Daily Sources 6/18

1. BANK OF JAPAN JUNE REPORT INDICATES NO SPENDING GROWTH, HIGH UNEMPLOYMENT, ALMOST CERTAIN DEFLATION

Rebecca Wilder at News N Economics notes that the Bank of Japan released its June report on economic and financial developments today. She notes that the economy is bedeviled by no spending growth and high unemployment ... the one bright spot is that exports appear to be leveling out--her graph:



Ms Wilder notes: "since there is no domestic demand, deflation is all but given." Well worth reading in full. Kyodo News notes that the Bank of Japan report showed that the outstanding balance of financial assets held by households at the end of March fell by 3.7% from the year previous.

"Individual assets held in cash and deposits rose 1.4% to ¥786.50 trillion (~ $8.18 trillion), increasing for the ninth consecutive quarter and underscoring that households favor having their money on hand or keeping it in banks rather than invested in capital markets."

2. WORLD BANK RAISES FORECAST FOR CHINESE GDP IN 2009 TO 7.2%

Liu Li at the Wall Street Journal reports that the World Bank has raised its forecast of Chinese GDP growth to 7.2% in 2009 on the back of the stimulus program. In March, the bank forecast that growth would come in at about 6.5%.

"'The current surge in government influenced investment is welcome, and more domestic demand in China is helpful for the world economy," the bank said in its report. 'However, it is unlikely to lead to a rapid, broad based recovery in China, given the current global environment and the subdued short term prospects for market based investment.'

World Bank senior economist Louis Kuijs said at a press briefing the stimulus is likely to have a smaller impact on the economy next year."

Bank analysts also think that the stimulus this year may constrain the ability of Beijing to respond to events as they develop next year, during which the bank expects GDP to expand by 7.7%. Both numbers are below the "magic eight." It may or not be important in considering this report that some think that the World Bank's next head will hail from China.

3. CHINA RUSSIA'S LARGEST TRADING PARTNER IN FIRST FOUR MONTHS OF 2009

The Wall Street Journal notes that Russia's economy ministry said yesterday that China was Russia's largest trading partner in the first four months of 2009.

4. BANK OF ENGLAND CHIEF MERVYN KING SUGGESTS LIMITING SIZE OF BANKS

Katherine Griffiths at the London Times reports that the head of the Bank of England has indicated in a speech that he supports limiting the size of banks.

"Mr King sought to apply pressure on the Government to award the Bank stronger powers to police lenders that had in the past regularly ignored his warnings. But he admitted that he did not know in what form the Bank would discharge such a responsibility. But such a move would belittle the Financial Services Authority, the official banking regulator, which has been accused of allowing lenders to behave recklessly while on its watch.

The Governor reinforced a suggestion he had made before that retail banks should be split from investment banks and added that there should be a plan for potential winding down of the largest institutions so that there could be an orderly process if they failed."

His suggestions are more radical than suggestions made in either Brussels, Westminster, or Downing St. There is a video report with part of Mervyn King's speech and commentary at the link. (h/t Eurointelligence.)

5. OECD FORECASTS ITALIAN GDP TO CONTRACT BY 5.3% IN 2009

Eurointelligence reports that the OECD yesterday forecast that Italy's economy would contract by 5.3% in 2009, followed by a weak recovery in 2010.

"It warns of a rise in unemployment to over 10% next year, the public-sector deficit will hit 10%, while the level of debt will be approaching 120%. The reports also laments the slow progress Italy has made introducing reforms to free up the service sector, and to reform the administration. The OECD was particularly critical of car subsidies to prop up the country’s ailing auto sector, as this would lead to a misallocation of resources."

6. RUSSIAN ENERGY MINISTRY DRAFTS NEW OIL AND GAS TAX PROPOSAL

Anna Shiryaevskaya at Platts reports that Russia's energy ministry has drafted a new tax proposal with the idea of making production from new oil and gas fields profitable.

"If Russia implements new tax measures to stimulate oil production, the country might increase output to 511 million mt/year (10.2 million b/d) in 2013. Otherwise, production might drop to 450 million mt/year in 2013, [Energy Minister Sergei Shmatko] said. In 2008, Russia pumped 488.105 million mt (9.735 million b/d) of crude, down 0.7% on the year.

Among other incentives, Putin called for a temporary cut in the duty to export Eastern Siberia crude because transportation from the region is expensive and had limited infrastructure."

