Today's Headlines

Bloomberg:

• Spanish Borrowing Costs Rise as Rajoy Denies Bailout Need. Spain borrowing costs rose at a sale of one-year and 18-month bills for the first time since November as Prime Minister Mariano Rajoy battles to convince investors the country won't need a bailout. Spain sold 12-month bills at 2.623 percent, up from 1.418 percent at the last auction on March 20, the Bank of Spain said in Madrid today. The Treasury also sold 18-month bills at 3.11 percent, compared with 1.711 percent last month. The total amount sold was more than the 3 billion-euro maximum target set for the auction. Spanish bonds extended gains after the auction with the yield the 10-year benchmark bond falling 15 basis points to 5.92 percent. That yield rose as high as 6.156 percent yesterday, the most since Dec. 1. The cost of insuring Spain's securities against default fell almost 5 basis points to 506.3 after record close of 511.2 basis points yesterday. Demand for the 12-month bills was 2.9 times the amount sold, compared with 2.14 times last month. Demand for the longer maturity notes rose to 3.77 times from 2.93. Spain's 10-year borrowing costs have jumped more than one percentage point since Rajoy said on March 2 that the nation won't meet a budget deficit target of 4.4 percent of gross domestic product set by the European Union this year.
  
• Bank of Spain Questions Budget Forecasts, Calls for Prudence. Spain's central bank chief said the country risks missing deficit estimates unveiled last month just hours after a successful bill sale dissipated some concerns that the government may have to seek a bailout. "The projected course of total revenues in the budget is subject to downside risks," Bank of Spain Governor Miguel Angel Fernandez Ordonez told a parliamentary committee today in Madrid. The comments may undermine the optimism sparked by Spain's successful bill auction just two hours previously. While 10-year bonds rose today, the yield is still close to 6 percent amid concern that Prime Minister Mariano Rajoy's government will struggle to rein in the budget deficit and shore up a banking industry facing additional charges of 50 billion euros ($66 billion.) Ordonez said revenue estimates should be "prudent" as the country suffers its second recession since 2009. The government's plan to raise 2.5 billion euros from a tax amnesty is "particularly uncertain," he told lawmakers in a session to discuss the budget, which was approved by the Cabinet on March 30 and is making its way through parliament. Spending linked to unemployment benefits may also be more than forecast as the nation suffers the highest jobless rate in the European Union, at almost 24 percent. If additional measures are needed, indirect taxes should be increased and temporary tax measures may have to be replaced by permanent ones, said Ordonez, who was appointed by the former Socialist government for a six-year term that ends this year.
• Merkel Gives Spain No Respite, Says Debt Cuts Key to Yields. Chancellor Angela Merkel opened her campaign to win back Germany's most populous state in May 13 elections by appealing to voters to endorse her message of austerity as the prime means to tackle Europe's debt crisis. "It's partly about still being able to shape our own future," Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt "are so tightly in the hands of the financial markets that they can't make independent decisions anymore. We have to watch out that high interest rates on our debt don't lead to the point where we can't decide and shape anything anymore" in Germany. Merkel's comments underscore a focus on her government's record of pressing for deficit cuts as a core campaign theme for the state elections next month even as investors and economists call for Germany to step up its response to the debt crisis now marauding Spain.
  
