Federal Reserve Bank of New York – it’s been sometime since we last visited the FRBNY’s portfolio so I thought that it would be worth taking a look as we head toward the anniversary of “operation twist”.  Over the course of the last year the FRBNY has added $267 billion to the portfolio in total.  Of that amount, almost $426 billion was US treasuries while holdings of agency and RMBS fell by almost $159 billion.  The FRBNY ended Q1 with $2.59 trillion in its “open markets” portfolio.

Equity Markets – Asian indices were mixed in overnight trading as the Reserve Bank of Australia opted to hold short term rates constant and concern about Japanese export markets weighed on the Nikkei 225.  European indices are at or near their lows for the session and domestic futures are lower in sympathy on concerns over the growth outlook.

Macro, News & Events

Economic Releases – yesterday was another mixed bag of economic news but the market took the better than expectations ISM manufacturing data and ran with it.  More interesting to me was the big miss on February construction spending (-1.1% vs. expectation of +0.6% and a big downward revision of January to -0.8% from -0.1%)…this just proves that when the market wants to move higher it ignores what it doesn’t want to hear.

·         March New York ISM…last was 63.1

·         February Factory Orders…+1.5% v. -1.0%

·         March Total Vehicle Sales…14.6 million v. 15.03 million

·         March Domestic Vehicle Sales…11.35 million v. 11.7 million

Events

1400 – the Federal Reserve will release the minutes from the March 13^th FOMC meeting

Earnings – no earnings announcements today

Asia & Europe

·         China’s non-manufacturing purchasing managers’ index climbed to 58 in March (a 6-month high)

·         PBoC governor Zhou Xiaochuan said that China’s goal is to gradually reduce inflation and that the country will use interest rates and other measures to achieve a “soft landing”

·         The Bank of Japan’s liquidity supply dropped in March for the first time in more than three years…politicians in Japan will likely argue that declines in the monetary base are inconsistent with a plan to target 1% inflation and stimulate economic growth in a country that has been in recession for much of the last 20 years

·         The Reserve Bank of Australia (RBA) held short term rates at 4.25% but gave a signal that it could begin cutting short rates next month if inflation numbers remain stable and growth continues to falter.

·         Portugal anniversaries its bailout with two-year yields back below 10%...down from 21% in January

·         The European Commission said that it isn’t preparing for the possibility that Portugal will not be able to access the capital markets

·         Citigroup is predicting that Spain will need assistance this year from the EFSF/ESM and the IMF but the country should be able to maintain at least partially access the capital markets…

·         Francois Hollande leads Sarkozy 53% to 47% in the 2^nd round election polls in France according to Harris Interactive…Sarkozy leads in the first round of elections slated for the 22^nd

Credit Markets –

Sovereign CDS spreads – spreads are mostly tighter in light trading this morning in London

US Corporate Credit – The leveraged loan CDS index led the way yesterday tighter by 7 bps to +276 bps.  The high yield index was tighter by 4bps (+568) while the 5-year investment grade index was tighter by 1 bp to +91 bps.

Energy Markets – crude oil markets are lower in trading this morning as the WTI/Brent spread moves back above $20 / barrel.

·         Weekly API crude oil inventories will be released this afternoon at 1630 EST…last week’s addition to stocks was +3.6 million barrels (+1.05 million barrels at Cushing)

Futures – the futures strip is higher this morning for both natural gas and crude with the energy equivalence ratio at 6.24x

Crude Basis – The crude basis continues to narrow between Bakken, Syncrude and WTI Cushing.  Once the pipeline infrastructure bottleneck is alleviated you can expect that the differentials will be reduced to transportation cost.  This obviously augers well for the Bakken oriented producers like Continental Resources (CLR) and Whiting (WLL).