Daily Sources 6/16

1. IRAN PROTESTS CONTINUE, AHMADINEJAD LEAVES FOR EKATERINBURG, RUSSIA

Protests are continuing. The most interesting data point to me is that President Ahmadinejad either felt the situation secure enough or irrelevant enough to leave the country to observe the goings on at the Shanghai Cooperation Organization's summit today in Ekaterinburg, Russia, per Vladimir Isachenkov at the Associated Press. Will try and put up another post on the ongoing situation a bit later today.

2. MOODY'S DOWNGRADES THE FINANCIAL STRENGTH RATINGS OF 30 SPANISH BANKS, INCLUDING SANTANDER

Izabella Kaminska at FT Alphaville reports that Moody's downgraded the senior unsecured debt and deposit ratings of 25 Spanish banks today, 18 by one notch and seven institutions by two notches.

"At the same time, Moody’s downgraded the Bank Financial Strength Ratings of 30 banks. Among these banks, the rating agency downgraded the dated subordinated debt of 17 institutions, the junior subordinated debt of eight institutions, and the preference shares of 14 banks.

'The rising pressure that many Spanish banks face from a sharp deterioration of their asset quality is reflected in their stand-alone financial strength ratings, a third of which now fall at a “D-” level or lower,' said Maria Cabanyes, a Senior Vice President at Moody’s. 'However, the moderate downgrade of these banks’ senior ratings reflects our expectation that government support would be forthcoming for these institutions should such support become necessary.'"

3. CHINA PROMISES $10 BILLION IN LOANS TO MEMBER STATES OF SCO TO HELP THEM WEATHER ECONOMIC CRISIS, MEDVEDEV CALLS UPON SCO MEMBERS TO SETTLE BILATERAL TRADE IN DOMESTIC CURRENCIES


Lyubov Pronina and Lucian Kim at Bloomberg report that Chinese President Hu Jintao offered to lend $10 billion to member states of the Shanghai Cooperation Organization [SCO] so they might better weather the financial crisis. Jintao made the offer at the regional organization's summit in Yekaterinberg, Russia, today. The other members of the SCO are Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Russia.

"Russian President Dmitry Medvedev is hosting back-to-back summits of developing economies in Yekaterinburg, in the Ural Mountains that divide Europe and Asia, as he seeks to lessen the world economy’s dependence on the US dollar. Medvedev and Hu will hold talks later today with Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva in the first summit of so-called BRIC nations.

Hu called for greater coordination among Shanghai members on monetary policy, including regular meetings of finance ministers."

Medvedev reportedly encouraged China and the other SCO members today to conduct bilateral trade in their domestic currencies as opposed to the dollar. He further said,

"There can be no successful global currency system if the financial instruments that are used are denominated in only one currency. Today this is the case and the currency is the dollar."

4. RUSSIA VETOES CONTINUATION OF UN PEACEKEEPING MISSION IN ABKHAZIA, GEORGIA

John Heilprin at the Associated Press reports that Russia has exercised its veto power at the UN Security Council in order to put an end to the 16 year old UN mission to Georgian breakaway region Abkhazia.

"'It is understandable,' Russia's Foreign Ministry said in a statement Monday, 'that in the new political and legal conditions most of the names and terms previously used in the old documents are inapplicable.'"

What the ministry means is that now Abkhazia is recognized by Moscow as a new state, altogether independent of Georgia. Clearly the move will hurt Saakashvili's political chances, the government is currently bedeviled by constant popular opposition protests.

5. INDIAN PM AND PAKISTANI PRESIDENT MEET IN EKATERINBURG

Vladimir Isachenkov at the Associated Press reports that Indian Prime Minister Manmohan Singh met with Pakistani President Asif Ali Zardari met for talks behind closed doors in Yekaterinberg today for the first time since the Mumbai terror attacks of last year.

"'My mandate is to tell you that Pakistani territory should not be used for terrorism against India,' Indian and Russian news agencies quoted Singh as saying after shaking hands with Pakistani President Asif Ali Zardari ahead of their meeting."

Both India and Pakistan have observer status in the SCO.

6. SAMA CUTS REVERSE REPURCHASE RATE BY 0.25% TO 0.25%

The Associated Press reports that the Saudi Arabian central bank, the Saudi Arabian Monetary Authority, or SAMA, has cut its reverse repurchase rate by 0.25% to 0.25%. It is the second reduction made by the fiscal authorities this year.

6. MICRO-POWER IN BANGLADESH MAY HAVE BENEFITS SIMILAR TO MICRO-FINANCE

Shafiq Alam at AFP has an anecdotal account of how Bangladeshis, frustrated by the governments perennial inability to make good on promises to bring the people electricity, have begun installing solar power panels on their homes if they can afford it. One tailor, for example, can now sew well into the night, and has reportedly doubled his income. So, much like micro-finance, micro-power could have the potential to radically transform the lives of many in the developing world.

7. ANALYSTS THINK MEXICO MAY NOT HEDGE OIL FURTHER ... SOVEREIGN MAY HAVE HAD CONSIDERABLE SHARE OF OPEN INTEREST ON NYMEX

Andres R. Martinez and Carlos Manuel Rodriguez at Bloomberg report that some analysts think that Mexico might not hedge the price of oil going forward. The interesting data point, to me, was that Mexico spent $1.5 billion to buy the option to sell crude oil at $70/b. Apparently it has hedged a total of 330 million barrels for the whole of 2009. That is 330,000 contracts on NYMEX, or over 12.7% of total open interest on both futures and options for light sweet crude for the week ended June 9, as per the commitment of traders report.

8. ABERDEEN ASSET MGMT SAYS CORREA PLAYED MARKET FOR FOOLS

Lester Pimentel at Bloomberg reports that Edwin Gutierrez at Aberdeen Asset Management Plc recently said the Ecuadorian President

"'played the market for fools' by defaulting on $3.2 billion of debt six months ago and then repurchasing the bonds at less than 40 cents on the dollar."

"'Ecuador won,' Edwin Gutierrez, who manages $5 billion at Aberdeen and sold his Ecuador holdings before the default, said in a telephone interview from London. Correa’s government 'played the market for fools. Remind me never to play poker with that guy,' he said.

Correa, a 46-year-old economist who counts Venezuelan President Hugo Chavez as one of his closest allies, halted payments on the bonds because he said they were issued illegally. He called the bondholders 'true monsters who won’t hesitate to crush the country' when he announced the default on Dec. 12 and said in a national radio address the next day that he wanted to force them to accept a 'big discount.'"

Ecuador stopped making payments on its sovereign debt on December 12 and later in that month pressured its social security system to purchase $1.2 billion in new bonds--see Daily Sources 12/29 #14. Ecuador currently uses the US dollar as its currency.

9. HOUSING STARTS AND PERMITS DOWN 45.2% IN MAY FROM YEAR PREVIOUS, UP 17.2% FROM APRIL

Barry Ritholtz at the Big Picture reports that housing starts and permits increased in the month of May from April with Starts at 17.2% (±14.4%) and Permits at 4.0% (±1.7%)--ie, both above the statistical margin of error. However, "The stunning news was the 45.2% (±5.8%) collapse below the May 2008 rate. That is simply an unbelievable free fall."