World News

China

• In the wake of last weeks shutdown of half the country's 1,176 dairies, three children in north-west China have died after drinking milk tainted with nitrate.  The milk was provided by two local dairies in the region.

European Union

• The European Banking Authority has named 90 banks that must undergo a two-year stress test, part of which requires keeping at least 5% of their core capital in Tire 1 securities.  Few banks are expected to fail, but it is believed that this will prompt many banks to raise capital.
• Portugal has been informed that it must implement new and more stringent economic reforms in order to secure aid from the European Union and the IMF.  "The package must be really strict because otherwise it does not make any sense to guarantee anybody's loan," said Finland's finance Minister Hyrki Katainen, "The package must be harder and more comprehensive than the one which parliament voted against."  Given that Portuguese Prime Minister Jose Socrates resigned after parliament rejected the "less hard and less comprehensive" package, things don't look good for the bailout right now.

Israel

• Six Palestinians are dead in Gaza following Israeli air strikes, launched in retaliation for a Hamas attack on an Israeli school bus with an anti-tank shell.

Ivory Coast

• With Laurent Gbagbo isolated and his presidential residence[1] under siege, President-elect Alassane Quattara is asking the EU to lift sanctions and shipping restrictions.  His hope is to resume cocoa shipments, which constitutes the country's main source of income.

Japan

• The Japanese Cabinet Office is saying that "Japan's economy is suddenly in a severe condition due to the effects of the earthquake."  It is tempting to respond "well, yeah" to this, but the comment comes on the heels of the release of a monthly survey of hotel workers, restaurant staff and taxi drivers that shows a record drop in confidence.
• Yesterday's 7.4-magnitude aftershock off the coast of Miyagi, Japan has caused a leak in a recycled fuel pool at the Onagaway nuclear plant.  Three people are reported dead in the aftermath, and power has been lost to some 3.6 million homes.
• Toyota Motor Co plans to repoen all 18 of its Japanese factories between April 18 and April 27, although they will be working at about half their normal capacity due to supply chain disruptions.  Nissan Motor Co plans to resume normal production in stages, beginning April 11.

Syria

• Syrian security forces opened fire on protesters in Deraa, who were calling for the overthrow of the current government.  Reports are sketchy, but at least two people were wounded.

United States

• Asked in a Senate hearing how and when the conflict in Libya would end, General Carter Ham[2] stated only that "I think it does not end militarily."  He also indicated that, at the moment, the Libyan conflict appears to be a stalemate, and said that he would not recommend arming the rebels without a better idea of who they are.
• A final review of paperwork and records in the Wisconsin Supreme Court Court election, which had been seen as a referendum on the policies of the controversial state governor and which had been declared a victory for the Republican candidate[3], revealed "thousands of uncounted votes".  The Waukesha County Clerk responsible has blamed "human error" for the failure to properly record the voting results of an entire town.
• President Obama has said that progress has been made on a budget compromise, but also that he was not prepared to express "wild optimism".  Without some sort of compromise, the Federal government will shut down at midnight.
• Defense Secretary Robert Gates, during his unannounced visit to Iraq, indicated that US troops could remain in the country beyond the agreed withdrawal date of December 31, 2011.  "If folks here are going to want us to have a presence," he said, "we're going to need to get on with it pretty quickly in terms of our planning."

Yemen

• Tens of thousands of demonstraters for and against President Ali Abdullah Saleh protested and counterprotested at funerals for anti-Saleh protesters killed earlier in the week.
• The United States has frozen a $1 billion aid package to Yemen, following the beginning of anti-Saleh protests.

[1]  Along with the presidential heavy weapons emplacements and presidential mercenaries...

[2]  Head of the US Africa Command.

[3]  His margin of victory was 7582 votes.  Keep that in mind.

World News! Now With 100% Less Spiders!

Europe

• The European Central Bank, acting on fears of increasing inflation, has raised interest rates by 25 bps to 1.25%.  The ECB is specifically concerned that oil prices could boost inflation.  Far from being surprised, European financial markets are actually pricing in expectations that there will be at least two additional 25 bps increases this year.

Ivory Coast

• French forces assisted in destroying heavy weapons emplacements manned by troops loyal to former president Laurent Gbagbo, then rescued the Japanese ambassador to the Ivory Coast from Gbagbo-affiliated soldiers that broke into the ambassador's residence.  The soldiers were in the process of setting up rocket launchers on the roof of the residence.

PIIGS

• The European Union is expecting a formal request for a bailout of Portugal "soon", defined here as "as soon as the Prime Minister's cabinet determines it has the political power to ask for a bailout".
• Now that Portugal has all but taken the bailout, Spain is vowing that it will not follow it's little buddy to the west into that good night.  No, they will instead rage, rage against the dying of their economy and focus on debt reduction.  And since the EU thinks they're on track, they may very well have good odds of success.

