THE DAY AHEAD

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KEY ECONOMICS EVENTS Mortgage Index for w/e 04/12 Refinancing Index for w/e 04/12 Fed's Beige Book ET/GMT 0700/1100 0700/1100 1400/1800

North American Edition

REUTERS POLL ---PRIOR 826.1 4453.9 -SOURCE

For Wednesday, April 17, 2013

Mortgage Bankers Association

Federal Reserve Board of Governors

MARKET RECAP
Stocks bounced back on Tuesday following strong corporate earnings, while Treasuries fell. The yen tumbled across the board, reversing the previous session's sharp gains. Oil reversed earlier losses and edged up as an earthquake in Iran ignited supply concerns. Gold recovered on bargain hunting.

COMING UP
Bank of America, the second-largest U.S. bank, reports firstquarter earnings, and investors will be looking for signs that the bank is growing revenue and loans as it looks to put mortgagerelated losses in the past. For a related Reuters Insider video, click here

Abbott Laboratories reports its first quarterly earnings since splitSTOCKS DJIA Nasdaq S&P 500 Toronto Russell FTSE Eurofirst Nikkei Hang Seng Close 14755.17 3264.63 1574.50 12119.92 923.44 6304.58 1165.86 13221.44 21672.03 Yield 0.2299 0.7034 Change 155.97 48.14 22.14 115.04 16.26 -39.02 -8.74 -54.22 -100.64 % Chng 1.07 1.50 1.43 0.96 1.79 -0.62 -0.74 -0.41 -0.46 Yr-high 14887.50 3306.95 1597.35 12904.71 954.00 6533.99 1209.05 13568.25 23944.74 Yr-low 12035.10 2726.68 1266.74 11209.55 729.75 5897.81 1132.73 10398.61 21612.05

ting off its prescription drugs business at the beginning of the year into AbbVie, a new publicly traded company.

Bank of New York Mellon is expected to report results and take a

big charge against earnings after losing a tax battle with the IRS. Investors will look for an upswing in asset management fees and for whether the world's No. 1 custody bank experienced any rebound with its forex trading business.

American Express's results have been affected in recent quarters

by slower growth in card member spending as businesses look to cut down on expense accounts. So when the company reports results, investors will look for details on the company's plan to tackle the slowdown, a quarter after it said it would cut 5,400 jobs. Amex, which raised its dividend by 15 percent and announced a $4 billion buyback after the latest Fed stress test, is looking to expand its presence in the credit card market by targeting lower-income groups and widening its offerings.

TREASURIES 10-year 2-year 5-year 30-year COMMODITIES May crude $ Spot gold (NY/oz) $

Price FOREX -1 /32 Dollar/Yen -4 /32 Sterling/Dollar

Last % Chng 1.3182 97.59 1.5372 1.0206 1.14 0.87 0.58 -0.47

1.7275 -12 /32 Euro/Dollar

2.9138 -30 /32 Dollar/CAD Price 88.79 1372.50 3.3065 283.73 Price 0.66 39.78 61.12 2.06 0.57 10.61 19.24 5.08

$ change 0.08 19.75 0.0265 2.30 $ change 0.08 4.28 4.49 0.14 -0.11 -0.64 -1.06 -0.25

% change 0.09 1.46 0.81 0.82 % change 13.79 12.06 7.93 7.29 -15.56 -5.69 -5.22 -4.69

Quarterly results from Mattel, the world's largest toymaker, will give
investors a good read of commodity prices and demand for discretionary items. The company, home to brands such as Barbies and Hot Wheels, is expected to report a rise in sales and earnings.

Copper U.S. (front month/lb) $ Reuters/Jefferies CRB Index

Federal Reserve Bank of St. Louis President James Bullard and

Boston Fed President Eric Rosengren speak on the U.S. economy and monetary policy at a conference in New York. Also the Fed issues its anecdotal Beige Book of economic conditions.

BIG MOVERS
Suntech Power Acorda Therapeutics Alaska Air Group Frontline Zoom Technologies Pep Boys Barrick Gold Daqo New Energy

U.S. Treasury Secretary Jacob Lew speaks at the Johns Hopkins

School of Advanced International Studies about "The State of the Global Economy" ahead of upcoming IMF/World Bank annual meetings in Washington.

