Today’s Top Stories; Short sales; Germany’s plan to deal w/budget transgressors

Today’s Top Stories

· things in Europe are pretty quiet aside from the German short selling restrictions, which are weighing hard on equities.  The DJ Euro Stoxx 50 is off close to 3% today and hitting the lowest levels since May 7 (like US equities, Europe is closing in on trading under the May 7 close, which was the Fri prior to the European bailout being announced). 

· Short sales – the UK’s FSA says the German ban would not apply to branches of German institutions outside the country.  "The scope of these bans relates to German participants or business taking place inside Germany and does not cover branches of German institutions outside Germany or in the UK."  Reuters 

· Short sales – no coordination throughout Europe - It was not clear whether other euro zone governments would follow Germany's lead, though Austria suggested it would seek to discuss an Europe-wide measure at a European Union finance minister's meeting on Friday; however, A Europe-wide ban on naked short selling and naked credit-default swaps of government bonds is “doubtful,” Eddy Wymeersch, Europe’s top market regulator, said; France said it isn’t considering a ban on naked short selling and called for a meeting of market regulators on sov debt trading – Reuters/Bloomberg  

· Germany’s plan to deal w/budget transgressors could be an even bigger deal than the short selling restrictions – “As a last resort, a managed insolvency proceeding for bankrupt states”  This last line is raising fresh worries (FT Alphaville)  

· Away from the short selling rules, the German parliament started debate this morning on the recently approved European bailout – in her opening remarks before the parliament, Merkel warned that the euro was in danger. 

· Euro value – IMF says euro’s current level is close to an “equilibrium” value and its decline to the lowest level in four years against the dollar may help Europe’s exports; “The euro is rather close to what we would consider equilibrium value after an extended period at which it traded above that value.” – Bloomberg

· German bond demand lackluster – analysts blamed the runup in bund prices, in large part thanks to the German gov’t’s own new short sale restrictions, caused demand to be tepid.  Reuters 

· Portugal bond auction - sold 500 million euros ($609 million) of bills due in February next year.  The securities were issued at an average yield of 2.443 percent.  The debt attracted bids for 2.3 times the amount offered, compared with a ratio of 3.1 in Mar.  Bloomberg

· China was off small and there weren’t too many fresh headlines out of the country about officials slowing growth, etc, although investors are on heightened alert for signs of faltering demand out of the country. 

· Primaries – Specter loses in Pennsylvania as Rep Joe Sestak stages an upset; in Kentucky, Rand Paul (son of Ron) beat the establishment favorite Trey Grayson (Politico)

· Tech/Notebook Update - Taiwan-based notebook makers are seeing their clients reduce order volumes for late May and June mainly due to the dropping value of the euro caused by Europe's bond crisis (Digitimes) 

· Tech/panels - LG Display (LGD) saw its notebook panel shipments drop by almost one million units to 4.2 million in April, as clients canceled orders amid weakening demand from Europe (Digitimes)

· HPQ earnings - EPS/revs beat; no unit really stands out (ESS revs ~$500MM better); low-end of Apr-Q EPS is tad light of St; inventories actually down couple hundred million Q/Q; encouraging comments on Europe - HP says they feel better about Europe going forward; HP mgmt says the biggest issues are more FX related than underlying demand related; HP says they saw demand pick up in Europe across countries and across product segments.  HP says the euro exposure is only ~25% of revs….combined w/natural and artificial hedges, the overall impact isn't too great. 

· Rail update – from JPMorgan’s T Wadewitz – raising ests - We raised our 2010 rail EPS estimates in March and our estimates generally went up further in response to 1Q results. Although we are not that far into 2Q, the volume trends for most of the major railroads are significantly better than we had forecasted.