Greece & taxes; In China, a Treasury bill auction failed to draw enough bids for the second time this month; Eurozone stability

Today’s Top Stories

· European theme this morning - steep budget cut announcements will hurt economic growth and could push some countries into disinflation or outright deflation (see Spain's inflation data today - prices turned lower for the first time in ~25 yrs); this is prompting speculation that a true QE program from the ECB may be needed (vs. the ECB-lite program unveiled last Sun night).  Media reports have indicated that while the ECB was in the market on Mon buying sov debt, those purchases have trailed off throughout this week.  Meanwhile, the ECB is expected to announce next week how it plans on "sterilizing" its bond purchases.  Combined w/the split at the bank about whether it should even be engaging in bond buys (see Germany/Weber's comments earlier this week), the market is starting to wonder about the ECB's true appetite for QE at the exact time when it may be needed most. 

· Eurozone stability - a Spanish newspaper, El Pais, is reporting this morning that France president N Sarkozy apparently threatened to withdraw from the euro unless Germany backed the EU's bailout plan; the threat was made during last weekend's meetings.  Bloomberg

· In China, a Treasury bill auction failed to draw enough bids for the second time this month. China shares today fell in part b/c of speculation of a weekend rate hike, per AP. Note that trades have been talking about China taking action (either yuan adjustment, rate hike, etc) ahead of the Strategic Dialoge talks w/the US (due to take place May 24-25) per AP. Also in Asia, HK Q1 GDP came in below expectations and Japan’s PM Hatoyama saw support plunge (fell 19% in May).

· Debit Cards – neg. development last night as the Durbin amendment passes in a “surprise” move (per American Banker); JPMorgan’s T Huang has a note discussing the implications for V/MA

· Wall St structured finance investigations – some are talking about a global settlement according to the NYT – many are starting to think that Wall St will pursue a global settlement of all issues similar to the ’02 research resolution (NYT) 

· JPMorgan credit call - Upgrading Brokers to Overweight - Financial reform legislation, potential rating agency downgrades if/when a bill passes, and headline risk from investigations into Wall Street will make Financials volatile. Despite this, we move Brokers to an Overweight recommendation as we believe current spreads price in a significant amount of the downside risk. 

· Semi Update – NVDA earnings last night taken as disappointment as co guides for normal seasonal decline in Jul revs Q/Q despite ramp in new products; also this morning in the group: Semi update from JPMorgan’s C Danely - Expect Semis to Rally During Tech Conference on Bullish Tone, Believe CY and ADI Could Rally Most - We expect semiconductor company commentary to be almost universally bullish at the semiconductor conference with indications that 2Q10 is progressing as expected or better than expected and bookings for 2H10 continue to be strong.  

· Greece & taxes - Greek officials are using satellite photos to determine how many pools exist in the country (pool owners have to pay a tax); there are only 300 households in the north of Athens w/declared pools while satellite photos have revealed that 17K pools actually exist.  Owners are rushing to cover their pools w/tarp to avoid being seen from space.  CNBC