• Corporate, Government Credit-Default Swaps Decline in Europe. The cost of insuring against default on European corporate and sovereign debt fell, according to BNP Paribas SA. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings fell 10.5 basis points to 669.5 at 10:20 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings dropped two basis points to 142 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 249 and the subordinated index dropped one to 406. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments declined three basis points to 277.9.
• European Car Sales Decline to 14-Year Low as Economy Stalls. European car sales fell to a 14- year low last month, with Fiat SpA, Renault SA and PSA Peugeot Citroen posting the biggest drops, as the region's sovereign- debt crisis caused economic growth to stall. Registrations in the 27-member European Union plus Switzerland, Norway and Iceland fell 6.6 percent from a year earlier to 1.5 million vehicles, the lowest figure for March since 1998, the Brussels-based European Automobile Manufacturers' Association said today in a statement. First- quarter sales dropped 7.3 percent to 3.43 million vehicles. France and Italy, Europe's second- and third-biggest auto markets, shrank by more than 20 percent. The regional drop was alleviated by growth at German carmakers, such as Volkswagen AG. Paris-based Peugeot is among auto manufacturers forecasting an industrywide contraction of 5 percent in Europe this year. "The extent of the beat for Germans is a bit surprising, as well as the extent of the downturn for the French," Adam Hull, a London-based analyst at WestLB AG, said by phone. French car sales plummeted 23 percent to 197,774 vehicles, while Italian registrations dropped 27 percent to 138,137, according to the association, or ACEA.
• Oil Rises to Three-Day High on Spain Debt, IMF Outlook. Crude oil for May delivery advanced $1.59, or 1.5 percent, to $104.52 a barrel at 11 a.m. on the New York Mercantile Exchange. Earlier, futures touched $105.07, the highest intraday price since April 3. Crude is up 5.8 percent this year. Brent oil for June settlement rose 11 cents to $118.79 a barrel on the London-based ICE Futures Europe exchange.
• Factories in U.S. Cool for First Time in Four Months: Economy. Production at U.S. factories dropped in March for the first time in four months as the industry cooled following the strongest surge in three decades. Manufacturing, which makes up about 75 percent of industrial output, decreased 0.2 percent last month as appliance and furniture makers cut back, data from the Federal Reserve showed today in Washington. Capacity utilization, which measures the amount of a plant in use, was little changed at 78.6 percent last month after 78.7 percent in February. It has averaged about 81 percent since records began in 1967.
• U.S. Housing Starts Unexpectedly Drop to Five-Month Low. Builders began work on fewer homes than forecast in March, signaling a sustained industry recovery will take time to get underway. Housing starts dropped 5.8 percent to a 654,000 annual rate, less than the lowest estimate of economists surveyed by Bloomberg News and the least since October, Commerce Department figures showed today in Washington. While warmer weather may have spurred home construction at the beginning of 2012, a competing supply of cheap existing properties may be steering potential buyers away from purchasing a new home. That means home construction may not help boost the economy in 2012. “Housing continues to bump along the bottom,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “The best we can hope from housing over the next couple years is that it won’t subtract from growth. The numbers in the past few months were decidedly impacted by a much milder winter, so a significant portion of construction was pulled forward.”
• Fed Priority of Rates Integrity Prompts Outlook Struggle. Federal Reserve officials are grappling with how they might eventually exit from their plan to keep interest rates low through late 2014 without jolting markets. Policy makers have relied on communications about their rate expectations to provide additional stimulus after cutting their benchmark rate to near zero in December 2008. Now, they’re seeking to link their commitment more closely to changes in the economic outlook.
• First Solar(FSLR) Will Cut 30% of Workforce, Shutter Plants. First Solar Inc. (FSLR), the largest thin- film panel maker, will cut 30 percent of its workforce, about 2,000 jobs, in response to a deteriorating European market. Most of the jobs to be eliminated will be at a factory it’s closing in Germany and in Malaysia, where it’s idling four production lines, Tempe, Arizona-based company said today in a statement. The company will pay $245 million to $370 million in severance and related costs. First Solar’s thin-film technology, which helped it become the lowest-cost panel manufacturer, generates less electricity than traditional polysilicon panels that are made mostly in China. That’s made it less popular for rooftop systems that are favored in the top solar markets in Europe, said Theodore O’Neill, an analyst at Wunderlich Securities in New York. “They don’t have a good product for the rooftop market and Europe doesn’t have the big open spaces where their panels make sense,” said O’Neill, who has a “hold” rating on the shares. “The factory closures provide some clarity going forward, but they have a lot of work to do to prevent margin erosion.”

Wall Street Journal:

• Obama Calls for Stricter Oil-Market Curbs. President Barack Obama on Tuesday called for increasing penalties on oil speculators and boosting oversight of U.S. energy as part of a plan to crack down on an "irresponsible few" who he says rig oil markets.
• Goldman(GS) Beats Estimates, But Keeps to Cautious Tack. Goldman Sachs Group Inc. reined in its risk taking and focused on expense controls as its first-quarter profits beat expectations, though results showed the toll that choppy markets have taken on the company's main businesses. Revenue fell 16% from the first quarter last year to $9.95 billion—not as low as the $9.48 billion analysts had forecast—and profit fell 23% to $2.11 billion. The results were a strong rebound from the lackluster fourth quarter, but executives at the Wall Street company continued to emphasize caution about the near term, given the economic recovery's "fragility."
• Spain is Back in Recession, Central Banker Warns. Spain's economy is in recession and facing an "exceptional" situation, its central bank governor warned on Tuesday, as Madrid's borrowing costs nearly doubled from a month ago and the International Monetary Fund called on Madrid to review the pace of fiscal adjustment. Speaking before a parliamentary committee, Bank of Spain Gov. Miguel Ángel Fernández Ordóñez said the euro zone's fourth-largest economy was "back in recession" after a mild recovery in early 2011, "with only exports as a positive contributor to gross domestic product."

CNBC.com:

• PIMCO and the JPMorgan)JPM) Whale: CHIP-ing Away at a Scandal. Last week, I explained how the position taken in the CDX market by Burno Iskil, the so-called London Whale of JPMorgan’s chief investment office, could be an overlay hedge attempt to raise yields on Treasury Inflation Protected Securities, or TIPS.
• Fears Over the Health of Spanish Economy Persist. (video)
• Extreme Left and Right to Cause French Election Upset?
  

Business Insider:

• Check Out Nomura's Awesome Presentation: US In The Crosshairs.
• Traveling In Europe Has Become Absurdly Expensive - And You Know The Reason Why.
• If China Gave This Rocket Launcher To North Korea It Means The UN Has Been Getting Played.
• The Women of Bloomberg TV.
• The 101 Finance People You Have To Follow On Twitter.
• Chongqing Is A Perfect Illustration Of China's Unsustainable Growth Model.

Zero Hedge:

• The Delays Begin: Italy Pushes Back Balanced Budget Target By One Year.
• The European North-South Divide Is Exploding.
  

Real Clear Politics:

• Will We Defuse Our Debt Bomb? by Senator Tom Coburn.

