Equity Markets – Asian markets were mixed as the Shanghai Composite led the way in the overnight markets with a rally following the surprising news that imports into the mainland had slowed in March…this led traders to speculate that such a move could reduce inflation and result in more monetary stimulus from the PBoC prompting a bounce in the market.  Elsewhere, indices in Europe are playing catch up today after being closed yesterday and Friday’s employment report, combined with rising concerns over the solvency of Spain has the markets there trading lower.  The Milan Bourse has now joined the Spanish market with negative returns for the year to date.  Combine this with the negative yield print on Swiss 6-month paper and the rally in the yen and it certainly appears that trouble is brewing.  Watch the US treasury market this morning, if we continue the rally from yesterday then it is clearly time to start selling your riskiest positions or adding to hedges.  On top of the fundamental challenges to the markets you also have the overlay of the confluence of the DPRK’s planned satellite launch, the Iranian nuclear negotiations and the failed Syrian ceasefire all coming together almost simultaneously…again, it makes sense here to add to your volatility bets, at least in the short term as protection against one or all of these “wildcards”…

Macro, News & Events

Economic Releases

·         March NFIB Small Business Optimism…95.0 v. 94.3

·         February JOLTs Job Openings…last was 3,459k

·         February Wholesale Inventories…+0.5% v. +0.4%

Events

0900 – The IMF will release an analysis of the global economy in advance of its spring meetings later this month

Earnings – 1^st quarter earnings season kicks off today with Alcoa announcing after the close…

Asia, Europe & USA

·         March imports slowed for China resulting in a trade surplus…imports were up 5.3% vs. the 9% expectation.  Meanwhile,  exports rose 8.9% resulting in a $5.4bb surplus (projection had been for a $3.2 billion deficit.

·         China called for restraint on the part of all parties as it regards the rocket launch by the DPRK which Pyongyang claims will launch between the 12^th and 16^th of the month.  This could illustrate that China has lost some of its ability to influence the DPRK or alternatively it wants to see how much influence it has with the west as it tries to talk Japan, the RoK and the US out of trying to shoot the rocket down (of course if they try and fail that is even worse).  Alternatively for the US this test of strength and influence couldn’t come at a worse time given the pending discussions with Iran who will be watching these theatrics.

·         Sony posted a record loss after taking a $3.7 billion charge to restructure its businesses and the Bank of Japan held back adding to stimulus and the Nikkei 225 fell as the yen rose and concerns grow about the outlook for corporate earnings against difficult export market conditions.
·         The RoK has parliamentary elections tomorrow as political figures in the country warn that the DPRK may hold an underground nuclear device test in conjunction with its “satellite” launch

·         A French survey of factor executive business sentiment was unchanged for March at a reading of 95 and manufacturing production fell for the 3^rd month in a row in February, down 1.2% vs. the expectation of 0.0%

·         Spanish PM Rajoy reiterated his commitment to reduce the deficit there to 3% of GDP.  Yesterday, the PM met with his health and education ministers to discuss cuts of up to $13 billion.  Rajoy’s plans also include an acceleration of sales of stakes in lenders currently under government administration (that one may be tough).

·         It appears that the latest shipbuilding effort may be directed at the power production business…that’s ships built specifically to hold wind generation turbines offshore.  Currently there is an extreme shortage of these ships forcing companies that have offshore “farms” to hire out ships built for energy exploration (there must be an anchoring system for the ship otherwise it would be propelled about like an air boat in the Florida swamps.

·         A recent opinion poll in Greece suggests that 20% of Greeks haven’t decided how they will vote in next month’s elections but that Pasok is closing the gap with the New Democracy Party (currently running the country).

Credit Markets –

·         Switzerland auctioned 6-month paper at a yield of -0.251% (yes, the minus sign was intentional) as once again the concept of “safe haven” rises to the forefront…the yen is also rising damaging Japanese exports along the way.

·         Chairman Bernanke says that he supports efforts to force money market funds to either hold excess reserves or redeem unit holders at market prices rather than the artificially constructed “$1 redemption”…he also called for curbs on tri-party repo agreements which provided as much as $2.8 trillion in financing prior Lehman’s failure in 2008.

  Will the actions by Italy to fundamentally restructure its economy be enough to keep the issues in Spain from dragging down Italy with it…

Sovereign CDS  - spreads are wider this morning as continuing concern about the return of contagion roils the European credit markets…don’t look now but Spain is closing in on its all time wide spread of +487 bps…recall that it was Italy that had everyone’s top of mind concern late last year…now it appears to be Spain’s turn

US Corporate Credit – the high yield CDS index widened by 22 basis points yesterday (+615 bps) leading the fade as the leveraged loan index was out by 13 bps (+319) and the investment grade index was out by 6 to +102...all in response to the spike in volatility .

Energy Markets – energy continues to fade in early trading although the losses are much more modest as futures currently indicate a modest decline at the open as opposed to yesterday.  At least some of the decline in crude may be traced to the surprising decline in Chinese imports and record US inventories as concern over global growth rates continue to increase.

·         The Syrian cease-fire plan as brokered by former UN head Annan has come and gone with little change in the sitaution

Futures – the energy equivalence ratio stands at 6.21x as natural gas modestly outperforms oil for the time being.