Today's Headlines

Bloomberg:

• Italian Bonds Slide on Bersani Comments, Lower Demand at Auction. Italian bonds slumped, with five- year yields rising the most in a month, as Democratic Party leader Pier Luigi Bersani said there was no chance of a broad coalition to end the deadlock caused by elections last month. Italy’s 10-year yields extended their first quarterly increase since June as demand fell when the Treasury sold 6.91 billion euros ($8.84 billion) of debt at an auction today. Spanish and Greek bonds also slid as investors shunned the securities of so-called peripheral nations. German bunds gained, with 10-year yields falling to a three-month low, even as European governments vowed the tax on bank accounts to finance Cyprus’s aid package won’t be a precedent for future rescues. Italy’s five-year yield jumped 18 basis points, or 0.18 percentage point, to 3.52 percent at 3:26 p.m. London time after rising as much as 22 basis points, the biggest increase since Feb. 26.
• Spain Says 2012 Deficit Is Bigger Than First Estimated: Economy. The Spanish government said its 2012 budget deficit will be bigger than first estimated after the European Union requested changes in how tax claims are computed. The budget shortfall excluding aid to the banking sector was 6.98 percent of gross domestic product last year, more than the 6.74 percent predicted on Feb. 28, Deputy Budget Minister Marta Fernandez Curras told reporters in Madrid today. That compares with 8.96 percent in 2011.
• France’s Towns Demand Rescue From ‘Time Bomb’ of Dexia Loans. French towns from Asnieres to Sainte-Etienne are calling on President Francois Hollande’s government to save them from about 10 billion euros ($13 billion) in Dexia loans whose risks they say weren’t made clear. Sitting on debt pegged to foreign interest rates or currencies, many troubled municipalities are struggling to service their loans and clamoring for help from the state. “This is a time bomb for a certain number of local governments,” Sebastien Pietrasanta, the mayor of Asnieres, a Paris suburb, told reporters yesterday.
• European Stocks Drop as Italian Yilds Surge; TDC Retreats. European stocks fell to a three- week low, led by a selloff in banks, as the leader of Italy’s Democratic Party ruled out the possibility that rival politicians will agree on a broad coalition government. Banca Monte dei Paschi di Siena SpA and Banco Popolare SC slid more than 1 percent as Italian bond yields surged. TDC (TDC) A/S dropped 1.6 percent as its private-equity owner sold another 6.8 percent stake in the Danish phone company. Safran (SAF) SA slipped 1.5 percent as the French government sold 13 million shares in the maker of aircraft engines.
• Euro Weakens Below $1.28 on Deadlocked Italy, Cyprus Concern. The euro fell to less than $1.28 for the first time in more than four months as a bailout for Cyprus and a political deadlock in Italy undermined demand for the region’s assets. Europe’s shared currency weakened against all 16 of its major peers as demand fell at a sale of Italy’s bonds and the nation’s political parties remained at an impasse after last month’s elections.
• VIX Contracts Reach Six-Year High Versus S&P 500 Bets: Options. While U.S. stock volatility is stuck close to a six-year low, options used to wager on its resurgence are jumping. The VVIX Index, tracking contracts whose value is tied to swings in the CBOE Volatility Index, has gained 21% since reaching the lowest level of the year on Feb. 19. Over that period, the VIX climbed 3.7%, pushing the ratio between them to the widest in six years on March 15, according to Bloomberg. Divergence between the gauges shows increasing speculation that the VIX is poised for a rebound after losing 45% since the end of 2011. Traders that are buying options on volatility rather than stocks are betting that when losses hit the S&P's 500 Index, they will be rapid, according to Philippe Trouve, a director for equity derivatives at Bank of America in NY.
• Cliffs(CLF) Declines After Morgan Stanley Downgrade. Cliffs Natural Resources Inc. (CLF), the largest U.S. iron-ore miner, tumbled the most in six weeks after analysts at Morgan Stanley said new supply in North America may reduce the commodity’s price. Cliffs fell 12 percent to $18.94 at 9:41 a.m. in New York, after earlier dropping 15 percent, the most intraday since Feb. 13. The shares (CLF) have declined 51 percent this year, making it the year’s worst performer on the Standard & Poor’s 500 Index.
• N. Korea Cuts Hotline to South After Attack Threats. North Korea cut off a military hotline with South Korea a day after putting its artillery forces on high alert and threatening to attack the U.S., in the latest escalation of tensions on the peninsula. “Under the situation where a war may break out any moment, there is no need to keep north-south military communications,” the official Korean Central News Agency said, adding that South Korea was informed at 11:20 a.m. today. The regime cut off a separate Red Cross hotline on March 8.
• Oil-Demand Plateau Seen as Natural Gas Favored: Chart of the Day.