Brazil's central bank meets to decide on its benchmark Selic interest rate, currently at a record low of 7.25 percent. A rate increase this year seems almost certain after inflation pierced the official target ceiling but economists and investors are divided about the timing of such a move. Most economists believe the bank, led by Alexandre Tombini, will leave rates unchanged this month to avoid aborting a fragile economic recovery but some think the sooner it acts against rising prices the better.

For The Day Ahead - Canada, click here

THE DAY AHEAD

For April 17, 2013

COMING UP (continued)
The Bank of Canada is expected to hold its benchmark interest rate steady at 1 percent at its policy announcement, so investors will focus on the possible toning down or elimination of hawkish language that has differentiated it from Group of Seven peers. The central banks quarterly Monetary Policy Report, released the same day, is expected to chop growth forecasts following a string of weak data. Governor Mark Carney, leaving in June to head up the Bank of England, also holds a press conference in which he is expected to focus on the Canadian outlook.

After releasing aggressive revenue forecasts at a recent analyst day in late March, eBay is expected to report solid results for the first quarter. This is typically a slow quarter for ecommerce, but expectations are still pretty high for eBay, which has been recovering in recent years and catching up with Amazon.com. Investors and analysts will be looking for growth of eBay's Marketplaces business to be at or higher than that of the overall e-commerce sector. The most important metrics for PayPal will likely be profit margins.

MARKET MONITOR
Stocks jumped more than 1 percent on Tuesday, a day after their worst decline since November, as earnings from Coca-Cola and Johnson & Johnson improved the outlook for first-quarter results. Coca-Cola shares rose 5.66 percent and Johnson & Johnson shares shot up 2.11 percent. Goldman Sach's shares fell 1.73 percent. The Dow rose 1.07 percent, the S&P 500 Index gained 1.43 percent and Nasdaq added 1.50 percent. Treasury prices slid as a safety bid in the previous session faded, though yields remained low as investors weighed the Federal Reserve's easing options for the rest of the year. 10year Treasury notes traded down 12/32 in price to yield 1.72 percent. Thirty-year bonds fell 31/32 in price to yield 2.91 percent. Investors shied away from riskier assets such as stocks on Monday after gold posted a record one-day drop and explosions at the Boston Marathon fed a flight to safety. "We're just seeing the unwind of that today," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC. "But yields are still on the lower end; 10 years are just barely above 1.70" percent, she pointed out. That, in turn, suggests the market still expects more easing from the U.S. Federal Reserve this year, she said. The yen tumbled against the dollar and the euro, reversing the previous session's sharp gains as investor anxiety triggered by a record plunge in gold prices eased, denting demand for the safehaven Japanese currency. The dollar rose to a session peak at 98.15 yen, before pulling back to 97.59 yen, still up 0.87 percent on the day. "The fundamental picture still remains supportive of a weaker yen going forward as the recent rebound over the last couple of days is unlikely to prove sustainable," said Lee Hardman, currency economist at BTMU, which forecasts the dollar at 109 yen in 12 months. The euro rallied 2.02 percent to 128.64 yen. Against the dollar, the euro rose 1.13 percent to $1.3181. Click on the chart for full-size image

Oil edged up in choppy trading, paring losses after an earthquake in Iran raised concerns about oil production and put a floor under prices. May crude settled up 0.08 percent at $88.78 a barrel after hitting a low of $86.06. A powerful earthquake that struck southeast Iran, sending strong tremors across the region raised concerns it might damage oil production, which put a floor under oil prices, traders said. Gold recovered after buyers of physical bullion jumped in at cheaper prices following Mondays historic plummet, but the market had trouble sustaining gains and there was little confidence that gold was out of the woods. "We still believe that the price has further to fall the fundamental (non-speculative) value of gold is still a fraction of the current price," Alan Miller, CIO of SCM Private, an investment management firm said in a note. Spot gold was up 1.45 percent at $1,372.40 an ounce. June gold futures was up 0.9 percent to $1,373.30 an ounce.

