Evening Headlines
Bloomberg:
- Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer. Spanish, Italian and Portuguese banks are loading up on bonds issued by their own governments, a move that shifts more of the risk of sovereign default to European taxpayers from private creditors. Holdings of Spanish government debt by lenders based in the country jumped 26 percent in two months, to 220 billion euros ($289 billion) at the end of January, data from Spain’s treasury show. Italian banks increased ownership of their nation’s sovereign bonds by 31 percent to 267 billion euros in the three months ended in February, according to Bank of Italy data. German and French banks, meanwhile, have cut holdings of those countries’ bonds, as well as Irish and Greek debt, by as much as 50 percent since 2010 in some cases. That leaves domestic firms on the hook for a restructuring such as Greece’s last month and their main financier, the European Central Bank, facing losses. Like Greece, governments would have to rescue their lenders with funds borrowed from the European Union. “The more banks stop cross-border lending, the more the ECB steps in to do the financing,” said Guntram Wolff, deputy director of Bruegel, a Brussels-based research institute. “So the exposure of the core countries to the periphery is shifting from the private to the public sector.”
- Bank Credit Worst to Companies Since Crisis Peak: Credit Markets. The debt of banks is trading at the biggest discount to the broader corporate bond market since the peak of the funding crisis in November as Europe's sovereign crisis again threatens to rattle global financial markets. From Spain's Banco Santander SA to Morgan Stanley(MS) in New York, the cost of credit-default swaps on a basket of the largest banks in Europe and the U.S. is 266 basis points, above the 137 for the Markit iTraxx Europe Index of 125 companies with investment-grade ratings. The 129 basis-point spread is the most since it was 133 on Nov. 30.
- Spain's Surging Bad Loans Cast New Doubts on Bank Cleanup Plan. Spain’s surging bad loans are spurring doubt on whether the government can persuade investors that it can clean up the country’s banks without further damaging public finances. Non-performing loans as a proportion of total lending jumped to 7.91 percent in January, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data. The regulator is set to publish data for February today. Defaults are rising and credit is shrinking at a record pace as 24 percent unemployment corrodes the quality of loans built up in the country’s credit boom and saps the appetite of banks to make new ones. Doubts about the extent of Spain’s non- performing loans problem is hurting bank stocks and driving up the government’s borrowing costs on investor concern that the expense of propping up ailing lenders may add to the debt burden. “One of our concerns in Spain is to what extent contingent liabilities could pass to the central government,” said Andrew Bosomworth, Pacific Investment Management Co.’s Munich-based head of portfolio management. Non-performing loans “will have to rise when you take into account the unemployment rate and what’s happening with the economy,” he said.
- Merkel Adviser Feld Says Debt Crisis May Worsen, Bild Reports. The euro area’s debt crisis is reigniting and may cause more turmoil this year than in 2011, Lars Feld, a member of German Chancellor Angela Merkel’s council of economic advisers, was quoted as saying by Bild. The European Central Bank’s efforts to stem the crisis are only having a short-term effect and the French presidential election is causing uncertainty, the Berlin-based newspaper said in an e-mailed summary of an article for today’s edition.
- Spain's Wiling Economy Still Held in Franco's Grip. Spain’s economic woes are triggering renewed fears over a potential default in the euro area, and much of the blame belongs to labor laws that date back to the dictatorship of General Francisco Franco. Unless the government succeeds in changing them, it’s hard to see the country returning to healthy growth even if it manages to stay solvent.
- Euro-Region Weakness Tests Maersk Competition Armistice: Freight. Europe’s container-shipping operators need a pause in the slowdown afflicting the region to bolster the truce they’ve called in their fight for customers.
- China Raises Financial Companies' General Reserve Requirement. The Ministry of Finance has raised the general reserve requirement for financial companies, including banks and trust firms, to 1.5% of their risk-weighted assets effective July 1. The current general reserve requirement is 1% under rules issued by the ministry in 2005.
- BHP(BHP) Iron Ore Output Advances 14%. BHP Billiton Ltd. (BHP), the world’s largest mining company, said third-quarter iron ore production rose 14 percent as it expands its mines and port in Australia, while warning that strikes severely depleted coal stocks.
