“Distrust and caution are the parents of security” — Benjamin Franklin

1. Japan overhauls its public pension fund — Reuters, the government announced a reshuffle of the Investment Committee of the $1.26 trillion Government Pension Investment Fund (GPIF), in line with Abe’s drive to have the fund make riskier investments and rely less on low-yielding government bonds. The revamp is part of Abe’s “third arrow” of his strategy to reform the economy and lift Japan out of deflation.
2. European Central Bank (ECB) could embark on a broad-based asset buying plan — ECB President Mario Draghi said Weaker inflation could prompt broad ECB asset-buying. He also added that a further strengthening of the euro could also prompt action.
3. The FDA is set to unveil proposals to regulate electronic cigarettes — the proposal will include an eventual ban on sales to anyone under 18 and manufacturers will also have to gain FDA approval for their products, disclose the chemicals used in the devices and add health warnings about the addictiveness of nicotine. Lorillard (LO) commands almost 50% of the e-cigarette market in convenience stores, while Altria Group (MO) and Reynolds American (RAI) are starting to ramp up their offerings.
4. China’s manufacturing sector has contracted for a fourth consecutive month in April — the HSBC PMI gauge has edged up to 48.3 from 48 in March. “Domestic demand showed mild improvement and deflationary pressures eased,” says HSBC, “but downside risks to growth are still evident as both new export orders and employment contracted.”
5. Alaska Legislature approves state stake in major gas pipeline, LNG project — Alaska’s legislature has approved Governor Sean Parnell’s proposal to allow the state to negotiate the export of natural gas with BP (BP), ConocoPhillips (COP), ExxonMobil (XOM) and TransCanada (TRP). The plan is to build an 800-mile pipeline to a liquefied natural gas export plant, with the project set to cost $45B-65B. The state would retain ownership of 25% of the LNG plant.
6. S&P has reduced Russia’s rating by a notch to BBB-, one grade above junk level, S&P kept the country’s outlook at negative as the tensions with Ukraine continue to ratchet up. Russia began military exercises on its border with Ukraine in response to the latter killing five pro-Moscow rebels during attempts to reassert control over the eastern part of the country.

The week ahead — Economic data from Econoday.com:

“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” – Arthur Schopenhauer

1. Pro-Russian protesters occupied at least nine cities in the east of Ukraine — Pro-Russian armed separatists in several cities in eastern Ukraine have ignored a deadline from Ukraine’s government to disarm, and vacate administrative buildings and other positions they’ve taken up. Ukraine, which blames Russia for the escalating tension, has threatened to carry out a “large-scale anti-terrorist operation” on the separatists.
2. People’s Bank of China disclosed it withdrew 172B yuan ($28B) through repurchase agreements — China’s money supply grew at its weakest pace in over a decade during March. Subsequently, new car sales in China decelerated in March to a 6.6% growth rate, according to the China Association of Automobile Manufacturers.
3. China’s Growth Slows to Six-Quarter Low — Bloomberg, China’s expansion moderated to the weakest pace in six quarters and property construction plunged. 1Q GDP moderating to 7.4% on year from 7.7% in Q4 but topping forecasts for 7.3%. The figure is below the government’s target of 7.5%, although the country’s leaders have indicated that the goal is flexible as they try to implement reform.
4. Fed’s Beige Book Showed consumer spending improved along with the weather — according to the reports from the 12 Federal Reserve Districts, the latest number suggested economic activity increased in most regions, but Cleveland and St. Louis saw declines. February’s Beige Book (released on March 5) blamed Mother Nature for the slowdown.