Wall Street Journal:

• Apple(AAPL) Ire Spreads to China’s SOEs. Want to know who are China’s most hated companies? All you have to do is hit out at one of its most beloved. For the third consecutive day, the Chinese Communist Party’s official mouthpiece, the People’s Daily, has run articles criticizing Apple for its warranty policy in China and calling Apple’s defense of its customer-service practices arrogant. Apple has declined to comment on the coverage. It’s still difficult to know whether the unkind official media attention will dull or polish Apple’s shine if it has an effect at all.

CNBC:

• JPMorgan(JPM) Faces Full-Court Press of Federal Investigations. As the nation's strongest bank, JPMorgan Chase used to be known for carrying special sway with regulators. Now it increasingly finds itself in the cross hairs of federal authorities. At least two board members are worried about the mounting problems, and some top executives fear that the bank's relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations. 
• Only an 'Insane Person' Would Want to Run Italy: Bersani.
• Deep Freeze: Home Sales to Barely Budge in Spring. The U.S. housing market will see no surge at the start of spring, as fewer buyers signed contracts to purchase existing homes in February. An industry index of so-called pending home sales fell 0.4 percent from January.

Zero Hedge: 

• Market Update - The Damage So Far.
• The Next Cyprus? (graph)
• Cypriot Foreign Minister Blasts Germany's "Ruthless Decision To Wreck The Country's Economic System".
• When Is A Euro Not A Euro.

Business Insider: 

• After One Of The Greatest Stock Market Crashes Ever, Cyprus Is About To Crash All Over Again.
• The Biggest Cyber Attack In History Is Taking Place Right Now.
• Peak Oil Is Dead.
• JUSTICE KENNEDY: Obama's Actions On DOMA Have Been 'Very Troubling'.
• Obama's Health Care Reform Is Coming — With $1 Trillion In New Taxes.
• BofA(BAC): 'Banks Will Never Look The Same Post-Cyprus'.
• GUNDLACH: The Southern California Housing Market Hasn't Been This Crazy Since The '80s.
• At A Conference In Dubai, David Kotok Gave This Presentation On The Precarious State Of Global Monetary Policy.

Time:

• Why Derivatives May Be the Biggest Risk for the Global Economy. The very fact that reliable figures are hard to come by is itself part of the problem. The $638 trillion currently reported by the BIS is only a floor. Estimates for the total capital employed in derivatives trading is somewhere between $10 and $20 trillion, roughly comparable to the capitalization of the NYSE. That means that each actual dollar in the derivatives market is supporting between $35 and $70 of nominal value. Losses of only a few percent of face value therefore would be enough to wipe out even the best-capitalized derivatives traders.

Reuters: 

• Cyprus bailout not expected to be euro zone's last -Reuters poll. Cyprus probably won't be the last euro zone country to ask for an international bailout, according to a Reuters poll of economists, who cited Spain and Slovenia as the likeliest candidates. The survey also showed no agreement over whether the latest bailout, which hinges on shutting one of Cyprus's biggest banks at a cost to richer depositors, would be better or worse for the financial stability of the euro zone. There were 16 responses naming Spain, and 16 for Slovenia, whose outsized banking industry has drawn comparisons with Cyprus, making it the latest country to fall under the spotlight of the euro zone's debt crisis. "The Cyprus deal has brought the European banking crisis to a new level," said Lena Komileva, director of G+ Economics, a research consultancy in London.
• METALS-Copper falls on strong dollar, euro zone worries.

 AP:

• China Holds Landing Exercises in Disputed Seas. China's increasingly powerful navy paid a symbolic visit to the country's southernmost territorial claim deep in the South China Sea this week as part of military drills in the disputed Spratly Islands involving amphibious landings and aircraft. The visit to James Shoal, reported by state media, followed several days of drills starting Saturday and marked a high-profile show of China's determination to stake its claim to territory disputed by Vietnam, the Philippines, Taiwan, Malaysia and Brunei amid rising tensions in the region.

Telegraph:

• Cypriot 'solution' threatens further economic carnage among the other PIGS. There is no mess quite so bad that eurocrat intervention won't make even worse. Ever since the Dutch finance minister Jeroen Dijsselbloem declared that Cyprus would act as a template for other struggling eurozone lenders, the sound of screeching brakes and gear sticks being wrenched rapidly into reverse has been deafening. This is what he told Reuters:
• Cyprus bail-out: live. Cypriots face a suspension of credit card payments for overseas goods and a ban on cashing cheques under draft capital controls designed to avert a run on the banks.  
• UK economy contracts by 0.3pc - reaction. Britain's economy contracted by 0.3pc in the fourth quarter of 2012, official data confirmed on Wednesday, as industrial production posted its biggest quarterly fall in almost four years. Here experts give their view. 

