North Korea

• ECB Seen Favoring Bond Buying Over Bank Loans (Bloomberg)
• Italians Rally Against Monti’s Pension-Overhaul Limbo (Bloomberg)
• Spain Cracks Down on Fraud as Rajoy Says Aid Impossible (Bloomberg)
• Europe’s Capital Flight Betrays Currency’s Fragility (Bloomberg)
• China’s Less-Than-Forecast 8.1% Growth May Signal Easing (Bloomberg)
• China Banks Moving to Lower Mortgage Interest Rates (China Daily)
• Fed Officials Differ on Need to Keep Rates Low to 2014 (Bloomberg)
• North Korea Confirms Rocket Failure (Reuters)
• Yuan Lending Set to Cross New Border in Pilot Plan (China Daily)

Red headline time. From Yonhap:

North Korea launches rocket - S.Korea's YTN Television
U.S official confirms North Korea has launched rocket
Rocket launch took place at 7:39 local time - South Korea Defense Ministry,

Japan likely in full mobilization mode right about now. Or not: this just in:

ABC's Martha Raddatz reports the North Korean rocket launch has FAILED.

Somebody is about to be punished big time since local rockets no fly long time.

As North America comes to market, there is a lot to digest. European equity markets are trading higher, with the FTSE MIB in particular outperforming after a volatile morning’s session, with bargain-hunting the active theme among investors. The first major risk event came and went with the Italian T-Bill auction. Participants were looking for a poor auction due to the ongoing Eurozone woes, and although bid/covers fell short and yields did increase, the auction was not as poorly received as many had feared.  As such, Italian and Spanish 10-yr spreads have tightened with the German Bund, with the Spanish spread closing in on 400BPS, with talk of domestic buying in the periphery and profit-taking from the last few sessions adding to the tightening effect.  A flashpoint of the day was the German Bund auction; results came in showing the auction to be technically uncovered, failing to sell the expected EUR 5bln. Analysts have pinned the poor auction on the Bund having record low yields providing a disincentive to buy the German security. Following the minutes after the auction, around 25,000 contracts went through on the Bund, spiking lower around 20ticks.

• Subprime bubble is back: Lenders Again Dealing Credit to Risky Clients (NYT)
• Housing bubble is also back: AIG Is Planning a Return to U.S. Property Investing (WSJ)
• Spain and EU Reject Talk of Bailout (FT)
• Coeure Suggests ECB Could Restart Bond Purchases for Spain (Bloomberg)
• IMF Set to Recognise Shrinking Chinese Surplus (FT)
• Government to Propose New Mortgage Servicing Rules (AP)
• Japan Currency Chief Warns Against Delay Over Finances (Bloomberg)
• The 'Michael Corleone' of Libya (Reuters)
• North Korea Says Fuel Being Injected Into Rocket (Reuters)
• SNB Reaffirms Vow to Cap Swiss Franc (FT)

UK and EU markets played catch up at the open this morning following Friday’s miss in the US non-farm payroll report. This coupled with on-going concerns over Spain has resulted in further aggressive widening in the 10yr government bond yield spreads in Europe with the Spanish 10yr yield edging ever closer to the 6% level. As a result the USD has strengthened in the FX market in a moderate flight to quality with EUR/USD trading back firmly below the 1.3100 and cable falling toward the 1.5800 mark. There was some unconfirmed market talk this morning about an imminent press conference from the SNB which raised a few eyebrows given the recent move in EUR/CHF below the well publicised floor at 1.2000, however, further colour suggested an announcement would be linked to the naming of Jordan as the full-time head of the central bank when they hold their regular weekly meeting this Wednesday. Elsewhere it’s worth noting that the BoJ refrained from any additional monetary easing overnight voting unanimously to keep rates on hold as widely expected. Meanwhile, over in China the latest trade balance data recorded a USD 5.35bln surplus in March as import growth eased back from a 13-month peak.

Last Friday saw the release of a below-expected US Non-Farm Payrolls figure, causing flight to safety in particularly thin markets, with equity futures spiking lower and US T-notes making significant gains. Data from this week so far in Asia has shown Chinese CPI is still accelerating, coming in above expectations at 3.6% against an expected 3.4% reading. Looking ahead in the session, there is very little in the way of data due to the reduced Easter session in the US and the European and UK markets closing for Easter Monday.

With Iran supposedly sitting down on the bargaining table for one last, soon to be failed, effort at diffusing the nuclear situation, the key geopolitical event this week will be the launch of North Korea's Unha-3 rocket, which the country insists is a peaceful launch, and the satellite contained is for scientific research. Others are not as optimistic, and Japan has already taken precautions to intercept the rocket should it get precariously close to Tokyo. Even China has cautioned against such a launch. The tentative launch window to commemorate the 100th birthday of NK founder Kim Il-Sung is set for April 12-16. So what does the rocket look like? Here it is: up close and personal.

