Citi’s Chief Economist William Buiter: Strong Global Growth This and Next Year; 3.5-4%

“Citi’s Chief Economist Willem Buiter is out with a new global economic outlook.

There’s a lot of meat to it, but here are the key points:

• Strong global growth this year and next. Global GDP of 3.5%-4% each of the next two years. US GDP will recover by strong business investment and lower energy costs.

• The ECB will signal another rate hike, probably coming in July.

• The EMU credit crisis is not going away, and there’s a good chance of restructuring in Greece, Ireland, and Portugal, while the fiscal slippage risks in Spain aren’t totally appreciated.

• The reputational capital of the US continues to erode, as the dollar slides despite strong dollar rhetoric.

• But in the short term, expect the dollar to rise.”

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“Consumer spending cooled in the first quarter more than previously estimated as the jump in food and fuel costs held back the biggest part of the U.S. economy.

Household purchases rose at a 2.2 percent annual pace from January through March, less than the 2.7 percent calculated last month and short of the 2.8 percent median forecast of economists surveyed by Bloomberg News, according to Commerce Department figures issued today in Washington. The economy grew at a 1.8 percent pace last quarter, the same as previously calculated.

Stocks dropped as the report, combined with other data showing more Americans unexpectedly filed claims for jobless benefits, raised concern last quarter’s slowdown will persist. Manufacturing, at the forefront of the recovery that began in June 2009, may also cool this quarter amid parts shortages resulting from the disaster in Japan.

“Consumer spending was pretty anemic last quarter, and households are likely to be somewhat restrained going forward,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast GDP would be revised to 1.9 percent. “Economic growth will run a little faster than the first quarter but nothing blockbuster.””

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“Delphi Automotive PLC, once the world’s largest automotive parts maker before a lengthy stay in bankruptcy protection, plans a return to public stock markets, the latest sign that the U.S. auto industry has regained its footing.

The company registered to sell as much as $100 million in shares with proceeds being used to acquire equipment and repay debt. A Delphi spokesman declined Thursday to specify when the IPO could take place. The number of shares to be offered or price range wasn’t disclosed in its filing on Wednesday.

After shedding 70 of its facilities and cutting 83,000, Delphi said it intends to use its lower-cost structure to win new business from auto makers around the world. The Troy, Mich., parts maker earned $291 million in the quarter ended March 31, up from $215 million a year earlier. Revenue jumped 17% to $4 billion.

The company said it will focus on producing and selling products that fits with what it calls the “future mega trends” of the auto industry—safety, environmentally friendly and connected. Its product portfolio now contains electronics, powertrain systems such as fuel-injection technologies, electrical architectures within the vehicles, and thermal parts for heating and cooling.”

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Spreads are up 6% to $26.4.

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“(Reuters) – China’s yuan and its emerging economy peers could become reserve currencies sooner than many investors think, as some experts reckon the hurdles of convertibility and policymaker inertia are easily negotiated.

China and other countries from the BRICS nations — Brazil, Russia, India and South Africa — would like their currencies to make up part of the International Monetary Fund’s special drawing right (SDR), which is used as a reserve asset.

Chinese officials have asserted that widening the SDR basket would heighten the yuan’s profile as a potential reserve currency, with some experts seeing the SDR growing into a partial substitute for the dollar.

The SDR, now composed of just U.S. dollars, euros, British pounds and Japanese yen, broadly reflects the composition of the $9 trillion held in global central bank reserves.

The SDR makes up 4 percent of those reserves due to allocations by the IMF, the most recent being in 2009.

To the extent that the SDR reflects these holdings, any change to its make-up could help significantly rebalance those reserve savings.

The issue of entry into the SDR has been debated at recent BRICS and G20 meetings, as part of discussions on reform of the international monetary system.

Dampening hopes for an early widening of reserve currencies, the IMF refrained from adding any currencies to the SDR in a review at the end of last year, and another formal review of the SDR basket is not due until 2015.”

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Bad trade.

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“The credit clock is ticking and the time for high yield investment may nearly be up, according to Citi’s Matt King and Hans Lorenzen.

King and Lorenzen believe that, based on the balance sheet status of corporations, the credit cycle is clearly moving forward leaving behind the opportunities for high-yield bond investors.

