Geopolitical Risks Research

China - The Shanghai index fell >2% after a number of hawkish headlines crossed inc. a) the PBOC's quarterly monetary policy report said that stabilizing prices/inflation expectations are its top priority & that bank RRRs have no 'absolute ceiling', b) the China Securities Journal has a front page article discussing a rate hike in May, and c) the Shanghai Securities News has an article discussing expanded controls of the property market into additional cities. HK was off >1% in sympathy with China while Japan remains closed

· Europe - In Europe, Portugal reached a deal on a bailout (news hit late in NY trading on Tuesday) and Finland is reportedly moving closer towards backing the bailout. Despite the fact that certain details haven't yet been disclosed (such as the interest rate), sovereign CDS spreads are tighter for Portugal (dn 35bps), Ireland (dn 26bps) and Greece (dn 20bps).

· South Korea is considering investing part of its foreign exchange reserves in yuan-denominated Chinese securities – DJ

· Debt ceiling – Boehner said he favors dealing w/the debt ceiling “sooner rather than later”.  "Why wait?" he said, adding that he would rather address the matter "sooner rather than later.".  Reuters

· Precious metals – the WSJ reports that some prominent HFs have started selling their gold and silver positions in recent days, “signaling the sector’s rally may be entering more dangerous territory”.  One prominent HF manager thinks the chance of deflation has been reduced, lessening the need for large precious metals positions.  The article notes the huge volume in the silver ETFs and talks about some investors receiving margin calls.  While some HFs are selling, other major managers remain committed.  WSJ   

· Mexico’s CB buys 100 tones (~$4.6B at current prices; ~3.5% of mined output) of gold in Feb and Mar according to the FT; becomes the latest emerging market country to turn towards gold as a way of diversifying out of the US$.  This marks one of the largest gold purchases by a CB in recent history.  FT  

· Banks – while only Deutsche Bank was named in a $1B lawsuit Tues, the DoJ may pursue claims against other lenders.  The Housing and Urban Development Department is examining loans insured through the Federal Housing Administration and may refer additional cases to the Justice Department, HUD’s general counsel, Helen Kanovsky, said yesterday in an interview.  Bloomberg

· MasterCard SpendingPulse for April (note we get retail same-store-sales Thurs morning) – Easter Shift boosted Clothing & Luxury sales while Electronics & Appliances remain weak.  Overall, "discretionary dollars for the most part seem to be holding up," McNamara said. "But as you move down the price spectrum, you see more pressure because of gas prices." Sub-Sector Color - Clothing sales +10.4% (Men’s +12.4%, Women’s +7%, Family inc. Teen +10.6%, Footwear +6.3%), Luxury +9.6%, Electronics & Appliances dn 1.8% (Appliances dn 6.7%), Online +19%, Higher gasoline prices hurting sales of furniture & furnishing - +0.1%. Impact of Gasoline - Consumers driving less amid rising gas prices; “Prices rising despite lower demand continues to erode wallets and we can expect it will have a more negative impact over time.”  CNBC/Bloomberg http://www.cnbc.com//id/42880852 Recall that SHLD's Q1 Appliance comp yesterday came in weak.

· LVS: Las Vegas Sands reported weaker than expected Q1 2011 earnings last night; Macau was in line with high expectations while Las Vegas and more importantly Singapore disappointed (in part due to low hold %).

· Economy – cautious NYT article – says that for the second straight year, the economy appears to be at risk of stalling out.  The Times article points out that the conditions today are similar to this time last year, just before growth started to falter and the Fed was forced to pursue QE2.  NYT   

· Banks – Bloomberg is reporting that global regulators may permit large banks to use CoCos to meet additional capital requirements.  CoCos are being considered to count towards the capital surcharge requirements that will be imposed on “too big too fail” banks.  Bloomberg