THE DAY AHEAD

For April 17, 2013

TOP NEWS
U.S. inflation, factory data favor continued Fed easing U.S. consumer prices fell in March for the first time in four months and factory output slipped, strengthening the argument for the Federal Reserve to maintain its monetary stimulus to speed up economic growth. The Labor Department said its Consumer Price Index edged down 0.2 percent last month as gasoline prices tumbled, unwinding some of February's 0.7 percent increase. Economists had expected a flat reading. A separate report from the Fed showed output at the nation's factories decreased 0.1 percent after advancing 0.9 percent in February. A third report from the Commerce Department showed housing starts rose 7.0 percent last month to a 1.04 million-unit annual rate, the highest in nearly five years. Separately, the influential chief of the New York Fed, William Dudley, said that he expects "sluggish" economic growth of 2 to 2.5 percent this year and only a modest decline in unemployment. Meanwhile, Chicago Fed President Charles Evans said he sees "moderate" growth this year of 2.5 percent and a "terrific" 2014. Coca-Cola profit surprises, announces U.S. bottler deal Coca-Cola reported a slightly higher-than-expected quarterly profit and announced a deal to unload some distribution territory to five independent U.S. bottlers. As for performance in the first quarter, the company said net income was $1.75 billion, or 39 cents per share, down from $2.05 billion, or 45 cents per share, a year earlier. Excluding one-time items, earnings were 46 cents per share, topping analysts' average estimate of 45 cents. Revenue slipped 1 percent to $11.04 billion, hurt by currency exchange rates and sales lost through the refranchising of some other bottler assets. Sales by volume rose 4 percent. J&J tops estimates as prescription, OTC drugs shine Johnson & Johnson beat Wall Street's quarterly profit estimates on sharply lower taxes, strong sales of prescription drugs and a revival of over-the-counter medicines that had been recalled over quality control problems. J&J earned $3.5 billion, or $1.22 per share, compared with $3.91 billion, or $1.41 per share, in the year-earlier quarter. Excluding special items, including litigation expenses of $529 million, J&J earned $1.44 per share. Analysts, on average, expected $1.40 per share. Global company sales rose 8.5 percent to $17.50 billion, slightly higher than the $17.42 billion expected by Wall Street. Goldman profit up but revenue from client trading drops Goldman Sachs Group said revenue from bond trading with clients fell 7 percent in the first quarter, raising questions about the health of the bank's biggest money maker and the prospects for fixed-income trading profits on Wall Street. The bank's equities trading revenue fell 15 percent, but the decline in fixed income trading was the bigger concern for many analysts. Overall first-quarter profit rose thanks to both the Investing and Lending gains and sharp increases in stock and bond underwriting fees. Net income rose to $2.19 billion, or $4.29 per share, from $2.07 billion, or $3.92 per share, a year earlier. Analysts on average had expected earnings of $3.88 per share before unusual items. Goldman's first-quarter revenue totaled $10.09 billion. Icahn agrees to limit Dell stake, can team up on bid Billionaire investor Carl Icahn has agreed to limit his investment in Dell and in return can team up with other shareholders on a potential bid for the personal computer maker, Dell said. An agreement with activist investor Icahn prevents him from buying shares that would bring his Dell ownership to more than 10 percent or signing deals with other shareholders that would bring their collective ownership to more than 15 percent, Dell said.
PIC OF THE DAY

A woman is comforted by a man near a triage tent set up for the Boston Marathon after explosions went off at the 117th Boston Marathon in Boston.

IMF trims global growth forecast, sees bumpy recovery The International Monetary Fund trimmed projections for global economic growth for this year and next to take into account sharp government spending cuts in the United States and the latest struggles of recession-stricken Europe. The IMF cut its 2013 forecast for global growth to 3.3 percent, down from its January projection of 3.5 percent. It also trimmed its 2014 forecast to 4.0 percent from 4.1 percent. A more subdued outlook for the United States and for the euro zone led it to lower its growth forecast for advanced economies to 1.2 percent for 2013 while it kept its 2014 forecast at 2.2 percent. While it lowered its projections for growth in emerging economies to 5.3 percent for this year, it also said growth was already accelerating and would hit 5.7 percent in 2014. Growth has returned to a healthy pace in China and activity is expected to recover in Brazil next year, the IMF said. Target warns current-quarter profit will miss forecasts Target warned earnings for the first quarter would miss its expectations on weaker-than-expected sales of seasonal and weather-sensitive items. The discount retailer said adjusted earnings per share for the current quarter would come in slightly below the low end of its prior outlook of $1.10 to $1.20. Target now expects same-store sales to be about flat. It had earlier forecast same-store sales to be flat to up 2 percent. Target stood by its full-year forecast for adjusted earnings of $4.85 to $5.05 per share. BlackRock profit jumps 10.5 percent on shift into stock funds BlackRock said that first-quarter net income rose 10 percent as investors increasingly turned to the money manager's higher-fee stock funds. BlackRock said net income increased to $632 million, or $3.62 per share, from $572 million, or $3.14 per share, a year earlier. Assets under management rose to a record $3.94 trillion at the end of the quarter, including new money and market gains. BlackRock's $25.6 billion of long-term net inflows into its iShares exchange-traded fund family shifted from emerging markets products into U.S. broad market and large-cap equities, reflecting more confidence in the economy, the company said.

