Morning Note...

Futures slightly lower (-5bps) this morning on the back of AA’s anemic kick-off to earnings season.  In economic news, the February Trade Balance came in at -$39.7B vs. the -$38.5B estimate and the January -$37B revision.  The takeaway is that the economic rebound continues as imports into the U.S. rise.  According to the chief economist at Bank of Tokyo-Mitsubishi UFJ, “The primary driver of the widening trade deficit is the American consumer who lately is feeling more confident and starting to spend again on foreign goods.”  The month-over-month import price index was +0.7% vs. the +1% estimate, and the year-over-year import price index reading is +11.4% vs. the +11.7% estimate.   CSX and INTC earnings today will be closely watched.  In political news, China reiterated that it will revalue the yuan on its own terms and not from foreign pressure after a meeting between the Chinese President and our President Obama.  In Europe, Greece sold 780 million euros, with a 26-week maturity and a yield of 4.55%, drawing demand 7.67 times higher than expected; while other 780 million euros with a 52-week maturity were placed at 4.85% with a 6.54 times over subscribed book—it is important to note that back in January, Greek’s 52-week bills yielded 2.2%.  As mentioned earlier, AA earnings are weighing on markets this morning.  The global bellwether stock, whose products end up in everything from soda cans to passenger airplanes, reported in-line earnings but missed on revenues, and is trading down nearly 2%.  According to the Bloomberg news story, investors and analysts were less-than-impressed with the earnings release:

“Alcoa’s revenue is weaker than you would expect and a pickup in the end-markets is still not there,” said John Stephenson, who helps manage C$1.65 billion ($1.64 billion), including Alcoa shares, at First Asset Investment Management in Toronto. “While the economic recovery seems to be moving forward, maybe it won’t be quite as robust as people hoped.”

“I don’t know why they didn’t do better in the first quarter than they did,” Charles Bradford, a partner at New York-based consulting firm Affiliated Research Group LLC, said in an interview yesterday. “They did report some improvement, but it wasn’t much. Some areas of the business are looking better, like commercial transport, but building construction is looking terrible.”

Something else interesting from Bloomberg news…the 14-day RSI (relative strength index) for the S&P500 has been above 65 since March 5^th, which is the longest stretch since 1995.  Today would mark the 27^th day in a row above that level, which would be the most in 24 years.  According to the article, “the current streak suggest investors are reluctant to sell, making a collapse unlikely.”  In that vein, here are some interesting tidbits this morning from BofAMLCO’s April 2010 “Global Fund Manager Survey” results:

The Full Goldilocks

The April FMS shows investor expectations are for robust growth (just 11% think growth slows), big profits and contained inflation...the full Goldilocks. In a super sign for structural bulls, investor belief in "above-trend" growth leaped. But short-term markets now vulnerable to growth disappointment and/or a jump in rates (consensus predicts 4.15% year-end for 10-year US Treasury yield).

No More Deleveraging Please

For the first time since December 2007 investors rank higher dividends and capital spending as higher priorities than balance sheet deleveraging, a sign the balance sheet recession has ended and a view consistent with equities outperforming corporate bonds.

No Cash = Correction Signal

Cash balances dropped to 3.5%. In 4 out of the past 5 occasions cash fell to 3.5% or below, equities corrected 7.1% in the following 4 weeks. As in January, asset allocators are once again very overweight equities (+52%), underweight bonds (-48%) and, in a rare admission, underweight cash too (-4%). 

Banks Ain't So Bad After All

The big underweight of global banks narrowed dramatically to -10%. April saw a pro-cyclical shift to materials (18%) and industrials (27%, highest since May '06) and away from utilities (-35%, lowest since May '06). Tech is still the big favourite.

Europe a No-Go Zone but the Yen Better Decline

Eurozone and UK remain no-go regions for asset allocators. More investors expect the yen to weaken than at any time since March 2002. So no surprise the Japan equity OW (+12%) reached its highest level since July 2007. Investors are overweight the US and Emerging Markets. 

