Equity Markets – overnight trading results on Asian markets were mixed as the early closing indices felt the weight of what went on here yesterday and the concerns about the Spanish bond auction that was held earlier this morning.   The later closing Asian markets found out that the auction raised more money than initially targeted and a late rally ensued that has continued this morning in European indices.  Futures here indicate an open that is little changed from yesterday as we await weekly jobless claims numbers and the March leading economic indicator numbers…there is also a  large earnings announcement slate this morning (see below).

Macro, News & Events

Economic releases – we get initial claims data, March home sales figures but most important we get the March LEI…as for yesterday, mortgage applications were reported higher on the week and the Department of Energy reported that crude inventories continued to swell even with refinery utilization climbing (+0.8% vs. -1.9% in the prior week). 

 

Events

·         The G-20 trade ministers will meet in Puerto Vallarta to discuss trade barriers…

Earnings – so far we’ve seen 10% of the S&P 500 report and earnings growth has been somewhat anemic at +2.54% but having said that, there is still hope as the reporting companies have on average surprised to the upside by +4.75%.   today is another full day with some 37 companies reporting.

 

Yesterday 4-20-12 – here are yesterday’s earnings results, sorted by earnings surprise

Asia, Europe & USA

·         March exports rise 10.5% year over year vs. estimate of +7% in Japan.  The trade deficit was ¥82.6 billion vs. an estimate of 223.2 billion

·         South Korea unveiled their own missiles that have the ability to strike targets anywhere in the DPRK

·         India announced the successful test launch of missiles that could carry nuclear warheads to major Chinese cities

·         Diesel imports to India likely rose 74% in Q1 as Reliance industries shut its largest refinery for maintenance…expectations are that demand in India for fuel will increase 8.3% this year.  Diesel costs 27% less than gasoline at the pump in India because of government subsidies.

·         Spain sold €2.54 billion of bonds, just above the 2.5 billion target…the 10-year paper cleared the market at 5.74% (34 bps higher than the last auction in January) while the two-year paper cleared at 3.46%.  Spanish bank holdings of government debt stood at 220 billion in January up  from 178 billion in November as funds from the LTRO program were used to buy Spanish government paper in the resurgence of the carry trade.

·         France auctioned €8 billion in debt today amid rising yields linked to the uncertain outcome of the May elections

·         The estimate for GDP growth in Germany is +2% for 2013, up from the estimated +0.9% this year according to economic estimates presented to the government today in Berlin

·         The Italian parliament passed a bill today that will now create an auction process for spectrum, before it was simply given away…this is a blow to former PM  Berlusconi whose media empire benefitted from the previously free spectrum.

·         So far roughly ½ of the 58 banks based in the EMU have announced plans to restructure that may involve the sale of up to €2 trillion (7%) in assets as the banks struggle to raise capital.  It is expected that more restructuring plans will be forthcoming

Credit markets

Sovereign CDS – spreads are mixed this morning but Spain is modestly tighter after a bond auction of 10- and 2-yr paper raised more than the targeted 2.5 billion euro…France also paid more to issue 8 billion euro of debt as the election politics draw a stark contrast between the Socialist candidate Hollande and current president Sarkozy…Hollande has said that he will raise the minimum wage and seek to amend the EMU “fiscal pact” that was agreed to by the Sarkozy government.

US Corporate Credit – spreads were wider yesterday amid the modest equity market sell-off and concern over the Spanish bond auction held this morning…that auction cleared the market with demand slightly higher than that targeted but rates paid exceeded those from January by about 36 bps on the 10-yr issue.   This should put a positive bias on the US credit markets to begin the day as equity markets clearly like the results (at least so far).  As for yesterday, all corporate CDS indices were wider with the high yield index out by 10bps (+623), the leveraged loan index out by 5 bps (+324) and the 5-year investment grade index out by 1 bp (+100).

Energy Markets – WTI is up almost ½% in morning trading as equity markets feel a little better for the moment following the successful bond auction in Spain…the Brent / WTI spread is $15 / barrel as higher expectations for the German economy in 2013 has the European-centric crude complex outperforming WTI as production and crude inventories rise in the US.

Futures – the relative positioning of natural gas and crude oil is virtually unchanged this morning with the energy equivalence ratio at 6.68x…hearing an increasing number of calls to invest in natural gas now with prices at decade lows and economic strength potentially building around the world.  The latest voice added to this call is that of Jeff Gundlach, yes he of TCW infamy…he likens natural gas in the current environment to gold back in the mid-90’s when it was around $250/oz