Daily Sources 4/29

1. CHINA, INDIA AND SOUTH AFRICA CALL FOR $200 BILLION IN CONTRIBUTIONS TO ADDRESS GLOBAL WARMING

Alex Morales at Bloomberg reports that China, India, and South Africa have called on the industrialized nations to contribute at least $200 billion to help them address global warming in a new proposal to the UN.

"'Economic and social development and poverty eradication are the first and overriding priorities of the developing countries,' China said. The statements reiterate demands China has previously made during 16 months of climate talks that most of the climate burden should be carried by the richest nations. Contributions should be additional to existing aid, China said."

$200 billion is about 0.5% of the industrialized world's economic production. The three also called upon the industrialized world to cut greenhouse emissions by at least 40% from 1990 by 2020, twice the cut the EU has agreed to make.

2. CHINESE PREMIERE SAYS GOOD RELATIONS WITH JAPAN IN ITS INTERESTS

Yoko Kubota at Reuters reports that Chinese Premier Wen Jiabao told Japanese Prime Minister Taro Aso during his visit to Beijing today that stable and friendly relations between the two countries "suits the fundamental interests of the people of both countries."

"In their remarks with reporters present, neither leader mentioned North Korea. But Japan's NHK television reported that the two were likely to discuss Pyongyang's threat.

Aso said earlier that swine flu was also likely to feature in his meetings with Chinese leaders."

(h/t Foreign Policy's Morning Brief.)

3. PIETRO GARIBALDI ARGUES THE CONSERVATIVISM OF THE ECB WILL MAKE EURO PREFERABLE TO THE DOLLAR AFTER THE CRISIS EASES

Eurointelligence reports that Pietro Garibaldi has an opinion piece in La Stampa which argues that the financial crisis will strengthen the euro's position relative to the dollar.

"One reason is the likely scenario of higher inflation in the US, post-recovery, as the Fed is unlikely to role back its monetary easing sufficiently fast, and since inflation is highly effective at reduce the real value of debt. Another reason is the European Central Bank’s relative conservativism, in particular its reluctance to cut interest rates to zero."

4. SWINE FLU SPREADS TO GERMANY

Der Spiegel reports that swine flu has spread to Germany.

"Meanwhile, in Spain, authorities have confirmed 10 cases of the disease--including one victim who has not recently visited Mexico. Suspected cases have also been reported in many other countries, including France, Belgium, Switzerland and Chile. In Austria, officials with the Health Ministry in Vienna confirmed that a 28-year-old woman had been infected with H1N1, and a total of five cases were confirmed in Great Britain."

5. RUSSIA SECURES TWO BIG ARMS DEALS WITH TURKEY AND VIETNAM

Yevgeny Bendersky at Real Clear World reports that Russia has recently concluded two major new defense exports deals with Turkey and Vietnam. "Turkey has recently decided to purchase Russia's latest and most advanced air defense system, the S-400." The estimated purchase price for the missile system ranges from $1 to $4 billion.

"Russia's 'Rosoboronexport' also recently announced that it will be building six 'Kilo' diesel-electric submarines for the Vietnamese Navy, to the tune of approximately $1.8 billion."

6. LITHUANIAN GDP FELL BY 12.6% IN Q1, BAD OMEN FOR THE BALTIC GENERALLY

Joel Sherwood and Katie Martin at the Wall Street Journal report that Statistics Lithuania said today that Lithuanian GDP fell by 12.6% in the first quarter from the year previous.

"Economists say that figure suggests expectations of a 10% slump in GDP across the Baltic region this year could be too optimistic. Latvia and Estonia are to release first-quarter GDP growth estimates in early May."

7. UAE PROPERTY MARKET PRICES FALL BY 41%; IPIC SEEKS MORE CAPITAL TO INVEST WITH AT THE BOTTOM


BBC News reports that Colliers International released a new report showing that property prices in Dubai fell 41% in the first quarter of 2009 from the first quarter of 2008. The fall followed the annual 8% decline seen in the fourth quarter of 2008 from 2007. Meanwhile, JGW at Frontier Markets reports that the Abu-Dhabi-based International Petroleum Investment Company (IPIC) announced on Monday that it had received a2/AA/AA long term credit ratings by Moody’s, Fitch Ratings and Standard and Poor’s, respectively, with a stable outlook.