Pain Trades

Treasuries outperform Equities; Eurozone outperforms; Yen appreciates; defensives outperform cyclicals.

Note that Treasury Secretary Geithner has an op-ed in the Washington Post:

“America is close to turning the page on this economic crisis…. we have now reported three quarters of positive growth and the beginnings of job creation. As the economy improves, we are winding down the Troubled Assets Relief Program, and Congress is moving toward enacting the strongest financial reforms since those that followed the Great Depression”

WSJ reports that Twitter will begin showing ads today.  EXPE upgrade at GSCO – added to Conviction Buy List.  INFY reports 4c better.  TNC reports better and raises guidance.  AONE upped to Buy at DBAB.  BPOP higher on earnings.  CF launches 11M share offering.  CROX upped at TWPT.  EPD launches 11.5M share offering.  ESI, DV upgrade at CSFB.  KEY, AA, RF, TCB, HBAN, CBSH cut at UBSS.  TI cuts revenue targets.  TLB higher on earnings.  FBRC ups CBE, WCC.  OPCO ups COP.  DBAB cuts HOG. FBRC cuts DHR.  GSCO cuts PCLN.  JPHQ cuts ASCA. 

Asia was lower except for China, which rose on chatter of a weaker-than-expected CPI release later this week (+2.4% was whispered, versus the +2.6% estimate).  Europe mixed.  USD -30bps.  Gold -50bps.  Oil -1%. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 

CONSTELLATION-A         15.75    -8.16%  2000

FANNIE MAE                  1.34      +8.06% 4350237

EXPEDIA INC                  26.54    +5.4 %  42555

FREDDIE MAC                1.63      +4.49% 1543724

MBIA INC                       8.37      +3.33% 173776

KEYCORP                       8.11      -2.76%  15900

TEREX CORP                  26.49    +2.75% 900

REGIONS FINANCIA        8.50      -2.75%  69437

Today’s Trivia:  Blatantly stolen from Final Jeopardy last night:  In 2008, Middlebury College in Vermont won its 2^nd national championship in what new sport that comes from a 1997 novel?

                                                                                                                                                                             

Yesterday's Answer:  According to National Geographic TV, the odds of being killed by a shark in any given year are 1 in 280,000,000.  The odds of being killed by a dog are 1 in 147,000. 

                                                                                                                            

Best Quotes:  “Schizophrenic session across the region as indices flip flopped as traders all watched the A shares trade in a cumulative 5.5% range. Chinese whispers a very appropriate phrase as there was very little concrete to apportion for the wild moves today which saw a YTD record volume on the mainland with more than $50bn in turnover. There has been plenty of speculation of an imminent RMB move yet following the meeting between Hu and Obama some cold water has been poured on hopes for a quick resolution as Hu said that "China will not make a move due to foreign pressures". This was one of the reason behind a sharp 2% drop into the midpoint however sentiment was revived as speculation on a 2.4% CPI number (vs est of 2.6%) dragged SHCOMP and the rest of the region higher. Indices still feel uncomfortable around the big figures (22k HSI, 13k H shares, 8k Taiwan, 5k ASX, 3k STI) flow across the floor paired off today, HF who drove much of the rally last week (2:1 a buyer) turning seller today as this segment closes 1.6:1 for sale. Institutions continue to reduce across the region as they have done all month.

Resources one of the prime movers of the recent rally yet Alcoa figures sparking some profit taking here as they deliver numbers that were in line at best. Resource names across the region down between 2-6% as a result. Posco posting in line revenue numbers after the close, however they indicated more price hikes to come as they try to pass on the significant cost increases faced YTD. With JPY easing today after comments from DPJ that they would like to see the currency at 120 to help foster the country's recovery will be interesting to see how the competitive landscape would change for the Korean exporters should the DPJ get their wish, they also hope to target a 2% inflation goal. Maybe miracles do happen? Taiwanese government also trying to foster further economic recovery as it announces a 2nd cut in corporate tax this year to try to lure regional investors away from HK and Singapore, speculation that the government is also contemplating cutting income tax also.”  --MSCO Asia Commentary