Die Welt:

• One Third of Germans Want Deutsche Mark Back. One in three Germans has lost faith in the euro, citing a Forsa poll commissioned by Royal Bank of Scotland's German unit. Only the strongest countries in the euro area should keep the common currency, 43% of respondents said. 50% of those asked said they're concerned they may lose money in a banking crisis.

Ruhr Nachrichten:

• German Chamber of Commerce Warns of High Labor Costs. A further increase in labor costs in Germany would be hardly bearable, citing Martin Wansleben head of the German Chamber of Commerce. Says more than every third company sees a business risk for the coming months.

Europa:

• March 2013: Economic sentiment weakens in both the euro area and the EU. (graphs)

Bear Radar

Style Underperformer:

• Small-Cap Value -.53%

Sector Underperformers:

• 1) Gaming -1.07% 2) Banks -1.04% 3) Homebuilders -.78%
  

Stocks Falling on Unusual Volume:

• RBS, TI, DLLR, LPI, WAL, E, PVTB, TOT, LOGM, AEG, ACMP, CLF, LNN, FRAN, AGU, FGP, ASH, TG, WCC, USG, TUMI, MLU, DB, ASML, VHC, NVS, SBS, FUL, EQM, QLYS, SYT and KOP

Stocks With Unusual Put Option Activity:

• 1) XLNX 2) M 3) WYNN 4) XLV 5) ALTR
  

Stocks With Most Negative News Mentions:

• 1) WMT 2) APOL 3) CMCSA 4) CLF 5) C
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.40%

Sector Outperformers:

• 1) HMOs +.78% 2) Tobacco +.39% 3) Gold & Silver +.38%
  

Stocks Rising on Unusual Volume:

• SAI, DSX, MFRM, WAC, AOL, FBR and TPX

Stocks With Unusual Call Option Activity:

• 1) NWS 2) INFA 3) ALXA 4) APOL 5) TIVO
  

Stocks With Most Positive News Mentions:

• 1) FTI 2) SPW 3) PBI 4) BWLD 5) AOL

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• Cyprus Capital Controls First in EU Could Last Years. Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency. Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation. Being part of the euro zone may make it harder for the Mediterranean island to enforce restrictions, as any money that leaves the banking system can be taken out of Cyprus without losing value. That also may make it more difficult to meet the goal set yesterday by Finance Minister Michael Sarris to lift any controls in “a matter of weeks.” 

• Europe’s Deep Freeze Takes the Wind Out of Store Sales. As most Europeans shiver in the grip of the coldest March in living memory, the region’s retailers are feeling every bit as uncomfortable. Spring fashions, potted plants and garden furniture -- which normally contribute to sales at this time of year -- are gathering dust as freezing winter temperatures show no sign of dissipating. Kingfisher Plc, (KGF) the region’s largest home-improvement retailer, has had a slow start this spring, the company said yesterday. Hennes & Mauritz AB, (HMB) Europe’s second-biggest clothing retailer, reported last week that cold weather was among the reasons for a 10 percent drop in first-quarter profit. 

• U.K. Clean Energy Rules to Add 36% to Company Power Bills. U.K. measures to curb carbon emissions may raise power and gas bills for the biggest corporate consumers by as much as 36 percent by 2020, the Department of Energy and Climate Change said.

• Monte Paschi Fails Siena Race as Oldest Bank Loses Trust.

• Deutsche Bank(DB) May Have Rating Cut by S&P as Legal Costs Rise. Deutsche Bank AG (DBK), Germany’s biggest bank, may have its credit rating cut by Standard & Poor’s after the lender reduced its reported profit for 2012 amid rising legal costs. Deutsche Bank’s A+ long-term rating was placed on CreditWatch negative, S&P said today in a statement. The Frankfurt-based firm said last week it had set aside additional money to cover costs linked to U.S. mortgage lawsuits and other regulatory probes, lowering 2012 profit by about 400 million euros ($514 million) to 291 million euros.

• China Shadow Banking Hard to Squelch in City Plagued by Suicides. Zhou Xiang is playing with his mobile phone in a room just big enough for a desk and chairs at the year-old Wenzhou Private Lending Registration Center. Not a single prospective customer has shown up for hours. As a government-sanctioned loan broker seeking to match cash-strapped business owners with private investors, Zhou is one of the few people who can even be found inside the two-story building in a high-end residential district of Wenzhou, a city of 9 million people in China’s southeastern Zhejiang province. Rows of airport-like seats are empty. “Only those who are really out of options would come here for loans,” says Zhou, a manager at Sudaibang, one of five independent brokers operating out of the center. “Most of the time, you would find these firms so weak financially that they can be literally crushed by a straw. The volume of lending is so low that we ourselves won’t be here long without expanding into some other businesses.” One year after China’s leaders picked Wenzhou to start a pilot program designed to curb and regulate the city’s informal shadow-lending networks, it’s clear, based on a recent trip to the country’s epicenter of private lending, that the plan isn’t working.

