Daily Sources 12/10

1. Brad Setser at Follow the Money reports that China's November trade data which shows a 2.2% year-over-year decline in exports and a 17.9% year-over-year fall in imports suggests that the global economy has stalled and is perhaps contracting.

"The November data from Korea and Taiwan tells a similar story. All experienced far larger falls in year over year falls in their exports than China did.
...
There isn’t much of a case for China to allow the yuan to depreciate against the dollar to help exports though. Not when Chinese exports are falling less than other countries exports, and China is gaining global market share. These are going to be hard times for everyone.

And China — with its large external surplus and strong fiscal position — should have more room to stimulate domestic demand than most. It certainly needs to do so.

China’s imports fell significantly faster than its exports in November, pushing China’s monthly trade surplus up to a record $40 billion."

Worth reading in full. Reuters has a story on the data as well that notes,

"In another sign that the economy has simply run into a wall, the statistics office reported earlier that wholesale price inflation collapsed to 2.0% in the year to November from October’s reading of 6.6%."

Analysts are worrying about deflationary recession risk. Which is problematic, given that the US especially wants the renminbi to appreciate. Which, apparently, Beijing is doing, as per Belinda Cao at Bloomberg.

"The yuan rose the most in six weeks on signs the central bank is allowing currency appreciation to encourage investors to keep money in the nation as the global economic slowdown deepens.
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The currency has risen for six days in a row, the longest gaining run since June as a government report today showed foreign direct investment fell 36.5 percent to $5.3 billion in November, the least in 14 months."

Also at Bloomberg, Kevin Hamlin and Li Yanping note that

"The central bank pledged today to maintain a "moderately loose' monetary policy and aid small businesses, in a statement after a three-day annual meeting in Beijing where China’s leaders set economic policy."

2. Ambrose Evans-Pritchard at the UK Telegraph provides some additional data on the worsening trade picture for Taiwan and Japan:

"Flemming Nielsen, from Danske Bank, said exports from Korea and Taiwan both shrank by over 20pc last month. "The numbers are terrible. Intra-Asian trade is in free-fall. Taiwan's exports to mainland China in November were down a whopping 42pc.
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Tokyo is already planning "purchase vouchers" to kick-start spending in the world's second largest economy. A fresh stimulus package worth 20,000bn yen (£146bn--or ~$216bn) is being prepared for early next year."

3. The Washington Post has posted the transcript of their interview with Taiwanese President Ma Ying-jeou in the presidential building in Taipei yesterday.

4. William Bi at Bloomberg reports that China is considering providing 5 million tons worth of corn export quotas, which should help farmers by raising prices for the crop domestically and depress international prices. The National Reform and Development Commission set a "strategic priority" on November 14 that domestic production of grain reach 95% of consumption by 2020. (See Daily Sources 11/14 #5.)

6. The Panama Canal Authority released a press release yesterday announcing that the International Finance Corporation, the Japan Bank for International Cooperation, the European Investment Bank, the Inter-American Development Bank, and the Corporacion Andina de Fomento agreed to provide $2.3 billion in financing for the expansion of the Canal.


7. Joshua Partlow and Lucien Chauvin at the Washington Post report that on Monday the Peruvian President announced a $3.4 billion bailout package, last week Argentina announced a $3.8 billion low-cost loan program paid for with the just-nationalized pension system, and Brazil has spent $3.5 billion to assist its auto manufacturing sector.

8. Mark Shenk at Bloomberg reports that Energy Minister Sergei Shmatko told Interfax that Russia would submit proposals for cutting output by December 17, when OPEC is scheduled to meet next. Schmatko said the he had had a telephone call with the President of OPEC and had indicated that Moscow was prepared to make "significant" output cuts. This is big news. It represents a tectonic shift in Russian energy policy strategy and, as such, foreign policy.

In related news, Greg Walters at Bloomberg reports that the Russian Finance Ministry has indicated it will likely cut export duties on crude by another 33% or so come January 1.

9. The EIA released its This Week in Petroleum today, showing that crude oil stocks grew by 400 kb in the week ending December 5, near the top of the historical average and well below analyst predictions of a 2.7 mb build. Gasoline stocks were up 3.8 million barrels, which is at the bottom of the historical average, and well above analyst expectations of 1.4 mb. Distillate stocks were up a whopping 5.6 mb, bringing stores into the historical average and in striking contrast to Wall Street expectations of a 1.6 million barrel decline. (This might suggest that European diesel demand has declined so much it cannot absorb excess US diesel production, much as I suspect the US is no longer absorbing excess European gasoline production.) In isolation, this data would put downward pressure on prices, and may be a deciding factor at the OPEC meeting on the 17th, next Wednesday.