The Whole Wide World

• The World Trade Organization expects international trade (as measured by exports) to grow by 6.5% this year, with developing nations trade increasing 9.5% and developed countries trade growing 4.5%.

First Time Jobless Claims

It is that time of the week again, so grab your noisemakers and party hats and get ready for the First Time Jobless Claims!

 

Last week, as you no doubt recall, results were mixed.  The advance seasonally adjusted initial claims figure came in at 388,000, which was better than the revised prior week claims but worse than the initial prior week claims.  Also, it missed expectations by 8,000.  Unadjusted claims figures came in at 354,301 (an increase of 3,097).    The initial state program insured unemployment level was 3,714,000 (a decline of 7,000), and the total number of all people claiming benefits in all programs was 8,770,443 (an increase of 5,619).

 

Like I said, mixed.

 

This week, the Econoday-surveyed analysts are expecting a modest improvement, calling for first time jobless claims to fall to "only" 385,000 new claims.

 

Now, we turn to the US Department of Labor for the Unemployment Insurance Weekly Claims Report for the week ending 4/2/2011.  Right off the bat, we see that the initial claims figure for the week ending 3/28 has been adjusted upwards to 392,000 (an increase of 4000).  The report then celebrates the fact that the advance figure for seasonally adjusted initial claims for the week ending 4/2 comes in at 382,000, calling it a decrease of 10,000 from the previous week.  I see this as rather mixed - yes, it is a decrease from last week's initial claims, and it did beat expectations.  But, the claim of a 10,000 person decrease seems a little spurious since it's not a 10,000 decrease from the numbers everyone cared about last week.

 

Ah well, my opinion and $4.50 gets you a cup of coffee at Starbucks.

 

The unadjusted number of initial claims comes in at 350,667, a healthy decline of 3,634.  The initial state program insured unemployment level (and I really need to come up with something shorter to call that) was revised upwards to 3,732,000 for last week and then comes in at 3,723,000 for the week ending 4/2.  The report calls this a decline of 9000.  And the total number of people claiming benefits in all programs?  8,524,455.

FAO Food Price Index

The FAO is the Food and Agriculture Organization of the United Nations.  Amongst other duties, they track the monthly change in international prices of a basket of food commodities.  The overall index is the average of five commodity group price indices, weighted with the average export shares of each of the groups.  The indices are backward looking, with each month's release having data for the previous month.

 

The FAO Food Price Index rose 2.2% in February.  The Cereal Price Index was up 3.7% in February (mostly on maize prices), the Dairy Price Index was up 4%, the Oils/Fats Price Index was up "marginally", the Meat Price Index was up 2% (mostly on pig and sheep meat), and the Sugar Price Index fell marginally (although prices remain volatile).

What in the World?

Great Britain

• A study published in the Annals of Internal Medicine indicates that working more than 11 hours per day increases the risk of heart disease by 67%, compared with working 7 to 8 hours per day.  It is unclear whether the long work hours are a direct cause, or whether they are an indicator of other factors that are the actual cause.  So the next time someone tells you "hard work won't kill you", question that statement.
• Tesla Motors is suing the BBC, alleging that the road test of the Tesla Roadster on the show Top Gear was rigged to make the car perform badly.

Ivory Coast

• Forces loyal to Alassane Ouattara, President-elect of the Ivory Coast, stormed the bunker where Laurent Gbagbo (who lost the election) has been resisting efforts to make him step down.  Gbagbo's spokesman has states that there is "no legal and judicial basis" for requiring the defeated president to leave office.  Cocoa prices rose slightly as the continuing civil war has dimmed hopes that the world's largest cocoa exporter will resume exports soon.

Japan

• The leak at the Fukushima Daiichi reactor that allowed contaminated water into the ocean has been plugged.  In celebration, 11,500 tons of contaminated water was pumped into the ocean due to a lack of storage space.  Both South Korea and China have expressed concern about the radioactive water.

Pakistan

• Spiders have begun taking to the trees to escape flooding and, because of the scale and duration of the flooding, the trees are literally cocooned in spider webs.  This has contributed to a decline in the expected malaria rate, which is a good thing, but still.... Trees.  Full of spiders.

PIIGS

• Portugal's short-term debt yields are up sharply in Wednesday's auction, mostly on concerns that Portuguese bonds are two steps above junk and on news that the Portuguese government is getting pressure to seek a bailout from the IMF and the European Union.
• The rate of decline in net deposits in Irish banks has slowed, as depositors "only" withdrew 1.8 billion euros last month.