THE DAY AHEAD

For April 17, 2013

TOP NEWS (continued)

U.S. Bancorp profit up, but net interest margin narrows U.S. Bancorp reported a first-quarter profit that met analysts' expectations but the lender's net interest margins narrowed and mortgage-banking revenue fell. U.S. Bancorp's net interest margin fell to 3.48 percent from 3.60 percent a year earlier. Net profit rose to $1.43 billion, or 73 cents per share, for the first quarter, from $1.34 billion, or 67 cents per share, a year earlier. The results were in line with analysts' expectations. TD Ameritrade profit rises 5 pct on asset gathering TD Ameritrade Holding, the biggest U.S. discount brokerage by client trading volume, said that continued double-digit growth in client assets helped its quarterly profit rise 5.1 percent. The company reported net income of $144 million, or 26 cents a share, for the fiscal second quarter, up from $137 million, or 25 cents a share, a year earlier. The results were down 2.7 percent from its fiscal first quarter but were in line with the average forecast of analysts. TD Ameritrade reported net revenue of $679 million for the quarter, 55 percent of which came from assetbased fees.

ANALYSTS RECOMMENDATIONS
Company Name Apple Action Mizuho cut target price to $550 from $575, expecting March results to be slightly below consensus primarily due to weaker iPhone shipments. BMO cut target price to $109 from $111 on weaker first-quarter revenues due to softer loan growth and lower mortgage banking fees. Wedbush raised target price to $66 from $55 expecting first-quarter revenue above high end of range as muted demand is offset by healthy uptick in NAND pricing. JP Morgan raised rating to overweight from neutral and raised target to $8 from $6 on long term strategic value, after Dish submitted a merger proposal to Sprint offering $7/share including $4.76 in cash plus 0.05953 dish shares. UBS starts coverage with buy and set target price of $89, saying the company is entering a long-term positive productivity cycle that can take its share price beyond its all time highs

M&T Bank

SanDisk

Sprint Nextel

Walmart Stores

KEY RESULTS vs. THOMSON REUTERS I/B/E/S ESTIMATES

Company Name Quarter EPS Estimates Year Ago Rev Estimates (mln)

Abbott American Express Bank of America BNY Mellon Quest Diagnostics Dover eBay Huntington Bancshares Mattel Noble Corp PNC Financial Services Group SLM Corp SanDisk St. Jude Medical Textron

Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1

$0.41 $1.12 $0.22 $0.47 $1.03 $1.08 $0.62 $0.16 $0.09 $0.51 $1.57 $0.60 $0.79 $0.91 $0.45

$1.03 $1.07 $0.03 $0.52 $1.07 $1.00 $0.55 $0.17 $0.06 $0.47 $1.44 $0.55 $0.63 $0.86 $0.41

$5,411 $8,033 $23,409 $3,607 $1,861 $2,074 $3,765 $696 $986 $980 $3,977 $755 $1,307 $1,360 $2,886

** Includes companies on S&P 500 index. Estimates may be updated or revised.

THE DAY AHEAD - CANADA

COMING UP
The Bank of Canada is expected to hold its benchmark interest rate steady at 1 percent, so investors will focus on the possible toning down or elimination of hawkish language that has differentiated it from Group of Seven peers. The central banks quarterly Monetary Policy Report, released the same day, is expected to chop growth forecasts following a string of weak data. Governor Mark Carney, leaving in June to head up the Bank of England, will hold a press conference in which he is expected to focus on the Canadian outlook.
BIG MOVERS First Quantum Minerals Winstar Resources Aquila Resources Romarco Minerals Price 17.03 1.97 0.10 0.50 C$ 1.45 0.11 -0.01 -0.05 % Change 9.31 5.91 -9.09 -9.09

For April 17, 2013

MARKET MONITOR
Canada's main stock index rose almost 1 percent on Tuesday, recovering some of its losses due to Monday's dramatic selloff, as positive U.S. economic data lifted sentiment and spurred a rally in financial and energy shares. The Toronto Stock Exchange's S&P/TSX composite index was up 0.96 percent at 12,119.92. First Quantum Minerals jumped 9.31 percent. BlackBerry shares rose 1.43 percent. The Canadian dollar was down 0.51 percent at $1.0202

TOP NEWS
Canada February factory sales surge, new orders fall Canadian factory sales surged in February at the fastest pace in 20 months, an encouraging sign for the economy after a downturn in January, although the number of new orders fell in the month, Statistics Canada said. Manufacturing sales jumped 2.6 percent due to strength in auto assembly, food processing, petroleum and coal and miscellaneous sectors, the agency said, noting that higher prices explained much of the gain in the energy industry. The performance beat market expectations of a 0.9 percent increase and was the biggest since July 2011. A separate report showed that foreigners sold C$6.3 billion of Canadian securities in February, mainly the result of the biggest divestment of Canadian equities since October 2007. BlackBerry returns not abnormally high Jefferies No abnormally high return rates have been seen for the new Z10 touchscreen device that underpins BlackBerry's attempt to reinvent itself, and demand appears to be positive in Asia, Jefferies & Co analyst Peter Misek said in a report. BlackBerry has already said it will ask regulators to investigate a report from Boston-based Detwiler Fenton of high return rates for the new device, which is the first BlackBerry to use the new BlackBerry 10 operating system. Misek, a long-time bear on BlackBerry, turned bullish on the stock late last year. He said BlackBerry, which changed its name from Research In Motion when it launched the Z10, was increasing its build plan for new devices powered by the Blackberry 10 operating system. Click on the chart for full-size image

Canada finance minister to raise Keystone pipeline with Lew Canadian Finance Minister Jim Flaherty will raise TransCanada Corp's proposed Keystone XL pipeline when he meets new U.S. Treasury Secretary Jack Lew this week, a senior Canadian finance ministry official said. Canada's Conservative government strongly backs the project, which would take crude from Alberta's oil sands to refineries in Texas. President Barack Obama, who will ultimately decide the pipeline's fate, is under pressure from environmentalists to block the project. Flaherty and Lew will be in Washington later this week for a meeting of the Group of 20 leading and emerging nations. Their face-toface talk will be the first since Lew was sworn in on Feb. 28.