• Foxconn Plant in Peanut Field Shows Labor Eroding China’s Edge.

• N. Korea Calls Combat Alert as U.S. Spurns ‘Bellicose Rhetoric’. U.S. officials denounced North Korea’s threats after Kim Jong Un’s regime put artillery forces on their highest combat alert and warned again it may attack South Korea and America. “North Korea’s bellicose rhetoric and the threats that they engage in follow a pattern designed to raise tensions and intimidate others,” White House press secretary Jay Carney said yesterday in Washington. It’s the highest-level combat posture North Korea has issued, Defense Ministry spokesman Kim Min Seok said in Seoul. The South Korean military put a border region on its highest alert level early this morning and then retracted the order hours later, Yonhap reported.  

• Rio(RIO) CDS rises most as Rinehart joins iron glut. Rio Tinto Group’s bond risk is rising the most in Australia on concern iron ore prices will decline as supply climbs from new mines including billionaire Gina Rinehart’s Roy Hill project. The cost to insure Rio bonds against non-payment rose 26 basis points this year to 111 yesterday, the biggest jump among contracts in Australia’s benchmark index, CMA prices show. The average for 46 metals and mining companies worldwide fell to 226 basis points from 232. Yields on Rio’s US$1 billion (RM3 billion) of 2022 securities rose to the highest since November relative to similar-dated U.S. Treasuries.

• Corn Supply Slumps Most Since ’75 on Ethanol Profit: Commodities. Corn supplies in the U.S., the biggest grower, are shrinking at the fastest pace in almost four decades as improving demand from ethanol refiners drains reserves already diminished by drought. Stockpiles probably fell 38 percent in three months to 4.995 billion bushels (126.9 million metric tons) by March 1, the biggest drop since 1975, according to the average of 31 analyst estimates compiled by Bloomberg. AgResource Co. in Chicago and Northstar Commodity Investments Inc. in Minneapolis expect prices to jump 13 percent to $8.25 a bushel before supply rebounds with a record harvest in September.

Wall Street Journal: 

• BlackRock(BLK) Cuts Spain, Italy Sovereign-Bond Holdings. BlackRock Inc.,the world's largest money manager, has cut holdings of Italy and Spain government bonds over the past three months. The firm may shed more if the euro-zone's growth outlook deteriorates. "We have been less enthusiastic about euro-zone sovereign debt compared to three to six months ago," said Rick Rieder, chief investment officer of fundamental fixed income and co-head of Americas fixed income at BlackRock. "If growth continues to deteriorate in the euro zone, due in large measure to weak private-sector lending from a deleveraging banking sector, we would further reduce our positions in the euro zone, such as in Italy and Spain." 

• European Regulators to Charge Banks Over Derivatives. European antitrust authorities are moving soon to bring a case against some of the world's largest banks alleging collusion in the $27 trillion dollar market for credit derivatives, people familiar with the investigation said. The probe by the European Commission involves 16 financial groups. It focuses on whether they sought to stifle competition from exchanges in the market for credit-default swaps, which pay out when a country or a company defaults on its debts. If the European regulators press ahead with their administrative case and win, some or all of the banks could face fines.

• Euro's Bears Go Back On Prowl. Investors are turning against the euro—again. Some say the common currency is due for a correction in light of the latest round of flare-ups in the euro zone, including Sunday's last-minute deal to save Cyprus' banking sector and Italy's political stalemate following elections last month. These euro bears predict the currency will head to $1.20 or lower if a fresh crisis causes investors to dump European assets. The European Central Bank also could buy sovereign bonds to calm markets, which would weaken the euro because it would involve printing money.

• Big Players Cash Out of Hong Kong Property. With the government growing confident that it has halted the meteoric rise in property prices, some of this city's biggest real-estate investors are getting out. Several of Hong Kong's wealthiest families are planning initial public offerings of hotels, offices and other real-estate assets in coming months, while others are lowering prices on luxury apartments to entice buyers.

• Sebelius: Some Could See Insurance Premiums Rise. Some people purchasing new insurance policies for themselves this fall could see premiums rise because of requirements in the health-care law, Health and Human Services Secretary Kathleen Sebelius told reporters Tuesday. Ms. Sebelius’s remarks come weeks before insurers are expected to begin releasing rates for plans that start on Jan. 1, 2014, when key provisions of the health law kick in.

Fox News:

• What to Cut: Excess federal property costing taxpayers billions. The federal government owns or leases between 55,000 and 77,000 vacant properties. But it's impossible to tell exactly how many. No precise inventory has been kept. Selling them off, though, could save taxpayers between $3 billion and $8 billion a year, according to various analysts. That's nothing to scoff at as the government grapples with a mounting debt and sequester-tied spending cuts. 

