In equity news overnight, Swiss-based drug-maker Novartis (NVS) reported results overnight. Both sales and earnings exceeded analysts’ estimates. The company also reaffirmed its outlook for the full-year 2008. Shares of Nestle (NSRGY.PK) traded lower at the open despite reporting that first-quarter revenues in line with analysts’ expectations. Nestle did note that pricing is seen declining in the second half. The Royal Bank of Scotland (RBS) confirmed that it is considering a rights issue, and adding that a further announcement would be made in due course. According to source reports overnight Italy’s Enel [ENEL.IT] it mulling the sale of its natural gas network for €2.0B.

Taking a look at the newspapers, the Financial Times wrote overnight that Bank of America (BAC) may seek to raise capital by selling part of its 9% stake in China Construction Bank [939.HK]. According to the Financial Times a group of mutual funds and hedge funds led by Corsair Capital may invest between $7B and $8B into National City (NCC) Merrill Lynch (MER), according to the Financial Times is expected to earn another large fee for helping RBS [RBS.UK]. Merrill is expected to help RBS refinance itself.

The Wall Street Journal wrote in its Heard on the Street section that Citigroup (C) and Merrill Lynch (MER) may have reported larger write downs had it not been for their accounting practices. The article notes that writedowns reported were reduced by the way the companies account for different types of securities. Furthermore, the article asserted that $2.3B of additional writedowns did not hit the Citigroup’s income statement, while $3.1B in additional writedowns did not hit Merrill’s income statement. La Repubblica reported overnight that Italy’s Generali [G.IT] may consider buying France’s Axa [CS.FR] if the Axa’s market value declines by 10%.

In energy news overnight NYMEX crude opened at a new record high of $117.05/barrel. In the UK, Ineos confirmed overnight that it has started to shutdown its 205K bpd Grangemouth refinery doe a union strike. The strike is expected to keep the plant closed for at least one month. The Iranian President said that oil prices at $115/bbl are too low OPEC's President said that the cartel should not increase output now because the market is well balanced. In an interview with the Financial Times the CEO of Royal Dutch Shell (RDS.A) said that he is looking to calm concerns about the company's declining oil reserves. The CEO said that the company's existing resource base will provide 55 years of production at current production levels.

The Financial Times wrote an article about Russian oil output overnight. The article discusses how Russian politicians and energy executives fear that Russia may see its first decline in oil exports in 10 years as the result of changes in the government’s tax regime, as well as the government’s takeover of privagely held assets in 2004. The Wall Street Journal noted overnight that some analysts continue to warn that oil prices are close to a steep drop. The article pointed out that some believe that oil prices may move back to near $80/barrel. A Venezuelan energy minister forecasted an oil price floor of $90/barrel.

Things were relatively quiet on the fixed income front overnight. According to source reports overnight, Finland opened the book on its new 11-year benchmark issue, and set the guidance at +34-37bps vs. the 10-year bund. In corporate issuance, the UK’s Diageo [DGE.UK] said overnight that the plan to sell an additional €300M in 5-year fixed-rate euro-denominated bonds in addition to the €850M sold last month. The Bank of England announced the official details for its mortgage swap scheme overnight. The BOE said that the asset swaps will be for 1-year and will be renewable for 3 years, noting that £50B will initially be available through the new facility. Banks will be able to enter into new asset swaps at any point during the 6-month period starting today. The BOE will accept AAA-rated MBS in new loan facility issued no later than December of 2007. Note that the £50B is half of the £100B of new home loans granted each year and even smaller in comparison with the outstanding mortgage market of about £300B.

In fixed-income related news overnight, according to German newspaper Der Spiegel the German government expects unemployment to fall below 3M in September. Most recently, in March, German unemployment was at 3.5M. The Wall Street Journal wrote overnight that two-year treasury notes may see more short-term selling due to the shifting interest rate outlook, and the rise in the need to hedge against increasing short-term funding costs. Additional selling may come as the result of the two-year and five-year treasury auctions this week, however, investors’ attention is soon expected to return to issues such as declining hours prices, the labor market, and high energy prices, all of which are good for short-term government debt. The Wall Street Journal reported overnight that a sharp and unexpected rise in LIBOR rates threatens to add billions of dollars to the interest bills of homeowners, companies, and other borrowers.

In Japan, the Asahi Shimbun newspaper wrote overnight that, with business confidence sliding to its lowest level in five years the Bank of Japan will leave its short-term interest rate unchanged at 0.50%, and is expected to cut its 2008 growth forecast to 1.5% from 2.1%. The report cites an unidentified central bank source. Stephen King, managing director of economics at HSBC, argues in The Independent that food protection is the greatest threat to the world economy. King ultimately argues that higher food prices themselves are not causing inflation, but rater that overly loose monetary conditions are causing higher food prices. King also points out that food export caps are being implemented so that local production can be used to feed growing populations. King concludes that there is no substitute for higher food production, noting that producers will not produce any more if governments make any moves that keep them from receiving the right price. King speculates that the situation has the potential to turn into an economic shock on par with the oil price increases seen in the western world in the 1970s.

Looking at the economic data from overnight, in the UK Rightmove house prices for the month of April declined to –0.1% M/M and to 1.3% y/y from 0.8% and 5.0% in March respectively. Along with the data release Rightmove said that immediate action is needed to improve mortgage liquidity, adding that a lack of mortgage funds could trigger a price crash. Swiss producer & import prices for the month of March exceeded expectations, with the y/y reading rising to 3.9%, the highest reading on record since records began in January of 1990.

In central bank speak overnight the PBOC's Zhou said overnight that rates will remain on hold until inflation studied. The ECB's Liikanen said in an interview with the Wall Street Journal overnight that inflation risks are real. Liikanen added that he has not seen broad evidence of price spillovers, and noted that wage rounds are very much national. The ECB's Weber said overnight that the ECB may need tighter monetary policy to counter big wage hikes. Furthermore Weber said that there have been no deep economic marks" on EMU from market turmoil.

Looking ahead, there is no economic data scheduled in the US today. Despite the lack of any economic data in the US today, there will be some action this morning as there are a series of anticipated earnings reports due out. Bank of America (BAC), Halliburton (HAL), Eli Lilly (LLY), Merck (MRK), and Weatherford International (WFT) are all scheduled to report earnings in the pre-market today. In central bank speak the Fed’s Krozner is due to speak on community development in Minnesota this afternoon.