Reuters:

• Exclusive: China's Bo Backed, Then Blocked Murder Probe Against His Wife: Sources. Chinese politician Bo Xilai initially agreed to a police probe of his wife's role in the murder of a British businessman before abruptly reversing course and demoting his police chief, causing upheavals that led to the downfall of both men, sources said.
• IMF Says Italy to Miss Deficit Targets in 2012, 2013. Italy will miss its budget deficit targets in 2012 and 2013 and its public debt will rise in both years despite the government's austerity measures, the International Monetary Fund forecast on Tuesday. The IMF said in its Fiscal Monitor report that Italy's deficit would fall this year to 2.4 percent of output, well above Rome's 1.6 percent target, and would decline to 1.5 percent in 2013, when Italy is aiming to balance its budget. The forecasts are a blow to Prime Minister Mario Monti, whose popularity is sliding and whose reform efforts are meeting rising criticism and resistance as the country's borrowing costs rise. Italy's huge public debt, the second highest in the euro zone after Greece's as a proportion of GDP, will jump to 123.4 percent of gross domestic product this year, from 120.1 percent in 2011, and edge up to 123.8 percent in 2013, the IMF said. Earlier on Thursday the IMF forecast the Italian economy would shrink by 1.9 percent this year and contract by 0.3 percent in 2013. The Fund's forecast that Rome will significantly overshoot its balanced budget target next year will put pressure on Monti to adopt additional corrective measures, though the IMF itself has urged against this due to the weak economy.
• World Economy Fragile, Faces 'Uneasy Calm' - IMF. Global growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund said on Tuesday. Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the euro zone have subsided, the IMF said. "An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard told reporters as he detailed the Fund's World Economic Outlook. "Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present," he said.

Financial Times:

• The debate about "firewalls" has become a distraction from the need to get Europe's economy growing again, said World Bank President Robert Zoellick. He said the euro area's survival depends on Italy and Spain, which are too big to fail and also too big to rescue.
• What 5 Years of Crisis History Tells Us. (graphs)
• IMF Urges Eurozone to Bolster Banks.
  

Telegraph:

• Debt Crisis: Live.
  

Der Spiegel:

• Belated Reforms Cut Deep in Southern Europe. Mired in ongoing crisis, several countries in southern Europe are seeking to rapidly push through German-style labor market reforms to breathe life into their struggling economies. Yet they may not be enough to save the region's lost generation.
  

YTN:

• The U.S. is considering all potential countermeasures against a possible North Korean nuclear test, including a precision strike, citing U.S. Pacific Commander Admiral Samuel J. Locklear.

Bear Radar

Style Underperformer:

• Large-Cap Value +1.18%

Sector Underperformers:

• 1) Restaurants -.05% 2) Utilities +.29% 3) Disk Drives +.64%

Stocks Falling on Unusual Volume:

• TEO, ZNGA, SBUX, BWLD, POOL, TITN, VRA, CALL, MAKO and EXR
  

Stocks With Unusual Put Option Activity:

• 1) XME 2) MBI 3) WHR 4) LNG 5) CREE
  

Stocks With Most Negative News Mentions:

• 1) MCEP 2) VLO 3) NYT 4) CMA 5) HES
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.79%

Sector Outperformers:

• 1) Coal +4.71% 2) Hospitals +2.79% 3) Construction +2.67%

Stocks Rising on Unusual Volume:

• CRK, BCS, IMO, TI, PANL, FSLR, AAPL, WST, NL, BRO, EDU, EXP, ANR, CIE, ACI, NRG, DDD, CMA and FRX
  

Stocks With Unusual Call Option Activity:

• 1) XLP 2) CB 3) AUY 4) HNR 5) COG
  

Stocks With Most Positive News Mentions:

• 1) JEC 2) AN 3) LMT 4) USB 5) GWW
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• Euro Declines Before Spanish Sales, German Confidence. The euro fell versus most of its 16 major counterparts before Spain sells securities after borrowing costs climbed to the highest level this year, boosting concern Europe’s debt crisis is spreading. The euro lost 0.2 percent to $1.3118 at 12:44 p.m. in Tokyo after reaching $1.2995 yesterday, the lowest level since Feb. 16. Spain will sell 12-month and 18-month bills today, followed by auctions of debt due in 2014 and 2022 on April 19. Yields on the nation’s 10-year notes soared as much as 18 basis points, or 0.18 percentage point, to 6.16 percent yesterday. That’s the highest level since Dec. 1 and is edging toward the 7 percent level that pushed Greece, Ireland and Portugal into rescues. The cost of insuring against a Spanish default rose eight basis points to 511 yesterday, the highest on record, according to CMA.
• Italians Brace for More Austerity as Targets Dim: Euro Credit. Italians may have to swallow more austerity measures to meet Prime Minister Mario Monti's budget-gap goals as the government braces for a deeper-than-forecast recession. After predicting in December that GDP will fall as much as .5% this year, Monti's Cabinet may tomorrow align its forecasts closer to those of the European Commission, which has projected a 1.3% contraction. Monti pushed through $26 billion of spending cuts and tax increases in December to help balance next year's budget. "Unless Monti's measures bring in more revenue than forecast, this government will be forced to pass a new package to respect its 2013 deficit target," Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said.
  
