Equity Markets – Asian markets were higher in overnight trading…the lone exception being the KOSPI as election results and concerns about the rocket launch out of the DPRK have things there somewhat on edge.  Meanwhile, this morning in Europe we still have the split between what’s going on in Germany and then what’s going on everywhere else…France has its’ highest unemployment levels in 12 years and higher inflation, Spain is still having difficulty convincing the rest of the world that it isn’t going to require a bailout as equity markets continue to slump there and Italy (following a somewhat disappointing bond auction there).  This differential economic performance will eventually drive a wedge between Germany and the rest of the EMU if it continues to persist.  Futures here are little changed as we await PPI and weekly jobs claims data.

Upshot – we continue to see higher than expected inflation pretty much worldwide which signals that either there isn’t the massive excess capacity that everyone fears will lead to deflation or else the culprit is energy prices and that growth is stronger in Asia than we’re currently being led to believe (I’m starting to subscribe to this idea)…either way it’s bad for the EMU as a whole because they’re clearly caught in a vise created by crude demand out of Asia that drives the crude prices from the North Sea to the West Coast of Africa and puts the squeeze on European pocketbooks at the pump at a time when unemployment continues to rise as Germany keeps up the pressure on the southern membership, pushing for more austerity…we’ll eventually see just how big a part of these economies the governments comprise.  I continue to favor adding to your volatility exposure here as we still have a launch window for the DPRK and I don’t trust the Iranians offer of “new initiatives”…they’re struggling right now as they cut crude prices to stimulate demand while the problem remains that shippers can’t get insurance and so they won’t haul Iranian crude if they were giving it away.  If I’m right about the growth in Asia then E&P companies could be a steal at current valuations.

Macro, News & Events

Economic Releases

·         February Trade Balance…-$51.8 billion vs. -$52.6 billion

·         March PPI (MoM)…+0.3% v. +0.4%

·         March PPI ex-food & energy (MoM)…+0.2% v. +0.2%

·         March PPI (YoY)…+3.1% v. +3.3%

·         March PPI ex-food & energy (YoY)…+2.8% v. +3.0%

·         Weekly jobless claims…355k v. 357k

·         Weekly continuing claims…3,335k v. 3,338k

Events

0600 – WTO releases its forecasts for 2012

1100 – IMF Managing Director Christine Legarde will speak at the Brookings Institution

Earnings

·         Google (GOOG) will announce  after the close of trading…the street is looking for $9.64/share in EPS

·         Fastenal (FAST) will announce before the open…the street is looking for $0.34/share in EPS

Asia, Europe & USA

·         Commodities forecasters predict that demand for copper will outstrip supply in 2012 by as much as 323,000 metric tons much of it driven by demand in the US and an expectation that growth in Asia is stronger than currently thought…the hang-up here is that much of the outperformance may have to wait until the 3^rd quarter.

·         Sony will trim 10,000 positions as Hirai attempts  a turnaround at the electronics giant

·         The much better than expected employment report in Australia has the A$ higher and relieves pressure on the RBA to consider stimulative monetary policy.  Aussie employment rose by 44,000 compared with an estimated improvement of 6,500…the unemployment rate held steady at 5.2%

·         RoK President Lee’s party pulled off a surprise win in parliamentary elections yesterday, no doubt assisted by the recent saber rattling out of Pyongyang.  The New Frontier Party won 152 out of 300 seats for an outright majority in parliament…this means no changes to the recently signed trade agreement with the US.

·         The DPRK opts not to launch a rocket carrying a satellite on the first day of the stated launch window…

·         Indonesia’s central bank left its short term rate unchanged (5.75%) for a 2^nd month in a row as inflation continues to be a concern in the archipelago…

·         Power prices in Germany continue their streak of quarterly declines as record solar and wind power generation result in lower profits as coal-fired power plants…the profit declines is making it more difficult for Germany companies to justify spending the capital required on coal-fired capacity  sufficient to replace the existing nuclear capacity in the country.

·         Spanish central government officials claim that the current power sharing between central and regional government officials has historically undermined the fiscal situation in the country…the parliament is preparing a bill that will allow intervention in regions whose spending gets out of control.

·         Inflation in France rose in March as consumer prices were up 2.6% vs. last year compared with a 2.5% increase in February…the forecast had been for a gain of 2.3%.  The rise in inflation is particularly insidious in the face of the highest unemployment rate in 12 years…none of this is good news for Sarkozy.

Credit Markets –

·         Italian bonds were lower (yields higher) after auctions for several re-opened “off the run” issues drew strong bid-to-cover ratios…meanwhile the on the run note auction disappointed with a lower bid-to-cover ratio.  The total amount was €4.88 billion vs. the 5 billion maximum target.

·         Sterling advanced following the modestly disappointing Italian auction hitting a 3-month high against the euro

Sovereign CDS spreads – spreads are mostly lower after Italy was able to get close to their maximum targeted bond “raise” of 5 billion

US Corporate Credit – spreads were little changed yesterday as the 5-year IG index was in 3 bps (+102), the HY index was in 2 bps (+626) and the leveraged loan index (LCDX) was unch’d at +333 bps.

Energy Markets – the DOE weekly numbers yesterday showed crude inventories were slightly higher than projected at 2.7 mm barrels build in the week vs. an expectation of a 2mm barrel build but were significantly lower than last week’s build of 9 mm barrels….also some pressure should be relieved on the RBOB market as gasoline stocks declined less than forecast and were essentially in line with last weeks’ number.  This is somewhat surprising and signals that perhaps the long Easter weekend didn’t draw as much traffic to the roadways there as was expected and could be an optimistic signal for retailers if more people were staying home…maybe they decided to shop instead of travel.  This morning we’ve got some modest price improvement in crude as we’ve moved back above $103 on WTI.  The market appears to be assessing the US situation as preferable to what’s going on in Europe and the concerns about slowing demand for crude in China as the WTI / Brent spread has collapsed to under $17 / barrel…remember it was over $21 just last week.

 

Futures – so while WTI has improved since Monday the same can’t be said of natural gas as prices at the Henry Hub in Louisiana are currently $1.91 / mcf in the spot market and the strip average for the next year continues to drop, now at $2.69…this has pushed the equivalence ratio back toward 6.5x as using natural gas as an alternative vehicle fuel is finally making its way into the mainstream of public discourse.