- First Solar(FSLR) Latest Casualty in Renewable Energy Shakeout. First Solar Inc. (FSLR) (FSLR)’s decision to fire 30 percent of its staff and reduce production shows that even the biggest solar panel makers aren’t immune from the shakeout that’s bankrupted at least eight companies on two continents in the past year. The largest thin-film solar producer said yesterday it will cut 2,000 jobs by the end of the year at a cost of as much as $370 million. It marks the biggest staff reduction for the industry since bankrupt Solyndra LLC, backed by U.S. government loans, dismissed its 1,100 employees on Aug. 31.
- China Home Prices Fall in More Than Half Cities Tracked. China’s March home prices fell in 37 of 70 cities tracked by the government, posting the highest number of declines from a year earlier as officials reiterated plans to maintain curbs on the property market. The drop compares with 27 that registered a decrease in residential prices in February, according to data today from the nation’s statistics bureau. The bureau switched from a national average to individual figures for the 70 cities at the start of last year. “The falling trend in prices reflects government policies, and these are unlikely to change this year, which is discouraging buyers,” Dariusz Kowalczyk, a Hong Kong-based strategist with Credit Agricole CIB, said in an e-mail. “The housing market is the main risk to China’s soft landing, one that we think will be controlled by the government but also one that needs to be closely watched.”
- Rating Decision Hangs Over Morgan Stanley(MS). A rating company's decision due this spring is looming over Morgan Stanley as it prepares to present its first-quarter earnings report Thursday morning. James Gorman, chairman and chief executive of the New York securities firm, has spoken at least twice this quarter with executives at Moody's Investors Service, a person familiar with the matter said. Mr. Gorman typically speaks with Moody's officials once a quarter, the person added. Morgan Stanley executives were expected to reach out to Moody's again this week.
- In Facebook(FB) Deal, Board Was All But Out Of Picture. On the morning of Sunday, April 8, Facebook Inc.'s youthful chief executive, Mark Zuckerberg, alerted his board of directors that he intended to buy Instagram, the hot photo-sharing service. It was the first the board heard of what, later that day, would become Facebook's largest acquisition ever, according to several people familiar with the matter. Mr. Zuckerberg and his counterpart at Instagram, Kevin Systrom, had already been talking over the deal for three days, these people said.
- Buffett to Stay at Berkshire(BRK/A) Helm Amid Cancer Fight.
- Hedge Funds Use Donations to Boost Clout. Hedge funds have emerged as a force in New York state politics in the past seven years, funneling tens of millions of dollars to political parties, pet causes and candidates from both major parties, according to a report set to be released on Wednesday.
- John Paulson Unveils A Surprising New Bet On Europe's Collapse. It was reported last night by various news outlets that star hedge fund manager John Paulson was now shorting European bonds. Okay, that's not a huge surprise. Lots of folks are betting against Europe. But what IS interesting is how Paulson is doing it. According to Sam Jones at FT, Paulson told his investors last night that he's doing it via credit default swaps on German bunds!
- REPORT: Secret Service Agents Hired A LOT Of Prostitutes At This Seedy Colombian Strip Club.
- 25 Signs That Middle Class Families Are Being Wiped Out.
CNBC:
- Intel(INTC) Earnings Top Forecasts; Stock Skids. Intel reported quarterly earnings that beat analysts' expectations but shares slipped in after-hours trading on Tuesday.
- IBM(IBM) Earnings Exceed Forecasts; Revenue Is Light. IBM reported quarterly earnings that beat analysts' expectations, but missed slightly on revenue, sending its shares lower in after-hours trading on Tuesday.
- Global Auto Parts Shortage Threatens Assembly Lines. Here we go again. One year after the auto industry was hit by parts and components shortages following an earthquake and tsunami in Japan, automakers are scrambling to avoid a repeat of what happened last year.