From Citi:

Putting together the anecdotal information and the statistics, in US high grade, the bondholder-unfriendly stage of the leverage cycle seems only a few quarters away. The pick-up in M&A is US specific (with European companies still being more cautious), and in high yield we are less concerned in any case. But the workings of the leverage clock therefore mean that the underperformance of credit relative to equities, which began in March, is probably only a foretaste of further underperformance to come (see Figure 49). It is not so much that we expect a violent turnaround; it is simply that we see little reason to chase the market here, and quite a few reasons to lighten up.”

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“Eurogroup president Jean-Claude Juncker just said that the IMF may not give Greece the next tranche of its bailout funds next month, according to Bloomberg.

Juncker says that, according to IMF rules, refinancing guarantees must be in place for 12 months. That means the IMF needs to be convinced that Greece can rollover its debt for the next 12 months without any problems

If it isn’t convinced, then it won’t shell out the cash. We should know the IMF’s decision by early next week, according to Juncker.

And Juncker says the “troika,” or ECB, IMF, and EU, won’t be convinced that this is “a given.” Juncker says the IMF expects the EU to step in and bail Greece out if they don’t (via Neil Hume).

In that scenario, the EFSF, or European Financial Stability Fund, will be tapped for more cash. That’s unlikely to go over well in countries like Germany and Finland, where people are already upset over the costs of the bailouts. Political opposition from EU members states could mean the end of bailout cash for Greece.

Greek CDS is now wider, by 45 bps, according to Markit’s Gavan Nolan. The euro has moved sharply lower on the news. Stocks have also moved lower on the news.”

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Is this the final nail in the inflation coffin ?

“Staffing agencies are charging companies more for temporary workers, a possible harbinger of a bump up in salaries for permanent employees later this year.

The bill rate at Calabasas, California-based On Assignment Inc. (ASGN), which places temporary staff primarily in the information technology and health-care fields, climbed 6.3 percent in the quarter ended March 31 from the same time last year, the largest 12-month gain since 2008.

The increase in the amount the company charged was “surprising,” said Tobey Sommer, a staffing analyst at SunTrust Robinson Humphrey Inc. in Nashville, Tennessee.

Agencies like On Assignment are the first to reflect shifts in wages because demand for their services is more immediate, prompting “real time” changes in fees, Sommer said. By contrast, he said, employers calibrate compensation for permanent workers less frequently, causing those adjustments to lag behind.

The temp labor market is a “canary in the coal mine” for broader gains in wages, Sommer said. “Bill-rate increases are starting in areas where demand is the strongest, like the IT sector. The logical next step is for bill rates to improve more broadly and ultimately be reflected in the wage gains of permanent employees.”

On Assignment had “robust” revenue growth in its information technology and engineering business during the first quarter, driven in part by higher contract rates, Chief Executive Officer Peter Dameris said on an April 28 conference call. “Exiting the quarter, demand for our services strengthened in all divisions,” he said.”

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“U.S. wheat futures rose on Thursday, extending gains into a second straight day as unfavorable weather conditions threaten crops in main producing countries, while corn jumped as plantings lag at rain-soaked farms in the United States.

Excessive rains have delayed seeding of U.S. corn, soybean and spring wheat which could reduce yields. Wheat crops are also suffering from dry weather in the United States, Europe and China.

“Weather is giving wheat growers a double whammy. It is too dry in China and Europe, and there are excessive rains in the U.S.,” said Ker Chung Yang, an investment analyst at Phillip Futures in Singapore.

Showers in the northern U.S. Plains put spring wheat plantings behind schedule, with planting only 34 percent complete in the top wheat state of North Dakota, down from the normal pace of 85 percent.

Rains and floods have hit the U.S. spring wheat planting window, which is progressing at its slowest pace since 1986.”

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(Reuters) – Britain’s billionaires are more likely than their U.S. counterparts to have made their own money rather than inherited it, a study has found, challenging popular perceptions of greater social mobility in America.

A survey by French bank Societe Generale and Forbes of super-rich people in 12 countries, many of whom are billionaires, found 80 percent of the British sample entirely “self-made,” as opposed to inherited wealth or a mix of both.

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The terms were sent to Spain.

Madrid (CNN) — The office of Libya’s prime minister sent a message to the Spanish government listing “a series of proposals that could lead to a ceasefire,” a spokesman for Spanish Prime Minister Jose Luis Rodriguez Zapatero said Thursday.

The message, from the office of Prime Minister Baghdadi al-Mahmoudi, was also sent to other European capitals, the spokesman said, adding that he could not name which capitals.

