Franco Marini, the candidate he backed with Berlusconi forces received 521 of 1,007 possible votes, less than the necessary two-thirds majority. With no path to a Marini victory, both the Democratic Party and Berlusconi’s forces cast blank ballots on the second vote. The election continues at 10 a.m. tomorrow. “It’s another manifestation of how deeply divided Italy has become and how much resentment and mistrust there is among the leading politicians,” said Georg Grodzki, head of credit research at Legal & General Investment Management in London.
• Recession May Double Spain's Banking Bailout Needs: Euro Credit. A Spanish economic slump now in its sixth year is stocking concern the nation needs more than the 41 billion euros that it sought from European partners to bail out its banks. "The more the economy worsens, the more the capital base of the banks will get eroded and there is still a lot of cleaning up to be done," said Cesar Molinas, a partner at private equity firm CRB Inverbio in Madrid. Spanish lenders had 162 billion euros of bad loans in February, equivalent to 10.4% of the credit in the economy, according to Bank of Spain data published today. Losses make it harder for banks to bolster the economy by lending to businesses.   
• Germany Backs Cyprus Aid as Schaeuble Cites Default Risk. German lawmakers approved a rescue for Cyprus as Finance Minister Wolfgang Schaeuble warned that refusing aid to a fifth crisis-ravaged state risked triggering a sovereign default and contagion to other euro nations. The lower house, or Bundestag, backed German participation in the 10 billion-euro ($13 billion) financial lifeline by 487 votes to 101 with 13 abstentions in Berlin today, almost three years after the euro-area debt crisis first required lawmakers to act in May 2010. Lawmakers also approved extending aid terms for Ireland and Portugal. “We must avoid turning the problems in Cyprus into new problems for other euro countries,” Schaeuble told lawmakers in a speech before the vote. “Cyprus is in a dramatic situation. If we don’t help Cyprus, then Cyprus inevitably faces sovereign default.” 
• U.K. Retail Sales Drop More Than Forecast. Sales including fuel fell 0.7 percent from February, when they increased 2.1 percent, the Office for National Statistics said today in London. The median forecast of 23 economists in a Bloomberg News survey was for a 0.6 percent decline. From a year earlier, sales declined 0.5 percent. Weak wage growth and accelerating inflation are squeezing household budgets, hitting sales on Britain’s high streets and at shopping malls.
• Leading Index’s Decline Points to Slower U.S. Growth: Economy. The index of U.S. leading indicators unexpectedly declined in March, and manufacturing in the Philadelphia region slowed this month, adding to evidence the economy will cool. The Conference Board’s gauge of the outlook for the next three to six months fell 0.1 percent last month, the first drop since August, the New York-based group said today. The Federal Reserve Bank of Philadelphia’s factory index eased to 1.3 in April from 2 the prior month, another report showed.
• Copper Poised to Enter Bear Market as Industrial Metals Slide. Copper plunged through $7,000 a metric ton in London for the first time in almost 18 months and headed for a bear market on concern that demand from China to the U.S. and Europe may falter. Tin was also poised to enter a bear market. Copper for delivery in three months on the London Metal Exchange slumped as much as 4 percent to $6,800 a ton, the lowest level since October 2011, and was at $6,850.50 at 2:56 p.m. Seoul time. A close at the current level would be more than 20 percent below the metal’s last bull market peak in February 2012. Aluminum, nickel, zinc and lead also declined. 
• Morgan Stanley(MS) Shares Fall as Trading Revenue Declines. Morgan Stanley (MS) fell to a three- month low in New York after the firm reported the biggest drop in trading revenue among the largest U.S. banks. Shares of the company slumped 4.5 percent to $20.51, the biggest decline on the 81-company Standard & Poor’s 500 Financials Index. (S5FINL) Bond-trading revenue fell 42 percent in the first quarter and stock-trading revenue declined 19 percent, New York-based Morgan Stanley said today in a statement.
• Gold Climbs in New York on Signs Physical Demand Is Rebounding. Gold prices climbed in New York on signs that demand is rebounding among consumers and investors.

Wall Street Journal:

• Texas Fertilizer Plant Explosion: Live Updates.
• Credit Crunch Broadens European Business Rifts. Central banks around the world are flooding the market with liquidity in order to spark growth in the global economy. But that hasn't helped Spaniard José Blasco. Banks have cut credit lines to Mr. Blasco's sofa-bed maker Confortec SL to €100,000 ($131,000), compared with €500,000 several years ago. And while the Spanish state now borrows at around 5%, the 22-employee company would need to pay as much as 14% to get a bank loan—an option Mr. Blasco rejected.
• U.S. Probes Suspicions Syria Used Chemical Weapons. American intelligence agencies are reviewing what some officials see as the first credible indications that Syrian forces used small amounts of chemical weapons in recent fighting, said senior U.S. and European officials.
• Dr. Copper Catches a Cold.

Dow Jones:

• Lower Euro-Zone Rates May Not Spur Growth, Kranjec Says. Failure of transmission mechanism in euro area reflects fragmentation of financial markets, ECB Governing Council member and Slovenian central bank Gov. Marko Kranjec said.

Fox News: 

• Police say between 5 and 15 people killed in Texas fertilizer plant explosion, more than 160 hurt. A small Texas town where as many as 15 people were killed in an explosion at a fertilizer plant late Wednesday is reeling as rescuers comb the rubble house by house and one official laments: "part of that community is gone." Police say between 5 to 15 people were killed and more than 160 were injured during the massive blast at West Fertilizer in downtown West — a community of roughly 2,600 residents about 20 miles north of Waco.
• North Korea demands end of sanctions and drills as conditions for resuming talks.