NY Times:
- Regulators to Ease a Rule on Derivatives Dealers. As federal regulators put the finishing touches on an overhaul of the $700 trillion derivatives market, a major provision has been tempered in the face of industry pressure. On Wednesday, the Securities and Exchange Commission and the Commodity Futures Trading Commission are expected to approve a rule that would exempt broad swaths of energy companies, hedge funds and banks from oversight. Firms would not face scrutiny if they annually arrange less than $8 billion worth of swaps, the derivative contracts tied to interest rates and commodities like oil and gas. The threshold is a not-insignificant sum. By one limited set of regulatory data, 85 percent of companies would not be subject to oversight. After five years, the threshold would reset to $3 billion; it is the same amount suggested by a group of energy companies in a February 2011 letter, according to regulatory records. When regulators first proposed the rules in late 2010, they set the exemption at $100 million. At that level, only 30 percent of the players would have been excused from the oversight, which was mandated by the Dodd-Frank financial overhaul law.
- Carriers Warn of Crisis in Mobile Spectrum. The wireless carriers say that in the next few years they may not have enough of it to meet the exploding demands for mobile data. The result, they ominously warn, may be slower or spotty connections on smartphones and tablets. They imply in carefully couched language that, given the laws of supply and demand, the price of cellphone service will soar.
- EU Report to Show Rocky Road Ahead for Greek Recovery. Greece must liberalise its labour market and business environment and focus on its public finances and credit flow to companies if it wants to make a positive impact on its economy this year, a draft European Commission document showed. The European Union's executive arm will publish on Wednesday a series of ideas on how the contracting Greek economy can return to growth, which the country badly needs to be able to service its huge debts. In the report that runs to more than 40 pages, however, officials list a litany of problems facing the Greek economy, whose recovery is key for the future of the euro currency. "Greece suffers from a lack of capacity to implement policy, manage public finances, collect taxes, open markets to competition, make public procurement work efficiently and innovatively, pay suppliers, or offer timely judicial review to its citizens," they write in the document seen by Reuters.
- Portugal's PM says no guarantees of return to markets on time-FT. Portuguese Prime Minister Pedro Passos Coelho said on Wednesday there were "no guarantees" that the country would meet its commitment to return to the international capital markets before September 2013.
- White House Renews Veto Threat Over Keystone. The White House on Tuesday renewed its threat to veto legislation to fund U.S. transportation projects responsible for millions of jobs if it includes the politically charged Canada-to-Texas Keystone XL oil pipeline.
- Intuitive Surgical(ISRG) 1st-Quarter Profit Tops Street. Intuitive Surgical Inc reported higher-than-expected first-quarter profit on Tuesday on increased sales of its high-priced da Vinci surgical robots and a rise in procedures using the systems and its shares rose nearly 6 percent.
- Incensed Spain threatens Argentina after YPF seizure.
- Britain faces £50bn more spending cuts and tax rises to cover elderly care, warns IMF. Britain faces another £50bn of spending cuts and tax rises to cover the costs of age-related care and put the national debt under control, the International Monetary Fund has warned.
Piper Jaffray:
- Rated (AYI) Overweight, target $66.
- Rated (CBE) Overweight, target $73.
- Asian equity indices are +.50% to +1.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 161.50 -6.0 basis points.
- Asia Pacific Sovereign CDS Index 135.0 -4.5 basis points.
- FTSE-100 futures -.01%.
- S&P 500 futures +.16%.
- NASDAQ 100 futures +.20%.
Earnings of Note
Company/Estimate
- (PJC)/.31
- (BLK)/3.04
- (TXT)/.35
- (BK)/.52
- (PNC)/1.48
- (DGX)/1.02
- (HAL)/.85
- (STJ)/.83
- (ABT)/1.00
- (QCOM)/.96
- (FFIV)/1.06
- (LRCX)/.45
- (YUM)/.73
- (EBAY)/.52
- (SWK)/1.12
- (MAR)/.29
- (AXP)/1.00
- (VMW)/.60
- (STLD)/.21
- (KMP)/.65
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,800,000 barrels versus a +2,791,000 barrel gain the prior week. Distillate inventories are estimated to fall by -125,000 barrels versus a -4,000,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,100,000 barrels versus a -4,277,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.6% versus a -1.9% decline the prior week.
Upcoming Splits
- None of note
Other Potential Market Movers
- The weekly MBA mortgage applications report could also impact trading today.