• Paulson Said to Short Europe Bonds. John Paulson, the billionaire hedge-fund manager seeking to reverse record losses in 2011, told investors he is shorting European sovereign bonds, according to a person familiar with the matter. Paulson, 56, said during a call with investors that he is also buying credit-default swaps on European debt, or protection against the chance of default, said the person, who asked not to be identified because the information is private. Spanish banks are of particular concern as their holdings of the country’s debt and client withdrawals make them overly dependent on European Central Bank financing, Paulson told investors. In February, he said that the euro is “structurally flawed,” and will eventually fall apart, according to a letter sent to investors. Concerns that Spain’s position will deteriorate amid the sovereign-debt crisis in Europe have spurred a surge in the nation’s borrowing costs this year. Credit-default swaps insuring Spanish government debt rose today to a record in London, according to CMA, a market information firm in London, signaling deterioration in investor perceptions of credit quality. Yields on the country’s 10-year bonds climbed to the highest level since Dec. 1 earlier today.
• Singapore Exports Unexpectedly Drop as Electronics Cool. Singapore’s exports unexpectedly dropped in March as shipments of electronics eased and petrochemical sales fell amid a decline in demand from China. Non-oil domestic exports fell 4.3 percent from a year earlier, after a revised 30.4 percent increase in February, the trade promotion agency said in a statement today. The median of 12 estimates in a Bloomberg News survey was for a 7.1 percent gain. Singapore’s electronics shipments by companies such as contract manufacturer Venture Corp. rose 2.8 percent in March from a year earlier, after climbing 23.3 percent the previous month. Non-electronics shipments, which include petrochemicals and pharmaceuticals, fell 7.8 percent.
• China to Slow Growth, Avoid Aggressive Policy Moves, Pimco Says. China will curb economic growth to address over-investment and bad loans that built up after policy makers used stimulus to combat the 2008 crisis, according to PIMCO, which runs the world's biggest mutual fund. "Aside from some cuts in the reserve requirement ratio, we do not expect to see aggressively expansionary policy to combat the incremental economic slowdown that is unfolding right now in China, Ramin Toloui, the Singapore-based co-head of the global emerging markets portfolio management team, wrote in a report.
• OptionsXpress(OXPS) Accused by SEC of Violations. OptionsXpress Inc. (OXPS), the Chicago brokerage acquired by Charles Schwab Corp. (SCHW) last year, was accused by U.S. regulators of using sham “reset” transactions as part of an abusive naked short-selling scheme. The company and four executives violated Securities and Exchange Commission rules in conducting trades from at least October 2008 to March 2010 designed to give the illusion of compliance with rules governing short sales, the SEC said in a statement today. An OptionsXpress customer was also accused by the SEC of participating in the alleged violations.
• Spain Pledges Decisive Action Against Argentina Over YPF Seizure. The Spanish government pledged to take “decisive” action against Argentina within days, after President Cristina Fernandez de Kirchner seized YPF SA (YPFD), the Argentine oil company majority-owned by Repsol YPF SA. (REP) “The Spanish government is working on measures that will be announced in the coming days,” Industry Minister Jose Manuel Soria said at a press conference in Madrid last night. “They will be clear and decisive.” Fernandez seized control of Argentina’s largest crude producer yesterday, ousting Spain’s Repsol, after a dispute over slumping oil output and investments. She replaced Chief Executive Officer Sebastian Eskenazi with Planning Minister Julio De Vido and plans to send a bill to Argentina’s Congress to take a 51 percent stake in the company. Repsol’s 57.4 percent stake in YPF was worth 4.1 billion euros ($5.4 billion) at the end of last year, the Madrid-based company said in a regulatory statement yesterday. The unit accounted for 21 percent of profit and 34 percent of investment in 2011. Repsol also said it is owed 1.54 billion euros by Grupo Petersen, which was YPF’s second-biggest shareholder. Repsol said the move is “manifestly illegal” and that it will take all legal measures to defend the value of its assets and the interests of its shareholders.
• Fed's Bullard Says U.S. Growth May Reach 3% This Year. The economy is “on track” and Fed “policy can stay on hold for now,” Bullard said today to reporters after a speech in Logan, Utah. The central bank will probably need to tighten policy during the “last part of 2013,” he said.
• China's Foreign Direct Investment Declines for Fifth Month. Foreign direct investment in China dropped for a fifth straight month in March on a slowing economy, limited prospects for gains in the yuan and renewed concerns that Europe’s debt crisis will worsen. Inbound investment fell 6.1 percent from a year earlier to $11.76 billion, the Ministry of Commerce said today in Beijing, after a 0.9 percent decline the previous month and a 32.9 percent jump in March last year.
• RBI Signals Fastest BRIC Inflation Constrains Rate Cuts. India’s central bank said price pressures must be restrained even as policy needs to shift to help growth, signaling that elevated inflation will limit the magnitude of interest-rate cuts forecast to begin today. “Monetary policy has to recognize the need for keeping inflation expectations anchored in an environment of significant upside risks to inflation, while shifting the balance of policy to arrest the deceleration in growth momentum,” the Reserve Bank of India said yesterday in a review of the economy ahead of its rate decision in Mumbai due at 11 a.m. today. Costlier credit, policy gridlock and a weaker global recovery have sapped India’s expansion, spurring predictions of reductions in borrowing costs. At the same time, an increase in oil prices, rupee weakness and government spending may fan price pressures, with inflation slowing less than estimated in March to 6.89 percent. “They are still concerned about inflation,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “It kind of reinforces that the room for big cuts is not there,” while not ruling out a rate cut today, he said.
• China's Stocks Fall Most in a Week on Foreign Investment Slump. China’s stocks fell the most in more than a week as a report showing foreign direct investment dropping for a fifth month underscored concerns that Europe’s debt crisis is hurting the economy. China Vanke Co. and Poly Real Estate Group Co. led a gauge of property developers to the biggest loss among industry groups after the Xinhua News Agency reported Shanghai won’t loosen its property curbs. Tonghua Golden-Horse Pharmaceutical Industry Co. (000766) slumped 2.2 percent after the drug regulator suspended sales of its products. “Recent economic and industry data continue to point to a weakening economy and corporate earnings growth is expected to decelerate as well in the first quarter,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. The Shanghai Composite Index (SHCOMP) slipped 11.93 points, or 0.5 percent, to 2,345.10 at 10:20 a.m. local time, set for its biggest drop since April 9.
• Japan Will Provide $60 Billion to Expand IMF’s Resources. Japan said it will provide $60 billion to the International Monetary Fund’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis. Japan, the world’s third-largest economy, becomes the largest donor yet outside of Europe to IMF Managing Director Christine Lagarde’s campaign to bolster the fund’s resources for the second time in three years.

