Trade Balance

First it Egan-Jones (of course). Then S&P. Now Fitch (which sees the Spanish bank recap burden between €60 and a massive €100 billion!) joins the downgrade party of rating agencies that have Spain at a sub-A rating. Only Moody's is left. What happens when Moody's also cuts Spain from its current cuspy A3 rating to sub-A? Bad things: as we explained on April 30, when everyone has Spain at BBB or less...

Despite closed US stock markets today, FaceBook stock still managed to decline, while Europe dipped yet once again on all the same fears: Greece, Spain, bank runs, contagion, etc. Shortly Europe will reopen, this time to be followed by the US stock market as well. While in turn will direct market participants' attention to a shortened week full of economic data, which as Goldman says, will likely shape the direction of markets for the near future. US payrolls and global PMI/ISM numbers are expected to show a mixed picture with some additional weakness already fully anticipated outside the US. On the other hand, consensus does expect a moderate improvement in most US numbers in the upcoming week, including labour market data and business surveys. As a reminder, should the Fed wish to ease policy at its regular June meeting, this Friday's NFP print will be the last chance for an aggressive data-driven push for more QE. As such to Zero Hedge it is far more likely that we will see a big disappointment in this week's consensus NFP print of +150,000. Otherwise the Fed and other central banks will have to scramble with an impromptu multi-trillion coordinated intervention a la November 30, 2011 as things in Europe spiral out of control over the next several weeks. Either way, risk volatility is most likely to spike in the coming days.

• China Pledges More ‘Fine-Tuning’ in Support for Growth (Bloomberg)... more promises, just never any actual funding
• Spain Calls for Help to Lower Borrowing Rates (AP)
• China Is a Black Box of Misinformation (Bloomberg)
• Fed data expose US$100bn JP Morgan blunder (IFRE)
• EU Chiefs Clash on Bonds Amid Call Greece Keep Cutting (Bloomberg)
• Spain to Recapitalize Bankia in Latest Bailout (WSJ)
• The running schizo tally: EU urges Greece to stay in euro, plans for possible exit (Reuters)
• The Seeds of the EU’s Crisis Were Sown 60 Years Ago (Bloomberg)
• Fed's Bullard says orderly Greek exit possible (Reuters)
• Some Big Firms Got Facebook Warning (WSJ)
• Chesapeake Raises Big Bet in Ohio (WSJ)

European equities are seen lower across the board with the exception of the CAC-40 index as markets remain nervous towards the prospect of a second wave of Greek general elections. The outperformance of the CAC-40 follows the news from oil major Total, who have stemmed the gas leak from their Elgin well successfully after conducting intervention. As such, Total are seen higher by over 2%, strongly above the Oil & Gas sector. The Bank of England have released their latest projections for the UK economy, revising lower their growth forecasts and higher their near-term inflation expectations, alongside analyst forecasts. The BoE have stuck to their long-term predictions that there will be a slow but steady return to recovery, but reiterated that major downside risks exist from Europe. Governor King’s subsequent press conference has shown him to remain somewhat dovish, commenting that an increase in downside risks would prompt the bank to commit to further actions, leaving the door to a boost in asset purchases open. The forecast revisions prompted a sharp move lower in GBP/USD, falling around 75 pips and Gilt futures moving 55 ticks to the upside after the opening comments. At the midpoint of the session, GBP/USD remains in negative territory despite seeing support before the inflation report after better than expected UK jobless claims data.

• Facebook's selling shareholders can't wait to get out of company, increase offering by 25% (Bloomberg)
• Boehner Draws Line in Sand on Debt (WSJ)
• Romney Attacks Obama Over Recovery Citing U.S. Debt Load (Bloomberg)
• BHP chairman says commodity markets to cool further (Reuters)
• Merkel’s First Hollande Meeting Yields Growth Signal for Greece (Bloomberg)
• Greek President Told Banks Anxious as Deposits Pulled (Bloomberg)
• EU to push for binding investor pay votes (FT)
• Martin Wolf: Era of a diminished superpower (FT)
• China’s Hong Kong Home-Buying Influx Wanes, Midland Says (Bloomberg)
• U.N. and Iran agree to keep talking on nuclear  (Reuters)
• US nears deal to reopen Afghan supply route (FT)

All you need to read.

All yopu need to read.

Stop us when this sounds familiar. Last week's 365K number has been revised to 368K, which is where the expectations for this week's print were. Instead, we got 367K claims this week, a 1K beat to expectations, which will be a 2K miss next week of course, but at least the pre-election propaganda media has their headline: "Initial Claims improve by 1,000." And scene. Naturally, the same thing happened for continuing claims, which beat expectations of 3275K, printing at 3229K, with the last week's print revised to 3290K from 3276K. The more disturbing form an end demand standpoint data, is that yet another 40K dropped off extended claims and EUCs. Finally in what is the best new for the market, and worst for the Economy, is that the March trade deficit soared to $51.8 billion, on expectations of -$50 billion, which was the biggest trade balance drop in 10 months. What this means is that Q1 GDP which already is tracking at 1.9%, just got lobbed to 1.5%. Yes: the Q1 GDP first revision will likely show the 2.2% number is now in the low to mid 1% range.