7. NORGES BANK CUTS BENCHMARK INTEREST RATE TO 1.25%

Josiane Kremer at Bloomberg reported yesterday that the Norges Bank cut the benchmark interest rate by 0.25% to 1.25%. The bank

"said it expects [the benchmark interest rate] to remain between 0.75% and 1.75% until Oct. 28. The assessment that the rate "can remain close to 1 percent for a period ahead still applies,' the bank said in a statement, forecasting a 1.5 percent benchmark in 2010."

The bank forecast that the mainland economy, excluding shipping and oil, will contract by 1.5% in 2009, and expand by 2.5% in 2010. It expects inflation to average 2.5% in 2009 and 1.75% in 2010.

8. BOLIVIA'S LITHIUM RESERVES PRESENT CONUNDRUM TO MULTINATIONALS

Rory Carroll and Andres Schipani at the Guardian UK report on the conundrum facing multinationals that want to become involved in Bolivia's lithium market. Bolivia is thought to posses fully half of the world's total supply of lithium, a key component in batteries for a variety of products, including electric cars. The government of Evo Morales, however, is wary of the influence of multinational corporations.

"'The government of Bolivia will never give away control of this natural resource,' [Morales has] said. He acknowledges, however, that a foreign partner is needed.

The government is talking to France's Bollore Group, South Korea's LG Group and Japan's Sumitomo and Mitsubishi. Bollore has been asked to join the government's scientific commission on lithium, suggesting it has the edge.

The government said it would choose as a partner the company which will help Bolivian industry and not just ­mining."

Morales has strong ties to the government of Hugo Chávez and followed in his footsteps by nationalizing the oil and gas industry in the country in 2006.

9. PERUVIAN AMAZON PROTEST LEADER LEAVES FOR NICARAGUA

The Associated Press reports Peruvian Amazon protest leader Alberto Pizango has left the country for Nicaragua, where he has been granted political asylum.

"Pizango sought refuge in Nicaragua's embassy last week after Peru filed sedition and rebellion charges against him, accusing him of provoking violence when protests over Amazon development proposals turned deadly. The June 5 clash left 24 police dead. Indian leaders say at least 30 civilians died."

Peru granted him safe passage Tuesday.

10. TOTAL US UNEMPLOYMENT INSURANCE ROLLS FALL, BUT INITIAL CLAIMS RISE, RISING OIL COSTS LIKELY TO UNDERMINE US TRADE SITUATION, NORTH AMERICAN TRAIN FREIGHT CONTINUES TO SHOW STEEP FALL

The Associated Press reports that the Labor Department announced that total unemployment insurance rolls fell last week by 148,000 to 6.76 million, for the first time since January. Initial claims, however, rose by 3,000 to a seasonally adjusted 608,000. "The four-week average, which smooths fluctuations, fell by 7,000 to 615,750." Phil Izzo at Real Time Economics reports that Panjiva, Inc. remarked in a research note that there was a 2% uptick in manufacturers exporting to the US in May. But,

"'Looking forward, with the price of petroleum skyrocketing, it is likely that we will see a further deterioration in our trade situation and that will not help us as we try to get out of this recession,' Naroff Economic Advisors said in a research note last week."

The railfax report for total North American freight by rail volumes for the week ended June 13 were down 19.2% from a year earlier.

11. US TOTAL NAT GAS RESERVES ESTIMATION UP 35%

Jad Mouawad at the New York Times reports that the Potential Gas Committee released a report today showing that natural gas reserves in the US have increased by 35%.

"Estimated natural gas reserves rose to 2,074 trillion cubic feet in 2008, from 1,532 trillion cubic feet in 2006, when the last report was issued. This includes the proven reserves compiled by the Energy Department of 237 trillion cubic feet, as well as the sum of the nation’s probable, possible and speculative reserves."

The New York Times provides a helpful illustration.



The report calculates all gas that one could conceivably get out of the ground, however, not the amount that would be economical to get out of the ground (which is one reason, for example, why reserves calculated by oil companies can fluctuate rather wildly with price.) Near term this will prove an important difference, front month natural gas is trading at a $46.36/b discount to front month sweet light on NYMEX on a BTU basis.

12. SOUTHERN CALIFORNIA EDISON REACHES AGREEMENT FOR AS MUCH AS 726 MWs FROM SOLAR-THERMAL TROUGH GENERATORS

Dow Jones reports that Edison International's Southern California Edison utility has reached agreements

"with wind and solar power suppliers on four pacts for as much as 960 megawatts of power from renewable-energy sources ... include a potential 726 megawatts of power from solar-thermal trough generators."

All for the good, but the water requirements of solar-thermal trough generators may prove a problem in the future--see Daily Sources 6/8 #16.