Spain has contributed military assets, including troops, to the NATO-led mission to enforce a no-fly zone and protect civilians in Libya.

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WASHINGTON (AP) — More people applied for unemployment benefits last week, the first increase in three weeks and evidence that the job market is still sluggish.

The number of people seeking benefits rose by 10,000 to a seasonally adjusted 424,000, the Labor Department said Thursday. No states cited extreme weather as a factor in the increase, a department spokesman said. Tornadoes and floods have devastated several states in the Midwest and South in the past month.

Applications are above the 375,000 level that is consistent with sustainable job growth. Applications peaked at 659,000 during the recession.

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WASHINGTON (Reuters) – Corporate profits contracted in the first quarter for the first time in more than two years and the economy grew at the same pedestrian pace as previously estimated, government data showed on Thursday.

Signs of the economy’s struggle to regain speed were highlighted by an unexpected rise in the number of Americans applying for unemployment benefits last week.

“There is no doubt the economy has slowed. We will call the first half of 2011 as a soft patch,” said Robert Dye, a senior economist at PNC Financial Services in Pittsburgh. “We should see growth accelerate in the second half in the 3.0 percent to 3.5 percent area.”

After-tax corporate profits fell at a rate of 0.9 percent, the Commerce Department said, after rising at a 3.3 percent pace in the fourth quarter.

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Upgrades

ORCL – Oracle upgraded to Buy from Hold at ThinkEquity

WCC -Wesco upgraded to Strong Buy from Outperform at Raymond James

PTR – PetroChina initiated with a Buy at Jefferies

CMA – Comerica upgraded to Outperform at Oppenheimer

NETL – NetLogic upgraded to Outperform from Market Perform at Raymond James

XOP – Natural gas fundamentals and sentiment showing signs of life; Oil fundamentals remain attractive – FBR Capital

BKD – Brookdale Senior Living upgraded to Buy from Neutral at Goldman

CHRW – C.H. Robinson target raised to $90 at RBC Capital Mkts after meeting with mgmt

STIR – STAG Industrial initiated with a Sector Perform at RBC Capital Mkts

HST – Host Hotels upgraded to Buy from Neutral at Goldman – added to Conviction Buy List

FITB – Fifth Third upgraded to Outperform from Market Perform at Bernstein

HOGS – Zhongpin initiated with an Outperform at Cowen

SFD – Smithfield Foods initiated with an Outperform at Cowen

Downgrades

AEO – American Eagle downgraded to Sell from Neutral at Lazard

MCP – Molycorp: Share registration does not change the fundamentals – Dahlman Rose

DMND – Diamond Foods downgraded to Market Perform from Outperform at BMO Capital

CAVM – Cavium Networks downgraded to Hold from Buy at ThinkEquity

AAP – Advance Auto downgraded to Neutral from Outperform at Credit Suisse

WAL – Walgreens removed from Conviction Buy List at Goldman

HE – HEICO downgraded to Hold from Buy at Capstone

WMS – WMS Industries downgraded to Neutral from Overweight at JP Morgan

RSH – RadioShack downgraded to Neutral from Buy at Goldman

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Gapping Up

CDTI +33.8%, UBS +1.6%, NTAP +3.6%, CTIC +2.9%, FDO +2.2%, BP +1.6%, RIO +1.1%, HGG +11.0%,RDS.A +0.9%, SD +3.7%, ING +1.5%, DB +1.1%, BCS +1.1%,HBC +0.8%, CEO +1.4%, E +1.2%, TOT +1%, CDTI +33.8%, SQNS +4.1%GES +12.8%, SMTC +7%, LVLT +4.5%, NEOP +4%, SD +3.7%,

Gapping Down

:SIGM -8.5%, CSC -6.9%, RIGL -5.2%, XUE -3.7%,CREG -3.6%, AMAG -2.5%, VLNC -6.3%,

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In Play

On the Wires

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IMO government salaries should track the average income in this country. Bonuses….well let’s just say that should be given out when there is a surplus.

“Reporting from Washington—Even as deep federal budget cuts loomed at the end of last year, members of Congress from both parties paid taxpayer-funded bonuses to their staffs.

Overall, House members spent about $21.5 million more on their office payrolls for the fourth quarter of 2010, when bonuses are traditionally paid, than they spent for the average of the three previous quarters, according to LegiStorm, a Washington group that tracks congressional pay.”

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