• GOP leaders voice 'grave misgivings' to Obama over key terror trial in civilian court. The Republican chairmen of four congressional committees, with oversight for intelligence, the armed services, the judiciary and foreign affairs, have told President Obama they have "grave misgivings" about his administration's decision to send Usama bin Laden's brother-in-law to a federal court for criminal prosecution. The lawmakers voiced their concerns to Obama in a letter obtained by Fox News.

CNBC: 

• Fed Study Says China's Growth Could Slow Sharply by 2030. Economic growth in China faces mounting headwinds and could fade dramatically in the years ahead due to declining productivity and an aging population, according to a U.S. Federal Reserve study. Trend growth could slow gradually to around 6.5 percent by 2030, or it could break much more sharply to a pace under 1 percent if forces undermining economic activity combine in a "worst-case scenario," according to the study, which was published online on Monday.

• Cyprus Readies Capital Controls to Avert Bank Run. Cyprus is expected to complete capital control measures on Wednesday to prevent a run on the banks by depositors anxious about their savings after the country agreed a painful rescue package with international lenders. With banks due to reopen on Thursday, Finance Minister Michael Sarris said he expected the control measures to be ready by noon (1000 GMT) on Wednesday: "I think they will be within the realms of reason," he said, without going into details.

Zero Hedge:

• Student Loan Defaults Soar By 36% Compared To Year Ago. 

• Dijsselbloem: "Levy On Wealth Is Defendable In Principle".

• Another Dow All-Time High But Bonds/Credit/Banks Ain't Buying It. (graphs)

• Santelli Stunned: It's Better To Be On Disability Than Work Minimum Wage. (video)

• For High Yield Bonds, Is "Frothy" The New "Irrational Exuberance". (graph)

Business Insider: 

• Instead Of Doing His Job, Jeroen Dijsselbloem Has Given Us A Glimpse Of The Euro 'End Game'.

• The US Army Is Planning For A Failed Nuclear State In North Korea.

• These Are The Victoria's Secret Items For Teens That Parents Are Furious About.

• SHILLER: 'We're Living In A Totally Artificial Real Estate Economy'.

• Europe Is Politically Bankrupt.

• Nike's(NKE) New Tiger Woods Ad Has A Brazen Message For His Critics.

• It Looks Like Jim Chanos Is Nailing Another Short — And People Are Starting To Notice.

• These Stunning Examples Of Government Waste Cost Taxpayers $16 Billion.

USA Today: 

• Study: Health overhaul to raise claims cost 32%. Medical claims costs — the biggest driver of health insurance premiums — will jump an average 32% for Americans' individual policies under the Affordable Care Act health care law, according to a study out Tuesday by the nation's leading group of financial risk analysts.

Reuters: 

• UK banks braced for details of capital shortfall. Britain's banks discover on Wednesday how much extra capital they need to keep regulators happy when the outcome of an inquiry into their financial health is revealed. The Bank of England will release the capital requirements on Wednesday morning.

The Economist:

• The Debt Run. INFLATE, stagnate, default. That has been the choice facing highly indebted economies ever since the crisis broke in 2007-2008. It would be nice if growth could lift us out of this mess, but that looks unlikely; see how sluggish growth has become (the 2000 decade ended in 2009, before the Greek crisis hit, so this is not just an issue of austerity). Why is this? There has been too much focus on government debt; the problem is total debt in an economy, including the financial sector, corporates and consumers. Government debt usually rises sharply when another sector is badly hit; Cypriot government debt, for example, was only 61% of GDP in 2010. Think of debt as a claim on wealth. If a bank extends you a loan, you now have wealth in the form of money that you can spend on goods and services or use to buy an asset, such as a house; the bank also has an asset in the form of its loan, which it records on its balance sheet. Debt can thus increase rapidly relative to GDP and can help increase output, as the debtors spend their wealth. All is well as long as the creditor is confident that the debtor can repay the debt. We are nearly six years into this crisis and we have made precious little progress in running down debts and thus are vulnerable to further crises; Cyprus is just the latest example. Nor have we decided whether default or inflation is the preferred option. Either way, savers should beware.

Financial Times: 

• Global pool of triple A status shrinks 60%. The expulsion of the US, the UK and France from the “nine-As” club has led to the contraction in the stock of ­government bonds deemed the safest by Fitch, Moody’s and Standard & Poor’s, from almost $11tn at the start of 2007 to just $4tn now, according to Financial Times analysis.

South China Morning Post:

• Guangzhou to Levy 20% Tax on 2nd-Hand Home Sales. City plans to impose 5 measures to control housing prices with "perseverance", citing Deputy Mayor Chen Rugui. A 20% capital-gains tax on homes "will have a tremendous impact" on speculative buying, Chen said. 