MarketWatch:

• European markets setting up for a fast move lower.

CNBC: 

• New Study Finds China Manufacturing Costs Rising to US Level. The cost of manufacturing in China is going up and rising quickly. "It's something that we anticipated when we went to China, we just didn't know how quick it would happen," said Mark Miller, CEO of Prince Industries. 
• If I Were 'Dictator,' QE Would End Now, Fed's Lacker Says. Richmond Fed President Jeffrey Lacker told CNBC on Thursday that if you made him "dictator," the Federal Reserve would stop its massive bond purchases. He added that evidence is "sketchy" on whether the quantitative easing program has actually helped the nation's job picture. "I wouldn't have gone down this asset-purchase path. I'm in the camp that we should taper and stop right now," Lacker said in a "Squawk Box" interview from the 2013 Credit Markets Symposium in Charlotte, N.C. "You have to prepare markets, if it was up to me, if you made me dictator, that's what I would do."
• Rising Bank Profits Tempt a Push for Tougher Rules. Banks have been reporting steady growth in earnings since soon after the financial crisis. With the latest reports rolling in, analysts think the banks' first-quarter profits will be their best ever. But as welcome as such profits are to the banks, they may also become a source of discomfort. The ballooning bottom lines could embolden the lawmakers and regulators who want to introduce additional measures to overhaul the banking system.
  
  After the financial crisis, many officials involved in the regulatory revamp feared that tougher rules, like caps on bank assets, could destabilize the financial system and harm economic growth. It is a view that prominent bankers and lobbyists have also voiced.

Zero Hedge: 

• Initial Claims Snoozer, Just Higher Than Expected. (graphs)
• Philly Fed Is Latest Economic Miss: Number of Employees Dumps, Inventories Plunge.
• CLSA Breaks The Wall Street Mold: Sells Japanese Equities To Buy Gold.
• Obama Sends More Troops To Jordan, Preparing For "Stability Operations" In Syria.

Business Insider: 

• Here's The Argument That The Entire World Economy Is Starting To Go Bad.
• Boston Marathon Explosion Investigators Focus On Man Seen In Video.
• The House Just Passed The CISPA Cybersecurity Bill — Here's Why The Internet Is Up In Arms About It.
• I Just Realized How Zealously Facebook Tracks Me And Sells That Info To Advertisers.
• Videos Show Destruction Near The West, Texas Explosion.
• A Troubling 'Head-And-Shoulders' Pattern Is Quickly Developing In The Stock Market.
• This Man Pulled 16 People From A Collapsed Nursing Home After The Texas Explosion.

Reuters: 

• Diabetes, bone, pain drugs may face German price cuts. Drugs from Novo Nordisk , Amgen, Bayer and other companies could face price cuts in Germany as the country's medical cost-benefit agency widens a review into the value offered by medicines. The Federal Joint Committee, or G-BA, said on Thursday it would review the cost-effectiveness of a range of drugs in different treatment areas.
• Paulson fund hurt by sharp drop in gold -source. John Paulson's Advantage Fund, one of the hedge fund manager's biggest portfolios, is down 2.4 percent in April, largely due to the sharp selloff in gold, a source familiar with the numbers said on Thursday. 
• U.S. jobs, factory data point to slowing economy.
• In Spain, Catalan stand-off risks budget backslide. A stand-off between Spanish Prime Minister Mariano Rajoy and Catalonia, one of the country's wealthiest regions, risks the central government losing control of regional finances as Madrid seeks a softening of deficit targets from Brussels. Catalonia, which accounts for around a fifth of Spain's economy, has yet to present a 2013 budget to parliament and wants more control over the collection of its taxes.
• Fed's Tarullo says focused on big bank reliance on wholesale funding. Federal Reserve Board Governor Daniel Tarullo said on Thursday that U.S. banks were in better shape now than prior to the financial crisis, but he remained worried by the vulnerability of the very big firms to reliance on fickle market liquidity. "My concern in particular is the intersection of 'too big to fail' with very large institutions, with very large wholesale funding markets that are subject to runs, and eventually then to liquidity freezes," he told Bloomberg Television in an interview.

Open Europe Blog:

• Is the IMF turning bearish on Spain? It’s been a busy week for the IMF, releasing their latest iterations of the World Economic Outlook, Global Financial Stability Report and the Fiscal Monitor. We’ve been poring over the reports and will continue to do so (see here for some initial thoughts on the WEO). One forecast in particular caught our eye – Spain's. The IMF seems to have turned significantly more pessimistic on the prospect of a Spanish recovery. The charts below provide a comparison with the previous WEO forecasts (highlighting how these forecasts tend to be overly optimistic) - which very much confirms what we have noted before about the real risks in Spain.

Yonhap News:

• South Korea to Discuss Weak Yen's Impact at G-20. Spillover impact from weak yen will be discussed at G-20 meeting in Washington, citing South Korean Finance Minister Hyun Oh Seok.

Xinhua:

• China Detains 3 People for Spreading Bird Flu Rumors. Three people were detained in northern Chinese province of Shaanxi for spreading H7N9 bird flu rumors, citing the local government.
• China Orders Halt to Wild-Bird Sales Due to H7N9. State Forestry Administration also tells local authorities to step up epidemic surveillance, bank close contact between humans and animals in zoos, citing emergency notice from the govt agency.