United States

• The SEC has unveiled a plan to protect the markets from volatile price swings, such as the May 6th "flash crash".  The plan would replace existing circuit breakers with a "Limit Up-Limit Down" system, which would prevent listed equities from trading more than a certain percentage amount above or below the five-minute rolling average of the stock.  For stocks currently subject to the circuit breaker pilot, the percentage is 5%;  for stocks not currently subject to the pilot, the percentage would be 10%, with the percentage bands doubled during opening and closing periods and broader bands for penny stocks.  If no trading occurs within the price band for more than 15 seconds, there would be a five-minute trading pause.  (The "Limit Up-Limit Down" link goes directly to the SEC press release.)
• A $625 million patent infrigement award against Apple Inc. has been overturned, with the judge finding that the claimant "failed to lay a solid foundation sufficient to support important elements it was required to establish under the law."
• New York City is considering a ban on toys giveaways in fast-food restaurant meals for children.
• Fred Karger has just announced his intent to run for the 2012 Republican nomination for president, making him the first openly gay Presidential candidate for the office.

MBA Weekly Applications Survey

This survey, conducted by the Mortgage Bankers Association, tracks the weekly rate of change in applications for new mortgages and refinanced mortgages.  It's not a significant market mover in its own right, but it provides valuable clues to predict new home sales and existing home sales - and those are major market movers.

 

According to the MBA's press release, the Market Composite Index declined 2.0% for the week ending 4/1.  Most of the decline was driven by refinancing activity, as the Refinance Index declined 6.2% while the Purchase Index increased 6.7%.  Refinancing represented 61.2% of the week's mortgage activity (down from last week's 64.3%), and adjustable rate mortgage applications increased to 6.1% of total applications.  The average contract interest rate for 30-year fixed-rate mortgages increased 1 bps to 4.93%.

 

The takeaway here is that the overall number of home purchases (whether new or existing) increased last week, which is a harbinger of glad tidings for the economy.  Fewer people are attempting to refinance, though.

What's Happening in the World?

It's a light day for economic data, so let's have a look at the news to get a sense of what might be moving the markets.

 

Australia

• In the face of growing political opposition, Australian Treasurer Wayne Swan has announced that he plans to reject the bind by the Singabpore Exchange to take over the ASX Ltd.  "FIRB informed SGX that I had serious concerns about the proposal and that, subject to further consideration, I intended to accept the unanimous FIRB advice that the takeover would not be in the national interest."

China

• The People's Bank of China has announced that it is raising benchmark one-year deposit rates by 25 bps to 3.25% and one-year lending rates by 25 bps to 6.31%, effective April 6.  Speculation is that Chinese inflation, which was at 4.9% in January and February, may have risen again (although actual data won't be available until April 15).

Japan

• TEPCO, the operator of the damaged Fukushima nuclear plants, says they have found water outside the reactors which is at five times the legal safe limit for radiation.  The Japanese government is also considering imposing restrictions on seafood, after finding contaminated fish in seas south of the reactors.
• Damage to the Fukushima reactors has cost TEPCO 23% of its generating capactiy, which cannot be made up by other companies.  "A legacy dating back to World War II means the two sides of Japan's main island operate different power frequencies, making their generators incompatible."

Libya

• An oil tanker has arrived at the rebel-held port of Marsa el Hariga, and is expected to load the first cargo since the uprising began.  The Equator is capable of carrying 1 million barrels of oil, or about 77% of Libya's pre-war daily export volume.

PIIGS

• Moody's has cut Portugal's sovereign debt to Baa1, leaving the nation's debt just two steps from "junk bond" territory.

Switzerland

• Transocean, the company that operated the Deepwater Horizon, has declared that, "in recognition of the Company's achievement of the objectives set at the beginning of 2010 relating to the Company's safety record," cash performance awards will be made to the Named Executive Officers.  This is composed of 25% of base salary for Mr. Newman ($275,000), 18.75% of base salary for Mr. Rosa ($93,750), 16.25% of base salary for Mr. Brown ($81,250), 18.75% of base salary for Mr. Bobillier ($81,562.50), 18.75% of base salary for Mr. Toma ($81,562.50), and 15% of base salary for Ms. Richard ($53,250).

 

United States

• The Nasdaq OMX Group is rebalancing the Nasdaq 100 index.  The rebalancing, which will be effective May 2, will reweight 82 different securities to bring them more into line with market capitalization.  Among the changes, Apple will be cut from 20.49% of the index to 12.33%, Microsoft's weighting will increase 4.9%, Oracle's weighting will rise 3.4%, and Google's weighting will rise 1.6%.  After the rebalancing, Apple will still be the largest component of the index.
• House Budget Committee Chairman Paul Ryan has proposed a budget plan that would cut government spending by a total of $5.8 billion over the next 10 years[1].  The plan is expected to dramatically change Medicare and Medicaid and put hard caps on government spending and tax cuts, and is expected to pass the House but not the Senate.
• Interior Secretary Ken Salazar has denied reports that BP is in talks with Washington to restart drilling at existing oil fields in the Gulf of Mexico.
• Elsie Eiler has been officially recognized as the sole inhabitant of the only incorporated town in the United States with a single resident.

[1]  No word on defense spending, which represents 17.94% of President Obama's proposed 2012 budget.  If you look just at items labeled "national defense".  If you include "defense-related expenditures", it goes to between 27.6% and 37.9% of the budget.