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Oil Trade Fades, Sovereign Debt Trade Is Back

The oil trade has faded a bit, but the sovereign debt trade has returned with Moody's downgrade of Spain's credit rating (with warnings of further downgrades), saying that the cost of cleaning up the banking sector will be more than expected.

Spain's stock market is down 1.2 percent, most of the European bourses are down about 1 percent. The dollar is stronger.

Sovereign debt in Greece, Portugal and Ireland is appearing on radar screens again. There have been several articles noting that many Greeks are no longer paying road tolls or bus fares after fares went up notably.

As for Ireland, appearing on Strategy Session on Monday, Sean Egan of Egan-Jones Rating Company noted that Ireland has tax revenues of 30 billion euros, direct obligations of 200 billion euros and has guaranteed another 400 billion of bank obligations (it's likely only a portion of that will go bad).

In other words, obligations are magnitudes of order greater than tax receipts for years to come. The implication is that it just won't work. Many traders believe that interest rate cuts for this debt are a virtual certainty, and many believe that haircuts of 10 to 30 percent are also now very likely.

On top of that, China recorded a trade DEFICIT (!) in February of $7.3 billion, it's largest in seven years. Apparently the Lunar New Year was the problem (too much time off for celebrations). The Shanghai Composite closed down 1.5 percent, but it has been in modest rally mode for the past month or so.

Elsewhere:

1) Many materials stocks are down again, as metals fall in early trade. Rio Tinto down 5 percent, BHP Billiton (BHP) down 3 percent, Mittal Steel (MT) down 3 percent, Harmony Gold (HMY) down 3 percent, Vale (VALE) down 2 percent.

2) Another successful IPO pricing: HCA priced 126.2 millions shares of common stock at $30 a share. It was not only higher than the price talk of $27-$30, but they also sold more shares than the 124 million originally anticipated. HCA is the largest non-governmental hospital operator in the U.S.

3) Smithfield Foods (SFD) handily beat estimates ($0.84 vs. $0.66 consensus). That surprise was helped by strong margins at its pork unit, where stronger demand and tight demand drove prices higher.

4) Rio Tinto (RIO) raised its bid for Riversdale Mining, which operates coal mines in Africa. In an attempt to get more shareholder support, Rio Tinto's new cash offer values Riversdale at $4 billion, an increase of 3 percent from its prior bid.

5) Green Mountain Coffee (GMCR) up 25 percent pre-open as it closed a deal to sell Starbucks (SBUX) coffee and Tazo tea in its Keurig Single-Cup brewing system...these single-cup systems are all the rage now. The loser is Peet's Coffee (PEET), down 13 percent, which was reportedly in the running for the contract.

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