• China's southern city of Guangzhou plans to limit home price increases under the level of this year's local GDP and income growth, citing Deputy Mayor Chen Rugui.

Evening Recommendations 
RBC:

• Rated (WDC) Outperform, target $55.

Night Trading

• Asian equity indices are +.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 118.50 -1.5 basis points.

• Asia Pacific Sovereign CDS Index 94.25 +3.0 basis points.

• FTSE-100 futures +.13%.

• S&P 500 futures +.01%.

• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LNN)/1.29

• (PAYX)/.39

• (PRGS)/.25

• (PVH)/1.50

• (SCS)/.19

• (RHT)/.30

• (TXI)/-.41

• (FUL)/.50 

Economic Releases
10:00 am EST

• Pending Home Sales for February are estimated to fall -.3% versus a +4.5% gain in January.

10:30 am EST

•  Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,325,000 barrels versus a -1,314,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,000,0000 barrels versus a -1,476,000 barrel decline the prior week. Distillate supplies are estimated to fall by -850,000 barrels versus a -672,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.45% versus a +2.5% gain the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Rosengren speaking, Fed's Evans speaking, Fed's Pianalto speaking, Eurozone Industrial Production data, France/UK GDP reports, Italy 10Y Bond auction, Eurozone Trade Data/Consumer Confidence, 5Y T-Note auction, weekly MBA mortgage applications report and the (Z) analyst day could also impact trading today.

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

Stocks Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, Energy/Healthcare Sector Strength

Broad Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 12.89 -6.19%

• ISE Sentiment Index 105.0 +3.96%

• Total Put/Call .77 -13.48%

• NYSE Arms .92 -36.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 90.56 -.57%

• European Financial Sector CDS Index 189.98 +.59%

• Western Europe Sovereign Debt CDS Index 100.50 -.17%

• Emerging Market CDS Index 258.78 +1.04%

• 2-Year Swap Spread 18.25 +.5 bp

• TED Spread 21.75 -.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -20.0 +.75 bp

Economic Gauges:

• 3-Month T-Bill Yield .07% +1 bp

• Yield Curve 166.0 -1 bp

• China Import Iron Ore Spot $137.10/Metric Tonne +.81%

• Citi US Economic Surprise Index 25.10 -5.1 points

• 10-Year TIPS Spread 2.54 unch.

Overseas Futures:

• Nikkei Futures: Indicating +39 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech, biotech and medical sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:  

• Slovenia’s New Cabinet Under Pressure to Avoid Cyprus Fate. Slovenia’s six-day-old government is being urged to prevent the nation becoming the euro region’s next bailout battleground. Prime Minister Alenka Bratusek’s Cabinet must quickly carry out a plan to revamp the country’s ailing lenders, the central bank said yesterday. The former Yugoslav nation needs about 3 billion euros ($3.9 billion) of funding this year, while banks need 1 billion euros of fresh capital, the International Monetary Fund said last week. Slovenian banks such as Nova Ljubljanska Banka d.d. are struggling with surging bad loans that equal a fifth of economic output, fueling investor concern that it may be next to seek aid. 

• French Consumer Sentiment Drops on Stalled Economy, Unemployment. French consumer confidence dropped in March as a stalled economy and rising unemployment discouraged spending. A household sentiment index dropped to 84 this month from 86 in February, national statistics office Insee said today in an e-mailed statement. Economists expected a reading of 86, according to the median of 16 forecasts gathered by Bloomberg. 

• Sarris Muffles Calls for Cyprus’s Exit From Euro Area. Finance Minister Michael Sarris sought to muffle calls for Cyprus to weigh a precedent-setting exit from the euro to ease the economic pain inflicted by the country’s 10 billion-euro ($13 billion) bailout. The option of eventually pulling out of the currency was floated yesterday by a Nobel prize winner now advising the government, Christopher Pissarides, and Nicholas Papadopoulos, head of the parliament’s finance committee.

• Li Ka-shing Backs Hong Kong Property Curbs as Transactions Fall. Li Ka-shing, Asia’s richest man, backed recent measures by the Hong Kong government to curb an “unhealthy” surge in property prices that’s turned the city into the world’s most expensive housing market. “If prices goes up every day, and a lot of people can’t afford to buy, this would be unhealthy,” Li said after his flagship developer Cheung Kong Holdings Ltd. (1) reported lower property sales yesterday. “The Hong Kong government has said it wants a stable market.”

• Dallas Fed Favoring Reduced Asset Purchases on U.S. Recovery. Dallas Fed President Richard Fisher said he’d like the U.S. to reduce its mortgage-backed security purchases program amid signs that the economy will probably grow at about 3 percent by the end of the year. “I’m personally in favor of tapering back our mortgage- backed security purchases,” Fisher told reporters today at a conference in Abu Dhabi.