"According to one analyst, the ratings are 'a signal that [state sovereign] funds are eager to keep spending and [are] willing to borrow to increase their buying power.'"

8. US GDP FELL BY 6.1% IN THE Q1, BUT PRODUCTIVITY IS FLAT, AND INVENTORY DRAWDOWNS ACCOUNTED FOR NEARLY HALF OF THAT FALL

Justin Fox at the Curious Capitalist reports that the Bureau of Economic Analysis released data today showing that US GDP fell by an annual rate of 6.1% in the first quarter. That follows the contraction seen in the fourth quarter of 2008 of 6.3%. (Though the data on the first quarter is still likely to be revised.) Fox comments:

"So the worse-than-expected GDP headline number is not going to discourage those economic forecasters who've been predicting a marked easing in the pace of the downturn, or even an end to it within a few months. In fact, the sharp decline in private inventories that accounted for 2.79 percentage points (almost half) of the GDP decline is actually extremely good news, because it means businesses may have already made most the inventory adjustment that's a part of every recession—clearing the way for an upturn."

Brian Blackstone at Real Time Economics notes that in addition nonfarm business value added fell by 8.2% in the first quarter. Evidently, nonfarm business value is used to estimate productivity.

"Still, nonfarm productivity, which is defined as output per hour of labor, will likely come in flat or down only slightly for a second-consecutive quarter — a heroic effort, given the extent of the economic contraction over the past six months.

Productivity shrank just 0.4% in the fourth quarter, at an annual rate, despite a 6.3% contraction in GDP and 8.8% drop in nonfarm value added.
...
To put that in perspective, the last time the U.S. had recessions approaching the current one in severity, in the mid 1970s and early 1980s, productivity posted quarterly drops of as much as 5%."

9. CRUDE IN STORAGE AT 18-YEAR HIGHS IN EUROPE AND US; MARKET SHRUGS

Alaric Nightingale at Bloomberg reports that Rotterdam--Europe's largest port--may be running out of spare storage capacity for crude and oil products.

"Rotterdam can store 11.9 million cubic meters of crude, port data from 2007 show. That’s equal to about 75 million barrels or enough to supply the 27-nation European Union for about five days.

Some on-shore storage tanks for oil products are either full or have no unreserved space available, Pieter Kulsen, a Rotterdam-based refined oils consultant at PJK International BV, said by phone yesterday."

Meanwhile, the EIA reported that US commercial crude stockpiles grew by 4.1 million barrels to 374.7 million barrels in the week ended April 24. The median expectation of a survey of analysts was for a 1.8 million barrel build, according to a Bloomberg survey. The total is the largest commercial crude stock holding seen since September 1990. Gasoline stocks, on the other hand, fell by a whopping 4.7 million barrels, though it is still at the high end of the five year historical range for this time of year and 1.5 million barrels up from a year ago. Analysts had expected a 200,000 barrel build. From Mark Shenk's Bloomberg article:

"'Nobody was looking for a gasoline decline of that size,' said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida. 'This shows that refineries are keeping processing rates too low because there’s obviously some demand out there for gasoline.'"

Distillate stocks grew by 1.8 million barrels to 144.1 million barrels--38.3 million barrels more than were held a year ago, which is about 36.2% greater than what is historical at this time of year, moving counter-cyclically. Analysts had expected a 1 million barrel gain. From Shenk's article again:

"'The weekly numbers haven’t been kind to the market recently,' said Kyle Cooper, an analyst at energy consultant IAF Advisors in Houston. 'It’s hard to explain why prices aren’t lower because there is plenty of petroleum.'"

That is, taken in isolation, the data are mixed, but should be bearish on the price of oil. So far today the price of front month sweet light on NYMEX has risen by about a buck a barrel.