Wall Street Journal:

• Pressure on Spain Builds as Bonds Face Key Auction. Spain warned Monday it could seize control of finances in regional governments as the country struggles to cut its budget deficit, one of Europe's largest, and shore up investor confidence. The country faces an important test Tuesday during a planned auction of 12-month and 18-month treasury bills, with longer-term government bonds set for sale Thursday. Spain suffered weak demand at an earlier bond sale this month, followed by a sustained selloff of its debt in secondary markets.
• Fed Posts Redacted Transcripts From 2007-2010. The Federal Reserve has pledged to be more transparent, but it is only willing to go so far. The central bank normally releases comprehensive transcripts of its policy-making meetings five years after the sessions. But when news organizations requested transcripts of the meetings around the 2008 financial crisis, the Fed released redacted documents that revealed only pleasantries from the sessions and no substantive discussions.
• Green Light for Hedge-Fund Ads Means Caution on Main Street. Thanks to a little-noticed provision tucked into the just-signed jobs bill, hedge funds may soon be making a bold move into marketing—and the mainstream. The JOBS Act, signed by President Obama on April 5, lifted a decades-old restriction on how hedge funds can go after new investors, clearing the way for managers to speak more publicly about their strategies and performance and even to advertise. As private investment vehicles, hedge funds aren't required to meet the same disclosure requirements and risk restrictions as ordinary mutual funds. In return, they may deal only with experienced, high-net-worth investors, and have long been banned from marketing themselves to the general public.
• Odd Couple: China Meets Hollywood.
• Hollande Cites Risk to France's Rating. French Socialist presidential challenger François Hollande is using a new argument to underscore what he terms the economic legacy of President Nicolas Sarkozy: France's triple-A sovereign rating, or what's left of it. In an election campaign that is heating up with five days to the first round of voting, Mr. Sarkozy has repeatedly attacked Mr. Hollande recently by saying a socialist victory would herald financial doom for France, the euro zone's second largest economy.
• A Wisconsin Vindication. The public employee unions and other liberals are confident that Wisconsin voters will turn out Governor Scott Walker in a recall election later this year, but not so fast. That may turn out to be as wrong as some of their other predictions as Badger State taxpayers start to see tangible benefits from Mr. Walker's reforms—such as the first decline in statewide property taxes in a dozen years.

Business Insider:

• Check Out Pictures of Federal Workers Living It Up In Las Vegas.
• The Egyptian Transition Is Not Going To Plan.
• Watch: GSA Official Literally Runs Away From Reporters After Pleading The Fifth.
• A Quick Guide to Why Everyone is Worried Sick Over Spain. (video)
• First Gallup Tracking Poll: Mitt Romney is Shredding Obama Among Independent Voters. The first Gallup daily tracking poll of the general election season is out, and here's the key number: Mitt Romney leads Barack Obama 45 percent to 39 percent among Independents. That pushes him to a 47 to 45 percent lead overall.
  

Zero Hedge:

• European Chart Update.
• Eurocalypse Now: I Love The Smell Of Repatriation In The Afternoon.
  

CNBC:

• LME Eyes Renminbi Move for Metals. The London Metal Exchange is considering offering traders the chance to settle its contracts in the Chinese renminbi, a move that could lead to its dropping sterling after 135 years. The move, still at an early stage of discussion, would highlight the shift in power in global metals markets.
• Taxes Prompt More Americans to Renounce Citizenship.
  

NY Times:

• Central Bank Not Expected to Try to Ease Europe's Crisis. As the euro zone crisis shows signs of heating up again, political leaders are once more looking to the European Central Bank for help. But analysts say they do not expect the central bank, with its focus on fiscal discipline, to provide any quick remedies.

Forbes:

• Obamacare's Horseless Chariot. Doctors, no fans of health insurance, are openly rooting that Obamacare will be struck down by SCOTUS, as appears to be the direction of things after last month’s oral arguments. A recent poll by sermo.com, a physican’s website, revealed that 75 percent of doctors are against the health care law, and a survey by Deloitte, a major health consulting firm, found that 69 percent of physicians are “pessimistic about the future of medicine” because of the law. Why?
• The 25 U.S. Companies That Pay The Most In Taxes.
  

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 46%, Democrats 36%.

Reuters:

• China March Car Sales Growth Retreats to 4.5% on Year. Car sales in China in March climbed a modest 4.5 percent from a year earlier, pulling back sharply from a hefty gain in February, as a slowing economy and higher fuel prices kept customers away from showrooms.
• Brazil Faces Highest Skills Gap in Americas - Manpower. Nearly six in 10 Brazilian employers say they have trouble filling vacant posts due to a lack of available talent, the highest rate in the Americas, according to a survey by employment services company ManpowerGroup.
• Spain Debt Costs Set to Leap as Risk Aversion Grows. Spain will see its borrowing costs leap when it sells short-term debt on Tuesday, a day after investor concern over its deficit and banking sector pushed longer term risk premiums above 6 percent, threatening a new crisis in the euro zone. The auction of 12- and 18-month Treasury bills will test market nervousness, which has spread to Italy, ahead of a more challenging sale on Thursday of 2- year and 10-year bonds.
• Britain Gives Shale Gas Fracking Green Light. The UK government on Tuesday backed the exploration of shale gas nearly one year after it temporarily banned the drilling method which triggered two earthquakes in Britain but that has also revolutionised the U.S. energy market.
• US SEC, CFTC to finalize swap dealer definitions Wed. U.S. securities regulators announced late Monday they will vote on Wednesday to finalize rules that will define which companies will be dubbed swap dealers and face strict new regulations.