• Home Prices in 20 U.S. Cities Climb by Most Since June 2006. The S&P/Case-Shiller index of property values in 20 cities climbed 8.1 percent in January from the same month in 2012 after rising 6.8 percent in the year ended in December, the group said today in New York. The increase exceeded the 7.9 percent median forecast by economists in a Bloomberg survey. 

• Grain-Shipping Rates End Longest Rally Since ’03 as Demand Slows. Rates for Panamax ships carrying grains ended their longest rally in a decade amid speculation demand temporarily declined before holidays starting at the end of this week. Earnings for the vessels, which also carry coal, slid 0.5 percent to $9,632 a day, according to the Baltic Exchange in London today. Rates rallied every day from Feb. 6 to yesterday, the longest advance since 2003. The Baltic Dry Index, a wider measure of commodity-shipping prices, also fell, as did three of the four vessel types in the gauge. 

• WTI Crude Advances to Five-Week High. WTI for May delivery climbed $1.08, or 1.1 percent, to $95.89 a barrel at 2:02 p.m. on the New York Mercantile Exchange after rising to $96.08, the highest intraday level since Feb. 20. Prices are up 4.4 percent in 2013. The volume of all futures traded was 7.4 percent above the 100-day average for the time of day.

• Facebook’s(FB) Zuckerberg Said to Explore Forming Political Group. Facebook Inc. Chief Executive Officer Mark Zuckerberg is exploring the formation of a political advocacy group that would focus on topics such as immigration, the economy, education and scientific research funding, according to a person familiar with the matter. Zuckerberg is considering establishing the group with others in the technology community, according to the person, who asked not to be identified because the plans haven’t been made public.

• Audit Faults Stimulus-Backed $1.5 Billion U.S. Clean-Coal Effort. Poor management has hampered a U.S. program to develop technology to capture carbon-dioxide emissions, the Energy Department inspector general said in a report that raises new questions about a clean-energy initiative backed by the 2009 economic stimulus. In total, the Energy Department received $1.5 billion in the American Recovery and Reinvestment Act to invest in technology that responds to climate-change risks.

Wall Street Journal:

• North Korea Is Running Out of Threats. When North Korea tosses out another threat of violence against one of its neighbors or the U.S., it’s become routine to describe it as an escalation of Pyongyang’s rhetoric. That description captures the fact that North Korea makes a lot of threats without following through. But is there a point where it’s not even appropriate to call new threats an escalation?

MarketWatch:

• EU to extend CDS probe to ISDA trade group. The European Union Tuesday widened the scope of its ongoing probe into credit default swaps, or CDS, to include the International Swaps and Derivatives Association (ISDA), an organization of financial institutions that deals in over-the-counter trading of derivatives. The European Commission said it had found "preliminary indications" that ISDA may have been part of a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business. "Such behavior, if established, would stifle competition in the internal market in breach of EU antitrust rules," the Commission said in a statement.

Fox News:

• N. Korea puts artillery forces at top combat posture in latest threat on S. Korea, US. North Korea's military warned Tuesday that its artillery and rocket forces are at their highest-level combat posture in the latest in a string of bellicose threats aimed at South Korea and the United States. Seoul's Defense Ministry said it hasn't seen any suspicious North Korean military activity and that officials were analyzing the North's warning. Analysts say a direct North Korean attack is extremely unlikely, especially during joint U.S.-South Korean military drills that end April 30, though there's some worry about a provocation after the training wraps up. North Korea's field artillery forces — including strategic rocket and long-range artillery units that are "assigned to strike bases of the U.S. imperialist aggressor troops in the U.S. mainland and on Hawaii and Guam and other operational zones in the Pacific as well as all the enemy targets in South Korea and its vicinity" — will be placed on "the highest alert from this moment," the statement said. Kim will eventually be compelled to do "something provocative to prove the threats weren't empty," Lee said.

• California county administrator to get $423,644 a year -- after retirement. When local California official Susan Muranishi retires from her job in a couple of years, she’s going to be walking away with a fat paycheck -- $423,664 a year – for the rest of her life. Muranishi, an Alameda County administrator, makes $301,000 in annual base pay. But in addition to that, the San Francisco Chronicle reports she'll also receive:  

CNBC: 

• Has Wealth Inequality in US Sparked Fed's Interest? Recently, the Federal Reserve has also taken a greater interest in the topic. And some analysts are asking whether financial inequality in the U.S. might soon become part of the Fed's decision-making process. 