However, in a related story, Julianne Pepitone at CNNMoney.com wrote yesterday that MasterCard Advisors's SpendingPulse report showed a 0.3% year-over-year increase in gasoline demand, the first such increase seen since April.

11. Matthew Walter at Bloomberg reports that Standard & Poor's cut Venezuela's debt rating outlook from stable to negative. They left the debt rating at BB-.

12. Nariman Gizitdinov at Bloomberg reports that Kazakhstan plans to spend 2.2 trillion tenge ($18.3 billion), or nearly 20% of GDP, on financial stabilization and economic stimulus.

"The National Wellbeing Fund [the government's primary vehicle for its bailout program] plans to spend $1 billion to buy 25 percent stakes in the country’s four biggest banks, and will keep $3 billion of bailout money in reserve, Kelimbetov said. The fund was created by merging state development holding Kazyna and Samruk, a state assets holding."

13. The AP reports that the Iraqi election commission has launched a petition to determine whether the state of Basra should hold a referendum on whether the region should be autonomous. Basra is an especially oil and gas rich region of Iraq and is the only province touching the sea in Iraq. If the referendum were to pass, the state would theoretically have control over all decisions having to do with oil and gas exploration and development in the region as well as all the revenues derived therefrom. The petition needs to secure signatures of 10% of the population of Basra for a referendum to be scheduled.

14. Xinhua reports that the Iranian Oil Industry Investment Company announced it will participate in some small exploration and production projects in northern Iraq today. The joint venture will cost about $32 million.

15. Jane Perlez at the New York Times reports that Islamabad has widened its crackdown on Islamist militant groups in Pakistan, including Lashkar-e-Taiba, raiding property and arresting as many as 20 suspects.

"Pakistan said Tuesday that it had arrested Zaki-ur-Rehman Lakhvi, the operational leader of Lashkar-e-Taiba, during a raid on Sunday on a camp outside Muzaffarabad, the capital of the Pakistani-controlled region of Kashmir. Mr. Lakhvi has been described as the mastermind of the Mumbai attacks.
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Pakistani officials have indicated in the past few days that there were no plans for a large-scale crackdown on Lashkar-e-Taiba, a group founded in the 1980s by the Pakistani Army to fight a proxy war against India in Kashmir."

Worth reading in full.

16. Ruchir Sharma, head of Emerging Markets at Morgan Stanley Investment Management, argues that the recent local election results were determined by local, mostly economic, issues and that overarching issues of terrorism or inflation had little traction. Well worth reading in full. National elections are six months away. Sharma does not appear to think that electorate will rally around the government due to the conflict.

17. AFP reports that Merkel's cabinet has approved a plan to send up to 1,400 troops and a frigate to support the EU's piracy suppression mission off Somalia--Operation Atalanta. The German Parliament must approve the measure by December 19 before the forces can be sent.

18. Michael Gerson at the Washington Post gives an update on the Congo situation. Government forces broke the cease fire some time ago and the rebels were only barely prevented from taking Goma. Gerson suggests that a solution would be for a "hard-hitting European military force--supported by the United States" to insert itself between the rebels and the government, in support of the UN peacekeepers and to thus make time for peace negotiations to succeed. Worth reading in full. There may be some merit to the idea, but I think European policymakers are reasonable to conclude that there are limits to what can be done as long as the local parties feel their interests are best served by continued fighting. Ultimately, a solution must be found locally, a foreign-imposed peace cannot continue indefinitely, and a long term international force may only serve to delay a viable political solution. Clearly international forces are currently being viewed as catspaws in the conflict, to be used for temporary, tactical, advantage.

19. Shobhana Chandra and Andy Burt report that in a survey of economists by Bloomberg News the median expectation for household spending in 2009 is a 1% decline from 2008. "By the middle of next year, the economy will have shrunk for a record four consecutive quarters, the survey showed."

20. Alison Fitzgerald and Helen Murphy at Bloomberg have a very interesting story on how World Bank advice to developing nations has emptied their basic foodstuff storage. The bank apparently advised the countries to pursue private sector incentives without creating state-backed redundancies to ensure the minimum stock levels to feed the population in a crisis--a consideration which, by the way, has led to the decision by every single developed country to subsidize food production. A case study in how ideology can cause great harm. Worth reading in full.