“I ‘m convinced that everything that’s important in investing is counterintuitive, and everything that’s obvious is wrong” — Charlie Munger

1. The Bank of Japan (BOJ) has kept its key interest rate unchanged — BOJ kept rate at 0.1% and left unchanged its program of expanding the monetary base by ¥60-70T ($580-680B) a year. The BOJ refrained from further easing and maintained its optimism about the economy despite concerns about the impact of a rise in sales tax that took effect last week.
2. Another Coal Company filed for Bankruptcy — James River Coal has filed for Chapter 11 with $818.7M in debt after missing an interest payment on $275M of senior notes. As with Patriot Coal (OTC:PATCA), which filed for bankruptcy protection in July 2012, James River Coal (JRCC) has suffered from falling coal demand due to gas prices plunging because of the shale boom.
3. Greece returns to bond markets — MarketWatch, struggling Greece is scheduled to tap the international capital markets in a long-term bond sale as soon as Wednesday after an exile from the financial community since 2010. The 10-year yield fell below the 6% level late last week. Although Greece’s bond is almost 450 basis points higher than the German equivalent, it’s a major improvement from the +30% levels in early 2012.
4. Federal Regulators told eight largest U.S. banks to increase reserves — 8 largest banks were told to increase another $68B in loss-absorbing capital after U.S. regulators voted to raise the “leverage ratio” to 5-6% of their total assets, well above the Basel III standard of 3%. The banks affected include JPMorgan (JPM), Citigroup (C), Bank of America (BAC) and Goldman Sachs (GS). The eight firms have until January 1, 2018 to comply with the new rule.
5. Chinese exports tumbled 6.6% on year in March — Bloomberg, China ‘s overseas shipments declined 6.6 percent from a year earlier, the customs administration said in Beijing. The drop attributed to distortions from inflated data in early 2013. Imports fell 11.3 percent, in part on falling commodity prices, leaving a trade surplus of $7.71 billion. Imports slumped a worse-than-expected 11.3%, while the trade balance swung to a surplus of $7.71B from a deficit of $22.98B.
6. Japan’s Cabinet has approved a controversial plan to reinstate nuclear energy — Japan government plans to reinstate nuclear energy an important source of electricity, although there are doubts about how big a role atomic power will be able to play. The country’s nuclear plants were shut following the Fukushima disaster over three years ago, which has caused the country to significantly increase its energy imports.

The week ahead — Economic data from Econoday.com:

“In skating over thin ice our safety is in our speed.” – Ralph Waldo Emerson

1. China ‘s PMI data painted a mixed picture of the country’s manufacturing sector — China (FXI) official gauge, which focuses on larger state-owned enterprises, edging up to 50.3 in March from 50.2 in February. The HSBC index, which gives more weight to smaller private companies, slipped to 48 from 48.5. HSBC says that its reading confirms the weakness of domestic demand and that it implies 1Q GDP growth of below the annual goal of 7.5%.
2. FBI Probes High-Frequency Trading Firms for Abuse of Information — Bloomberg, Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors. the agency is looking at whether traders manipulate the market by placing a set of orders and then very quickly canceling them. In a 60-minutes interview, Michael Lewis accused high-speed trading firms of rigging the markets in a new book called “Flash Boys.”
3. Virtu Financial, High-Frequency Trading Company delayed marketing its IPO — company has delayed its IPOs as increasing controversy over high-frequency trading (HFT). Virtu’s (VIRT) postponement comes after Michael Lewis accused HFT firms of rigging the market in a new book called “Flash Boys,”. The FBI has disclosed that it’s also investigating the industry as well as the SEC. Late last Friday, the Department of Justice (DOJ) also joined the fray.
4. China unveiled mini-stimulus package — China announced a program which includes selling 150B yuan ($24.6B) in bonds for railway construction, improved housing for the low paid, and tax relief for struggling small companies. The size of the package won’t come close to the massive 2008 stimulus that boosted growth but also bad loans.
5. Stock Market Since 1900 — the chart below shows the S&P Composite Index, on a logarithmic scale, since 1900. The log scale helps illustrate long-term index patterns, namely the distinct periods of range bound and trend bound markets.

The week ahead — Economic data from Econoday.com: