- GOP unveils budget that would save $6T. House Republicans led by Budget Committee Chairman Paul Ryan have unveiled a plan that would spend $6.2T less over 10 years than what President Obama has proposed. With not a sacred cow in sight, except perhaps the Pentagon, Ryan's 'Path to Prosperity' proposes to limit expenditure on Medicare, Medicaid, food stamps and scores of other programs. He also wants to cut the top corporate and individual tax rates to 25%. Despite the appearance of radicalism, the GOP plan would still add $5T to the deficit over the coming decade, although it promises to reach 'primary balance' by 2015, meaning that the budget would be balanced except for interest payments on existing debt. The plan wouldn't balance the government's books until 2040.
- GOP and Democrats to meet again as shutdown looms. Republican and Democratic negotiators will meet again today in an effort to seal a deal on budget cuts that will avert a government shutdown on Friday. The sides had tentatively agreed on a figure of $33B, but Republican House Speaker John Boehner is now pushing for $40B, which is still less than the $61B the House has voted for. The parties must also resolve which programs to cut. The GOP has a contingency plan to pass a stop-gap measure that would slice $12B from current spending, fund the Pentagon until September, and keep the government operating until April 15. Although it's under pressure from the Tea Party not to compromise, the Republicans may be wary of a shutdown - twin closures in the mid-1990s were followed by Bill Clinton's re-election in 1996.
- American Superconductor slashes outlook. Shares in American Superconductor (AMSC) short-circuited in after-hours trading after the company said it expects to post a fiscal Q4 2011 loss and that revenue will be lower than forecast. This is due to a key customer, Sinovel Wind Group, refusing to accept contracted shipments of wind-turbine core electrical components and spare parts. American Superconductor now predicts revenue of below $42M compared with analyst expectations of $119M; analysts had also forecast an EPS profit of $0.32. AMSC -38% premarket (7:00 ET).
- Judge quashes $625M patent award against Apple. A Texas judge has overturned a $625M patent infringement award against Apple (AAPL), saying the jury erred in finding that the company illegally used technology owned by Mirror Worlds. The latter had argued that several features on Apple's computers used its software for archiving and displaying documents. Last year, a jury found that Apple infringed three patents and awarded Mirror $208.5M for each one. However, the appeal judge said Mirror failed to provide enough evidence. Premarket: AAPL +0.55% (7:00 ET).
- Auction serves up Blockbuster on a Dish. Dish Network (DISH) has won a bankruptcy auction for Blockbuster (OTC:BLOAQ) after it offered $320.6M for the movie-rental chain, sources say. Blockbuster's creditors will see $178.8M, and the rest will go towards expenses associated with the auction and the company's bankruptcy proceedings. Dish has expressed interest in using Blockbuster stores to sell subscriptions to its service and in possible synergies with Blockbuster's on-demand business. Dish beat out offers from a group comprising Blockbuster bondholder Carl Icahn and several liquidators, and a consortium of hedge funds led by Monarch Alternative Capital.
- Fed center of gravity starts to shift. March FOMC minutes released yesterday add to a number of recent indications from policy makers that the central bank is starting to consider altering its easy money policies. Fed members at the meeting saw no need to relax the central bank's $600B bond buying before the scheduled end in June, but the committee agreed to "consider possible exit strategies" for a range of outcomes. A few members said economic conditions might warrant a tightening later this year, with several indicating that their inflation expectations had increased. While an abrupt change of direction is unlikely, says an economist at Pierpont Securities, "clearly the center of gravity, I think, is starting to slowly but surely shift to a more hawkish bent."
- SEC unveils proposal to reduce volatility. The SEC has unveiled a long-awaited plan to protect markets from volatile price swings following the May 6 'flash crash' that temporarily wiped out about $1T in paper value in the stock market. The 'limit up-limit down' proposal would prevent a share from rising or falling by more than 5% or 10% from its average price over the previous five minutes. If approved, the scheme would replace existing single-stock circuit breakers that were implemented after the flash crash but have not proved totally reliable. Traders had a mixed reaction to the SEC's plan, with one describing the bands as a 'bit narrow,' but another predicting that the rules "will bring investors' confidence back to the market."
- Cephalon rejects Valeant's $5.7B bid. Cephalon's (CEPH) board has rejected a $5.7B bid from Canada's Valeant Pharmaceuticals (VRX), saying that the $73 a share offer 'significantly undervalues' the biopharmaceuticals company. Cephalon's directors noted that the bid represents 'virtually no premium' to Cephalon's 52-week high stock price of $77.58. Despite the rejection, an analyst at Cowen & Co. believes the companies will reach an agreement within a couple of months. Cephalon's shares closed +0.6% at $77.37 but slipped 1.8% in after market trading following the rejection; Valeant closed at $53.96 and then fell 0.9%.
- Gold futures hit record high. Gold futures touched a new record during Asian trading hours Wednesday, while silver prices hit a fresh 31-year high, as investors flocked to the safe haven of precious metals. Gold for June delivery rose $2.00, or 0.13%, to $1,454.40 an ounce on Globex, after hitting $1,458.50 earlier in the session. European debt concerns and geopolitical instability in North Africa and Middle East have sparked metal buying, in spite of Tuesday’s unexpected interest-rate rise by the People’s Bank of China.
- Boeing didn't expect 737 cracks so soon. Boeing (BA) expected that the joints holding the fuselage on their older 737s would begin to wear towards retirement but not in middle age, 737 engineer Paul Richter said yesterday. The company didn't anticipate the need for inspecting the joints until 60,000 pressurization cycles, the number of takeoffs and landings. And it certainly didn't expect the dramatic failure that on Friday blew a hole in a 15-year-old Southwest (LUV) jet with 39,000 cycles and caused it to make an emergency landing. "The trouble is that what you anticipate and what actually happens are two different things," says one former professor of aeronautical engineering.
- Cisco CEO vows 'bold steps' to regain credibility. Following four consecutive quarters of disappointing earnings, Cisco (CSCO) CEO John Chambers plans to take 'bold steps and tough decisions' aimed at improving the company's performance. In a memo, Chambers said the tech bellwether will make 'a number of targeted moves in the coming weeks,' although he didn't give details. "Bottom line, we have lost some of the credibility that is foundational to Cisco's success - and we must earn it back," said Chambers. Investors have shown their impatience with Cisco over the past year as shares have fallen 34%, erasing about $49B in value. Premarket: CSCO +0.7% (7:00 ET).
- IMF reverses position on capital controls. After decades of unwavering support for the free flow of money, the IMF has reversed itself and outlined a framework detailing the circumstances under which it can endorse capital controls. The move comes as countries such as Brazil, South Korea and Turkey limit flows in an effort to control inflation, halt the rise in their own currencies, or prevent bubbles in their stock and real-estate markets. However, while IMF chief Dominique Strauss-Kahn calls the shift in policy 'very pragmatic,' some of its board members are opposed to the plan, including the executive director representing several countries in Latin America and the Caribbean.
- Rolls and Daimler bid €3.2B for Tognum. Rolls-Royce (OTC:RYCEY) and Daimler (OTC:DDAIF) have made a renewed bid of €3.2B ($4.55B), or €24 a share, for German diesel-engine maker Tognum (TGNMF.PK). The offer is likely to disappoint shareholders who have been holding out for a higher price and have said that the proposal undervalues the company, its order book and prospects. Tognum's stock has traded above the offer price since March 8, and closed yesterday in Frankfurt at €25.57.
- In Asia, Japan -0.3% to 9584. Hong Kong +0.6% to 24285. China +1.1% to 3001. India -0.4% to 19612.
- In Europe, at midday, London +0.6%. Paris +0.3%. Frankfurt +0.7%.
- Futures at 7:00: Dow +0.5%. S&P +0.7%. Nasdaq +0.8%. Crude -0.1% to $108.20. Gold +0.5% to $1460.40.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
8:00 2011 Financial Markets Conference
8:30 Chicago Fed Midwest Manufacturing Index
10:30 EIA Petroleum Inventories
3:00 PM Hearing: Community Banking
- Notable earnings before Wednesday's open: MON
The SA Currents team contributed to this post.
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