• JPMorgan Trader Iksil Fuels Prop-Trading Debate With Bets (Bloomberg), but, but, he is just proividing liquidity, and serving JPM's clients
• Short on tools, central banks left with words (Reuters)
• And the mainstream media finally catches up: Investors braced for fall in US profits (FT)
• Iran rules out pre-conditions to talks: Salehi (Reuters)
• North Korea ‘planning third nuclear test’ (FT)
• Japan to Hold Talks With China on IMF Contributions (Reuters)
• American Universities Infected by Foreign Spies Detected by FBI (Bloomberg)
• Is the Fed Promoting Recovery or Desperation? (Hussman)
• In Europe, Unease Over Bank Debt (NYT)
• Banks test ‘CDOs’ for trade finance (FT)

Just because the imminent launch of a North Korean rocket along a trajectory which will likely force Japan to strike it down, something which Pyongyang said would be equivalent to an act of war, was not enough, it now appears that South Korea has commenced the hunt for Red Pyongyang or four, as it is now "searching for four North Korean submarines that disappeared after leaving their bases on the tense peninsula." ABC News reports that "A military source quoted in a South Korean newspaper says up to four North Korean submarines slipped out of port in recent days and have so far avoided detection. The source was also quoted as saying that Pyongyang has stepped up submarine infiltration drills as the weather has warmed." As a result, "Seoul is now on alert for a possible strike against a South Korean naval ship." This won't be the first time a North Korean sub is implicated in potential wrongdoing: "The South accuses the North of using a midget submarine to sink the corvette the Cheonan two years ago, which left 46 South Korean sailors dead."

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

European cash equities are seen mixed as the market heads into the US session, with the DAX index the only bourse to trade higher at the midpoint of the European session. European markets were seeing some gains following the open after the weekend release of better than expected Chinese manufacturing data, however the main price action of the day occurred after some European press reports that the Bundesbank had stopped accepting sovereign bonds as collateral from Portugal, Ireland and Greece garnered attention, however the Bundesbank were quick to deny reports and state that it continues to accept all Eurozone sovereign bonds. Following the denial, participants witnessed a slight bounceback, but failed to push most markets into the green.  Data releases from Europe so far have been varied, with outperformance seen in the UK Manufacturing PMI, beating expectations and recording its highest reading since May of 2011. However, the French manufacturing PMI came in below expectations, weighing on the CAC index as the session progresses. A further release from the Eurozone has shown February unemployment coming in alongside expectations recording a slight increase from January to 10.8%.

In a double-whammy of mounting geopolitical tension, Channel News Asia reports that North Korea has started fueling a rocket in preparation for a launch date set for April 12 or 13. The supposed 'satellite launch' is being considered a missile test by the West and in the meantime snubbing Nobel Peace Prize winner Obama for his 'confrontational mindset'. In retaliation Pyonyang will not be receiving food aid (according to a Pentagon official). Meanwhile, Israel National News highlights that the Israeli Defense Forces (IDF) have taken the unprecedented step of canceling the long-customary leave for Passover and will instead remain on full alert. Careful to point out that this action did not stem from any planned military action (though soldiers dismissed that as obfuscation), IDF chief of staff Benny Gantz said Wednesday he gave the order saying he "does not accept" the notion of an army-wide vacation during Passover. A growing cadre of senior security officials and former IDF chiefs have called for a major Gaza incursion to uproot the terror infrastructure there. Gantz himself has described such an operation as "increasingly inevitable."

As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul. Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market. In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS. Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.

All you need to read and more.

Yesterday afternoon, Barack Obama who is currently in South Korea, briefly was within bullet range (if behind bulletproof glass) of North Korea when he stood on the edge of the DMZ separating the two feuding countries. A few minutes later he left and told the world that "Bad behaviour will not be rewarded" referring to the imminent launch of North Korea's Unha-3 rocket scheduled for a test launch in April. He added that "I will also note that every time North Korea has violated an international resolution, the Security Council resolution, it has resulted in further isolation, tightening of sanctions, stronger enforcement. I suspect that will happen this time as well." Alas, we doubt that Obama's warnings will have much of an impact and that in a few weeks NK will go ahead and hit the launch button undeterred, in the process forcing Japan to scramble its Aegis destroyers and take other countermeasures as discussed last week, in case the missile "veers of course." But just what is the trajectory? Courtesy of North Korea Tech, we now know the secret path the North Korean rocket is expected to take. All we can say is there better not be strong Westerly winds.