Telegraph:

• IMF Still Won't Admit Truth About The Euro. It is often said that travel broadens the mind. Not so for finance ministers gathering in Washington DC this week for the spring meeting of the International Monetary Fund and G20. For them, the agenda will seem wearily familiar. The underlying cause of the Europe's travails is much more fundamental – it is the euro itself, which is ripping the Continent apart in an uncorrected balance of payments and consequent debt crisis. European leaders have yet properly to face up to this inconvenient truth. Their project won't and cannot work in its present guise.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 167.50 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 139.50 +1.75 basis points.
  
• FTSE-100 futures -.21%.
  
• S&P 500 futures -.01%.
  
• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KO)/.87
• (USB)/.64
• (NTRS)/.65
• (CMA)/.56
• (JNJ)/1.35
• (GS)/3.55
• (GWW)/2.52
• (CREE)/.21
• (SYK)/.99
• (CSX)/.38
• (INTC)/.51
• (LLTC)/.41
• (URI)/.05
• (YHOO)/.18
• (IBM)/2.66
• (AMTD)/.25
• (STT)/.86
• (ISRG)/3.12
• (OMC)/.69
  

Economic Releases
8:30 am EST

• Housing Starts for March are estimated to rise to 705K versus 698K in February.
• Building Permits for March are estimated to fall to 710K versus 717K in February.

9:15 am EST

• Industrial Production for March is estimated to rise +.3% versus unch. in February.
• Capacity Utilization for March is estimated to fall to 78.5% versus 78.7% in February.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Spain Bond Auction, ECB's Draghi speaking, Bank of Italy Quarterly Bulletin, India rate decision, Bank of Canada rate decision and the weekly retail sales reports could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Market Leader Weakness, High Energy Prices

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 19.52 -.15%
  
• ISE Sentiment Index 60.0 -40.0%
  
• Total Put/Call 1.07 +13.83%
  
• NYSE Arms 1.13 -39.88%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.01 +.35%
  
• European Financial Sector CDS Index 250.27 +1.30%
  
• Western Europe Sovereign Debt CDS Index 281.84 +.87%
  
• Emerging Market CDS Index 266.72 +.37%
  
• 2-Year Swap Spread 20.75 -.25 basis point
  
• TED Spread 39.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -53.75 -3.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 170.0 -2 basis points
  
• China Import Iron Ore Spot $149.30/Metric Tonne -.07%
  
• Citi US Economic Surprise Index 13.0 -1.7 points
  
• 10-Year TIPS Spread 2.27 -1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating a +19 open in Japan
• DAX Futures: Indicating +23 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Technology, Medical and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, took profits in a few longs, covered some index trading hedges
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades just slightly lower despite rising Eurozone debt angst, less tech sector optimism, rising global growth fears, less US economic optimism, weakness in market leaders and high energy prices. On the positive side, Utility, Disk Drive, Bank, Drug, REIT, Retail and Airline shares are especially strong, rising more than +.75%. Gold is down -.31% and the UBS-Bloomberg Ag Spot Index is down -1.6%. Major European indices rose around +.25%, led higher by a +.63% gain in Germany. However, Spanish shares are not participating in today’s bounce and are now down -15.84% ytd. As well, the Bloomberg European Banks/Financial Services Index is falling another -1.2% today and is down -16.3% in less than 1 month. On the negative side, Alt Energy, Oil Service, Steel, Internet, Networking, Medical, HMO, Restaurant, Gaming and Education shares are especially weak, falling more than -1.0%. Growth stock leaders are substantially underperforming. As well, tech shares have underperformed throughout the day. Lumber is down -.7%. Major Asian indices were mostly lower overnight, led down by a -1.74% decline in Japan(-7.0% in about 3 weeks). The Germany sovereign cds is gaining +4.65% to 76.59 bps, the France sovereign cds is up +1.91% to 190.58 bps, the Japan sovereign cds is gaining +3.3% to 103.25 bps, the Brazil sovereign cds is up +2.3% to 132.91 bps and the Spain sovereign cds is up +1.9% to 511.50 bps(+10.2% in 5 days to new all-time high). Moreover, the Italian/German 10Y Yld Spread is rising +2.3% to 387.52 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to mid-Oct. levels. Lumber is -9.0% since its Dec. 29th high despite the better US economic data, improving sentiment towards homebuilders and broad equity rally. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling seaon. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -18.0% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +680.0% ytd. China's March copper imports fell -4.6% on the month. Overall, credit gauges continue to weaken too much as Europe's debt crisis appears to be in the early stages of reigniting. Market-leaders are continuing their recent trend of underperformance, copper trades poorly and bonds trade too well, which remain red flags. I continue to believe the massive tax hikes/spending cuts that are coming down the pike in Spain will only worsen their economy further, which will likely prove the domino that tips the region into full blown crisis mode once again over the coming months. I continue to believe the LTRO, while a short-term can-kicking solution, will be viewed in a very negative light over the intermediate-term. There is now a 37% chance for a Spanish default. US investor complacency regarding the situation in Europe remains fairly high, in my opinion. (XLF) is up +17% ytd. Much of its outperformance was related to the beliefs that Europe had kicked the can again and that US housing had bottomed ahead of a vigorous spring selling season. Both of those expectations are looking increasingly suspect now. (XLF) has modestly underperformed over the last 2 weeks. I expect its underperformance to intensify as the year progresses. Large-cap growth stocks had been boosting the major averages more than commonly perceived, in my opinion. The average stock as measured by the Value Line Geometric Index(VGY) is down -10.8% since May 2 of last year, while the Nasdaq 100 has risen +12.3% over this same time frame. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, less tech sector optimism, rising global growth fears, less US economic optimism, market leader weakness and high energy prices.