THE DAY AHEAD

For April 17, 2013

ANALYSIS AND INSIGHT

FED FOCUS Workforce dropouts loom as Fed weighs tighter policy By Jonathan Spicer The droves of Americans who have abandoned hope of finding a job should make the Federal Reserve hesitant to remove its support for the U.S. economy, according to a study that makes a bold argument for a sustained easy monetary policy. The findings of the study were the buzz of a high-profile conference at the Boston Federal Reserve Bank last week on how best to return U.S. employment to pre-recession levels. The share of working-age Americans who either have a job or are looking for work has fallen to its lowest in 34 years. For Fed policymakers, that's a sharp reminder that the labor market remains ill despite a gradual decline in the unemployment rate since the Great Recession ended in 2009. Indeed, the dropouts are the main reason the jobless rate has declined. This depressed "participation rate" - and the fact that it takes longer than other labor market indicators such as unemployment to recover from deep recessions - should probably get more attention as the U.S. central bank weighs when to withdraw its monetary stimulus, the study suggests. Authors Christopher Erceg and Andrew Levin, both officials of the Fed now doing research at the International Monetary Fund, argue the central bank should aim not just for full employment with a jobless rate between 5 percent to 6 percent. Instead, it should use its powers to drive unemployment even lower to draw people back into the workforce. The U.S. jobless rate stood at 7.6 percent in March. "A policy of allowing the unemployment rate to overshoot is consistent with a much faster economic recovery," Erceg, an IMF research fellow, told the conference on Friday. This very dovish idea could amplify the notion gaining traction, from the United States to Europe to Japan, that central banks should pull out all the stops to spur growth even if it means tolerating a bit more inflation. At the conference, Lars Svensson, a deputy governor at Sweden's central bank, and Bank of England policymaker David Miles called the work important and requested more detail. At the Fed, officials will soon have to decide how much the depressed participation rate will figure into their decision on when to wind down asset purchases and, later, to finally raise interest rates. They have held rates near zero since December 2008 and are currently purchasing $85 billion in bonds per month in a further effort to keep borrowing costs low and spur stronger growth. "The paper did a nice job highlighting that we need to look at a wide variety of labor market indicators," Boston Fed President Eric Rosengren said in an interview. BEYOND DEMOGRAPHICS In March alone the labor force shrank by 496,000 people, the vast majority of them too young to retire. That depressed the participation rate to 63.3 percent, a level last seen in 1979, and led the unemployment rate lower. "That doesn't indicate stronger labor markets," Rosengren said. To be sure, labor force participation began a gradual decline in 2000 as baby boomers started to retire. But it shot lower when the economy fell into recession in 2007 and remains there thanks to a 2 percentage point drop in the participation of adults below the retirement age. Erceg and Levin suggest this cyclical shortfall can be reversed by monetary policy, but they warn it will take time. The worry is that the economy will improve and monetary policy will tighten, leaving behind millions of Americans. "How do we draw those people back into the labor market?" asked Levin, who until last year assisted Fed Chairman Ben Bernanke and Vice Chair Janet Yellen on communicating policy strategy. "The possibility that having a target (for unemployment) that is temporarily below the (natural rate of unemployment) may be the right policy prescription." Fed officials estimate the so-called natural rate, which serves as their long-term target, is around 5.6 percent. Brandeis University finance professor Catherine Mann warned that pursuit of the Levin-Erceg strategy could lead the central bank to overlook the risk its easy policies could fuel asset price bubbles. "The recipe is for more QE but this strategy ignores the building financial disruptions of the policy," she said. More centrally, in the view of former European Central Bank policymaker Athanasios Orphanides, is the risk Fed hubris unleashes the inflation genie. "The ... challenge at present is not to let over-confidence about how low monetary policy can guide the rate of unemployment lead to a repetition of the second-greatest policy error of the 20th Century, and create inflation," he said. COLUMN Gold's fall not a harbinger of happy days By James Saft Just as gold's rise never showed the policies of central banks to be a failure, so its fall cannot show they have succeeded. Yes, the attraction to gold is driven by mistrust, its principal virtue being that, unlike currencies, it can't be created at will. No, the massive sell-off over two days in gold is not a sign that trust is back and policy-makers can soon declare victory over the crisis and make plans for restoring a more normal balance of policy. Monday marked the second day of gold's worst two-day tumble since 1983, as it fell more than 9 percent amid huge volumes, taking its total losses since Friday to 14 percent. Because the rise in the price of gold is associated with distrust in the global financial system and its minders, there is a temptation to reason that its very abrupt fall shows confidence that currencies won't be debased, and that growth with mild inflation will shortly be back. Unfortunately, the movement of most other financial markets on Monday was consistent with spluttering growth and a rising risk of deflation rather than a new-found and sudden belief that the fiscal and monetary medicine is working. It isn't simply that equities are falling, but more importantly that gold's swoon has come at the same time as steep falls in a number of economically sensitive commodities. Oil is down nearly 6 percent since last week, copper fell to its lowest in a year and a half and aluminum touched 3.5-year lows. Even the prices of wheat, corn and soybeans are down. What's more, 10-year Treasury bond yields are just over 1.7 percent and have been falling steadily for more than a month, hardly a vote for growth, inflation and a tapering off of quantitative easing. You could make a better argument that trying to use the price of gold as an indicator of the health of anything much is bound to be futile. While greed and fear, trust and mistrust have an influence over the price of many assets, like houses and stocks, those ultimately produce some income which provides a fundamental base from which markets can infer prices. Gold, on the other hand, neither toils nor spins, but just sits there looking pretty. That means gold is far more volatile, with emotion and shortterm supply and demand driving sharp swings in prices. Don't, then, be too impressed that Monday's tumble should only happen once every two million years or so if gold trading followed a normal bell-shaped distribution (a calculation courtesy of John Kemp at Reuters). Like someone who spends too much time in bars late at night, the unlikeliest things keep happening to gold