• Cyprus Jitters: How It Could Still Go Wrong. "France is teetering between a core and a troubled peripheral country; if it slips into the latter category, then the troubled euro zone countries will outweigh the core and the euro will be doomed," he said. Bill Blain, senior fixed income broker at Mint Partners, feared the current state of Europe's banks after recent revelations saying that Monday's comments from Dijsselbloem probably creates the worst capital funding environment since 2008. "Let's just assume Europe's banks go back to square one," he said in a research note.

Zero Hedge:

• Capital Spending Renaissance Deferred Once More As Nondefense Cap Orders Ex-Aircraft Tumble In February. (graph)

• What Dijsselbloem Really Said: Full "On The Record" Transcript.

• March Consumer Confidence Plunges As New Home Sales, Richmond Fed Miss. (graph)

• Here We Go Again: EU Lawmaker To Push For Bail-In Resolution Law For Deposits Over €100K. (graph) 

• European Bank Bonds Plunge To 5-Month Lows. (graph)

• The Great British Cash EUxodus Begins.

• Cypriot Youth Rise Up In Pictures: "They Just Got Rid Of All Our Dreams"

Business Insider:

• And Now Borrowing Costs Are Jumping In Slovenia...(graph)

• Warren Buffett Is About To Own A Whole Lot Of Goldman Sachs(GS).

• Citi(C): 'The End Is Nigh' For Oil.

• 10 Warning Signs Of Another Spring Stock Market Slide.

• It's Not Just Russia, All The BRICs Have A Dangerous Tax Haven Problem.

• Eurozone Economy Now Expected To Sink Even Deeper Into Recession.

• NOMURA: Europe Needs To Do 3 Things To Fix The Crisis, And Right Now It's Doing None Of Them.

HedgeCo.Net:

• Study: The Impact Of The Obamacare Tax On Hedge Funds. The NII tax clearly is imposed on the carried interest (i.e.incentive allocation) of a hedge fund manager. The Obamacare legislation had hedge fund managers specifically in mind when it included income from “trading in financial instruments” in the types of income expressly subject to the NII tax. There do not appear to be significant planning opportunities for hedge fund managers to avoid the NII tax on their incentive allocations, except to the extent they have side pockets containing real estate or private equity assets of the types noted below.

Reuters: 

• Berlusconi ally says parties still far apart after Italy vote. A senior official in Silvio Berlusconi's centre-right party said on Tuesday there were still wide differences with the centre-left which must be overcome this week or Italy will have to go back to the polls after last month's deadlocked election. "What I can tell you is that our positions are still very distant from each other, and if they remain distant in the next 48 hours we will affirm that the only way is to go back to vote," People of Freedom (PDL) party secretary Angelino Alfano told reporters after talks with centre-left leader Pier Luigi Bersani.

• Chill in car sales spreads to northern Europe. Snow is piled high on the cars in a deserted dealership in Berlin, and it is not just the stubborn wintry weather that is gnawing at salesman Mustafa Kosak, shivering at his desk in a portable office. "Sales were drastically down in January, February; sometimes we are happy just to cover our overheads," said Kosak, 38, wrapped up in a big overcoat. The chill in cars sales has spread from southern Europe, where the worst of the euro zone debt crisis is crippling economies, to the north, including the region's biggest car market, Germany. New car sales have dropped 10 percent in 2013 so far this year in Germany, nearly 30 percent in the Netherlands and 14.8 percent in Sweden.

• FOREX-Euro flat but vulnerable as Cyprus concerns continue. The euro steadied versus the dollar on Tuesday, holding above a four-month low hit the previous day, but remaining vulnerable to fears Cyprus's banking problems may make investors shun euro zone assets or withdraw money from banks in countries like Spain and Italy.

Telegraph:

• Mr Yen cautions on Japan's 'unsafe' debt trajectory. Japan's public debt has reached worrying levels and could lead to a bond buyers' strike unless the government brings the budget deficit under control, the country's top currency official has warned. "A debt ratio of 245pc of GDP is not really safe, and it is not happening because we are investing," said Takehiko Nakao, Japan's 'Mr Yen' or vice finance minister in charge of the exchange rate. Mr Nakao said the scope for further fiscal stimulus is running out and the country must restore public finances to a sustainable path by the middle of the decade. "We can't continue to expect people to lend money to us," he told The Daily Telegraph.

The West Australian:

• Bank of Spain sees economy shrinking further this year. Spain's economy will sink deeper into recession this year, the Bank of Spain said on Tuesday, sending a stark message to the government as it prepares to revise its own growth forecast. In its annual update of economic forecasts, the central bank said it saw Spain's economy shrinking by 1.5 percent in 2013 following a 1.4 percent contraction last year as austerity continues to exacerbate the effects of a burst property bubble. The central bank's new estimate is well below the official forecast for a 0.5 percent contraction in GDP, although the government is widely expected to revise the 2013 figure downwards in April.