Today's Headlines

Bloomberg:

• Rajoy Says Spain Needs Austerity for Funding as Yields Climb. Prime Minister Mariano Rajoy said Spain must slash its budget deficit in order to maintain access to financing, as bond yields rose to the highest level since his government came to power four months ago. “The fundamental objective at the moment is to reduce the deficit,” Rajoy told a conference in Madrid today. “If we don’t achieve this, the rest won’t matter: we won’t be able to fund our debt, we won’t be able to meet our commitments.” Rajoy has raised the threat of a bailout to persuade Spaniards to accept spending cuts and tax increases even with the economy shrinking. Economy Minister Luis de Guindos was due to meet investors today in Paris as the 10-year bond yield surged to more than 6 percent. De Guindos will also meet European Central Bank President Mario Draghi tomorrow, a spokeswoman at the ministry said, without giving details. The Frankfurt-based bank, which started buying Spanish bonds in August, should resume those purchases, Jaime Garcia-Legaz, a deputy minister in the economy department, said on April 13. “No one can expect such deeply rooted issues to be resolved in a few weeks,” Rajoy said. Spain is the euro area’s fourth-biggest economy and the government forecasts it’ll contract 1.7 percent this year as it implements the deepest budget cuts in more than 30 years.
• Spain's Austerity Threatens Economy, HSBC Says: Tom Keene. Spain’s efforts to cut its debt burden and calm the fears of lenders are increasing the country’s risk of a deeper recession and financial crisis, HSBC Holdings Plc’s Madhur Jha said. Spain needs more external financial help to “buy time” for its government to implement reforms to its housing market, pension system and labor market, Jha said in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. Credit-default swaps insuring Spanish government debt rose today to a record in London, according to CMA, signaling deterioration in investor perceptions of credit quality. “People are beginning to realize the more and more austerity you impose on an economy, the worse it becomes in terms of growth and also in terms of debt sustainability,” said Jha, an HSBC Bank global economist based in London. “There needs to be more in terms of actual financial support.” Yields on Spain’s 10-year bonds climbed to 6.16 percent today, the highest level since Dec. 1, before trading at 6.07 percent. Credit-default swaps jumped to 521, CMA prices showed. They have jumped from 431 at the start of the month and 380 at the end of 2011.
• Spanish Default Risk Soars to Record on Bets Bailout Is Looming. Spanish debt risk climbed to a record for a second day and signalled a 37 percent chance the nation will default as its borrowing costs surged to levels that prompted its neighbors to seek bailouts. Credit-default swaps tied to Spain’s bonds jumped 19 basis points to 521, according to CMA prices at 11 a.m. in London. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose three basis points to 283, while swaps on Italy climbed eight basis points to a three-month high of 443. Spain is due to sell new debt tomorrow before European officials travel to Washington later this week to seek a bigger war chest to battle the financial crisis. The nation’s 10-year bond yield soared to 6.15 percent, the highest since Dec. 1 and approaching the 7 percent level that foresaw the international rescues of Greece, Ireland and Portugal. “The focus is on Spain and contagion,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “There isn’t a rescue fund in place sufficient to deal with both Spain and Italy.” The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies with mostly high-yield credit ratings rose 2.5 basis points to 682.5, according to BNP Paribas SA. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased 4.25 basis points to 251.25, the highest in almost a week. Swaps on Banco Santander SA, Spain’s biggest lender, rose 12 basis points to 433.
• U.S. Homebuilder Confidence Falls in April to 3-Month Low. Confidence among U.S. homebuilders fell in April to a three-month low, a sign the industry is still trying to gain its footing. The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 25 this month from 28 in March, the Washington-based group said today. Economists projected no change in the index, according to the median forecast in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor. “Although builders in many markets are noting increased interest among potential buyers, consumers are still very hesitant to go forward with a purchase,” Barry Rutenberg, chairman of the National Association of Home Builders and a builder from Gainesville, Florida, said in a statement. Estimates in the Bloomberg survey of 48 economists ranged from 27 to 30. A measure of sales expectations for the next six months dropped to 32 from 35 in March, while the gauge of buyer traffic decreased to 18, the lowest this year, from 22. Builders in the Midwest led the April decline, with that region’s index falling 8 points to 23 this month.
• Manufacturing in New York Area Grew at Slowest Pace in 5 Months. Manufacturing in the New York region expanded in April at the slowest pace in five months, a sign the boost to the U.S. expansion from factories may be moderating. The Federal Reserve Bank of New York’s general economic index unexpectedly decreased to 6.6 this month, less than the most pessimistic forecast in a Bloomberg News survey, from 20.2 in March. The median estimate in the survey of economists called for a drop to 18. The Empire State gauge of new orders fell to 6.5 in April from 6.8, while the shipments measure slumped to 6.4 from 18.2 a month earlier.
• Shipping loans declined to their lowest level since at least 2007 during the first quarter, TradeWinds said, citing data from Dealogic. Total lending to the industry fell to about $5.9 billion, a decline of almost 60% compared with a year earlier. That is the lowest quarterly figures since Dealogic began compiling the data in 2007, according to TradeWinds.
• Kim Is Chosen to Head World Bank, Extending U.S. Monopoly. Jim Yong Kim was chosen to be president of the World Bank, becoming the first physician and Asian-American to head the lender after emerging markets failed to rally around a challenger to the U.S. monopoly on the job. The World Bank board of directors said today it chose Dartmouth College President Kim to succeed Robert Zoellick, whose term ends June 30. A specialist in HIV/AIDS with a Ph.D. in anthropology, Kim, 52, faced rival bids from Nigeria and Colombia.
• Apple(AAPL) Falls for Fifth Day on Concern Carriers May Cut Subsidies. Apple Inc. (AAPL) shares fell for a fifth day amid speculation that demand for the iPad may wane and that mobile-phone carriers will cut subsidies for the iPhone, eroding profitability of Apple’s best-selling products.
• Banks Seen Dangerous Defying Obama's Too-Big-To-Fail Move. Two years after President Barack Obama vowed to eliminate the danger of financial institutions becoming “too big to fail,” the nation’s largest banks are bigger than they were before the nation’s credit markets seized up and required unprecedented bailouts by the government. Five banks -- JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve. Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008 with the Fed-assisted rescue of Bear Stearns Cos. by JPMorgan and with Citigroup and Bank of America after the Lehman Brothers bankruptcy, the largest in U.S. history.
• Citigroup(C) Funds at Risk Climb in Spain, Four Other EU Nations. Citigroup Inc. (C), the third-biggest U.S. bank, said its funds at risk rose to $28.6 billion in five European countries including Spain, where the government is seeking to regain investor confidence amid the region’s debt crisis. The figure represents the gross amount of funded and promised loans in the so-called GIIPS countries of Greece, Ireland, Italy, Portugal and Spain at the end of March, according to a presentation posted today on the bank’s website. The amount is 3.6 percent more than the $27.6 billion the firm had disclosed for the end of 2011.
• China Asks Internet Users to Stop Spread of Rumors, Xinhua Says. China’s Internet users should be vigilant against the spreading of false information, Xinhua News Agency reported, citing government officials. The government and Internet operators must make joint efforts to address online rumors, the official news agency said, citing Liu Zhengrong, a senior official with the State Internet Information Office. China has closed 42 websites since mid-March and detained six people as it cracks down on rumor-mongering. Sina.com(SINA) and Baidu.com)BIDU) promised to cooperate with the government, improving self-management and taking effective measures to stop rumors, according to the report.
  