THE DAY AHEAD

For April 17, 2013

ANALYSIS AND INSIGHT (continued)

over and over again. POOR RUN OF ECONOMIC DATA Rather than worrying about the histrionics of gold, we should be paying close attention to the economic data. It has not been encouraging. China, particularly, is no longer quite the engine of growth and demand it once was. Economic growth fell unexpectedly to 7.7 percent in the first quarter, a figure which perhaps looks better at first glance than on close examination. Industrial production particularly has been crimped, growing at an 8.9 percent clip in the month but missing estimates of 10 percent growth, in part due to falling demand from Europe and elsewhere. Power generation, 90 percent of which is used by industry, rose just 2.1 percent in March, which may give a more accurate reading on the industrial sector. Chinese imports of coal used for power generation may even fall in 2013 for the first time since 2007-2008, according to Goldman Sachs. Neither are things humming very convincingly along in the U.S., as shown by poor industrial and jobs data recently. Inflation too seems tame globally, with little signs that central banks will soon be forced to tighten conditions. The assumption by many, at least in the U.S., has been that growth is slowly recovering and that the summer and last part of the year will be spent in preparing for a tapering of quantitative easing. If we reach summer and growth looks to be faltering, the Federal Reserve will be in a difficult position. Will it redouble its efforts to stimulate? Chairman Bernanke seems as convinced as ever that QE helps and that Fed activism has been justified. The longer extraordinary policy goes on, however, the harder new versions become to justify. If in July or August we are talking again about new and looser Fed policy, gold may have yet another of its one-in-two-millionyear events. (James Saft is a Reuters columnist. The opinions expressed are his own. At the time of publication, he did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.) BREAKINGVIEWS Goldman gets a bit more generous with investors By Antony Currie Goldman Sachs is getting a bit more generous with its investors. The Wall Street firm posted first-quarter net income of almost $2.3 billion on Tuesday, handily beating consensus estimates. Better revenue than expected accounted for some of the performance including record results in debt underwriting. But Goldman also squeezed some extra juice for shareholders by cutting how much it set aside for pay. The bank hived off 43 percent of its revenue in the first three months of the year to cover compensation and benefits. That's still far higher than JPMorgan, which put around a third of the investment bank's top line in the vault for employees. For Goldman, though, it's a small but significant change to what had started to look like a stubborn commitment to stashing away 44 percent of revenue in each quarter except the final one of the year. At times, that kept the annualized quarterly return on equity in single digits and thus below the cost of capital. Granted, Goldman usually takes less for the staff pot in the final three months of the year. In 2011, though, employees came out way on top, getting 42.4 percent of the revenue pie while shareholders were left with a measly 3.7 percent return on equity. The practice appears to have changed. In the final quarter of last year, for example, Goldman set aside an unusually small portion of the top line to cover pay. That cut its annual compensation bill to 38 percent of revenue and pushed its return on equity to 10.7 percent. Combined with today's move, it seems Goldman is finally acknowledging its shareholders' needs. The firm could still do more. Let's assume last year's 38 percent of revenue is the new pay benchmark but allow Goldman to create a buffer by depositing 40 percent of first-quarter revenue into the bank. That would have boosted the annualized return on equity for the three months to March from a fair 12.4 percent to a decent 14 percent. These are baby steps for Goldman. But at least they're going in the right direction. CONTEXT NEWS On April 16 Goldman Sachs reported first-quarter net income of $2.26 billion, or $4.29 a share. The consensus estimate of sellside analysts was for earnings of $3.88 a share. (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

The Day Ahead - North American Edition is compiled by Karan Khemani, Benny Thomas and Chandrashekhar Modi in Bangalore; Franklin Paul and Meredith Mazzilli in New York. THE DAY AHEAD - North American Edition is produced by Reuters News For questions or comments about this report, email us at: TheDay.Ahead@thomsonreuters.com Or call us at +91 80 4135 5929 Visit the Thomson Reuters Equities Community Site at: http://customers.reuters.com/community/equities/ For more information about our products: http://thomsonreuters.com/products_services Or send us a sales enquiry at: http://thomsonreuters.com/products_services/financial/contactus/ or call us on North America: +1 800 758 5555 2013 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.