European equities continue the downward trend throughout the morning, despite opening slightly higher. Similarly to yesterday the moves are not data-driven, however the ECB have revised their forecasts for Euroarea growth downwards to -0.2% this year from -0.1% and have revised their inflation outlook upwards to 2.3% from 1.9%. The focus remains on Greece as the PASOK leader Venizelos grabs the baton and now attempts to form a stable coalition. Commentary from Greece so far has not been revelatory; Venizelos has reiterated that he wishes to remain within the Eurozone and affirmed that his party has not changed its policy with respect to the bailout. Flight to quality is observed throughout the markets, with the German Bund already testing yesterday’s highs several times and the major cash equities seen lower throughout the continent.

There was no good news overnight: CSCO (a rather prominent DJIA member) imploded on global demand weakness, China posted a larger than expected trade surplus which however was due to a greater than expected drop in imports, European industrial production was slightly better in Italy but offset by worse than expected news out of France (as for Greece - forget it), while all the attention continues to be focus on how the Greek endgame plays out, and now Spain too. Still, futures are on the cusp of greenness simply because following 6 days of declines stocks are oversold, and will desperately try to rally into any good news: such as initial claims later today, which will once again be spun as "declining" following a bigger upward revision to last week's number, making this week's appear to drop... at least until next week. As usual be on the watch for any erroneous headlines based on spurious rumors out of Greek developments: these tend to more the EURUSD, and thus ES, quite violently.

• Borrowers Face Big Delays in Refinancing Mortgages (WSJ)
• Greek left attacks ‘barbarous’ austerity (FT)
• Would-be suicide bomber was U.S. informant (Reuters)
• Cameron says Euro needs single government: report (Reuters)
• Demonstrators targeting BofA annual meeting (Reuters)
• Moody’s Bank Downgrades Risk Choking European Recovery (Bloomberg)
• Lehman E-Mails Show Wall Street Arrogance Led to the Fall (Bloomberg)
• What Hollande must tell Germany (Martin Wolf) (FT)
• Why France Has So Many 49-Employee Companies (BusinessWeek)

While Turkey has assured the U.S. government it will cut purchases of oil from Iran by 20% this year, its total trade with the Islamic Republic increased 47% to $4.8 billion in the first quarter from a year earlier. Sanctions aimed at isolating Iran because of its nuclear program, combined with revolutions in the Middle East, have spurred a tripling in the region’s purchases of Turkish precious metals and jewels to $942 million in the first three months, from $282 million in the same period last year. This 30% increase in demand is contributing to gold remaining above $1,600/oz in what has all the hallmarks of another period of consolidation prior to higher prices. “Turkey is exporting massive quantities of gold to Iran and Arab Spring countries as citizens in those countries switch to portable wealth,” Mert Yildiz, chief economist for Turkey at Renaissance Capital, told Bloomberg on April 30. The increase in trade with Iran comes as sanctions make it harder for trading partners such as Turkey, India and China to pay in dollars and euros. Iran said in February it would accept payment in any local currency or gold. Reuters report today that Iran is accepting payments in yuan for some of the crude oil it supplies to China, the Iranian ambassador to the United Arab Emirates said on Tuesday. "Yes, that is correct," Mohammed Reza Fayyaz told Reuters when asked to comment on an earlier report in The Financial Times.

After plunging by 19 points in the overnight session, and just touching the 100 DMA, ES has managed to score a recovery, one which has so far clutched at straws, namely stronger than expected German factory orders (+2.2% vs Exp. 0.5%) despite German GDP due in a week which may well push the core European country into the same double dip tsunami which has swept the resto of Europe, if it prints even a slightly negative GDP print. News from Spain that the "bad bank" bailout has started, with Bankia as the first casualty is also lifting spirits as it means that more taxpayer cash will be used to support risk assets. How long this micro euphoria of "bad news is good news" lasts is anyone's guess, but mostly that of the BIS which after failing to defend the 1.3000 EURUSD, has again managed to get the all important pair over the critical support area. 

When we talk about Europe today in an economic context, we really mean the Eurozone, whose seventeen members are the core of Europe and share a common currency, the euro. The euro first came into existence thirteen years ago, on January 1, 1999, replacing national currencies for eleven states; Greece joined two years later. In theory, the idea of a common currency for European nations with common borders is logical, and it was Canadian economist Robert Mundell's work on optimum currency areas that provided much of the theoretical cover. However, the concept was flawed from the start.