MarketWatch:

• Economy Has Picked Up Pace: Fed's Pianalto.

CNBC.com:

• Prime Brokerages Consolidate After 'Big Bang'. Hedge funds are cutting back on the brokerage accounts they hold as the prime brokerage industry begins to consolidate more than four years after the Lehman Brothers bankruptcy blew the sector wide open.

Business Insider:

• Here Are The Wild Details From The Secret Service's Prostitution Scandal.
• Jeff Neely Just Refused To Answer Any Questions About The Lavish GSA Spending In Vegas.
• Israel is Preparing for a Full Assault on Iran's Nuclear Facilities if Diplomacy Fails.
• Shares in this Energy Company Are Getting Destroyed on Report That It's About to be Nationalized by Argentina.
• US Troops Are Being Forced To Work With Ex-Taliban Fighters Who Killed Their Friends.
• Morgan Stanley: This is What Happened The Last Time The US Economy Faced A 'Fiscal Cliff'.
  

Zero Hedge:

• Anyone Who Bought 10Y Spanish Bonds This Year Is Now Underwater. (graph)
• LTRO Bank Stigma Widest Since LTRO Announcement. (graph)
  

CNN:

• The Terrible Cost The U.S. Pays for Derivatives. Whether they understand them or not, all taxpayers have been sucked into the derivatives virtual reality game, and at great cost.

Reuters:

• Copper Sags to 3-Month Low, China Worries Weigh.
  
• Spain, Italy Slide Further into Euro Zone Crisis. Spain and Italy faced growing market pressure on Monday, stoking fears of a new phase in the euro zone debt crisis as Madrid's budget problems threatened to drag in other southern European economies.

Financial Times:

• Warm Weather Helps US Retail Sales. US retail sales rose in March as construction and garden equipment suppliers benefited from unseasonably warm weather. Retail and food services sales rose 0.8 per cent to $411.1bn, higher than analysts’ forecasts of 0.3 per cent. The figure was 6.5 per cent higher than March 2011, according to a commerce department report.

Telegraph:

• Spain Plans to Strip Regions of Powers in Bid to Calm Markets. Madrid is plotting to strip Spain's regions of their powers in a radical bid to convince global investors that the nation can control its finances.
• Debt Crisis: Live.
  

Cinco Dias:

• The Spanish government is cutting the amount of credits given to strategic industries by 12.5% and plans to charge interest, citing people in the government.
  

Xinhua:

• Shanghai won't soften controls or change existing policies on the property market, citing Mayor Han Zheng.