Daily Sources 6/24

1. JAPANESE EXPORTS IN MAY DOWN 40.9% YOY, 0.3% MOM; CHINESE GDP GROWTH NOT TRANSLATING INTO MORE IMPORTS; CHINA'S NBS PROVIDES QUARTERLY ESTIMATES OF GDP GROWTH

Jason Clenfield at Bloomberg reports that Japanese exports fell by 40.9% in May from a year previous, a sharper decline than the 39.1% seen in April. Exports fell by 0.3% in May from April.

"Shipments to China, Japan’s biggest trading partner, fell 29.7%, more than April’s 25.9%. Exports to Asia slid 35.5% from 33.4% a month earlier.
...
Imports slid 42.4% from a year earlier, and the trade surplus narrowed 12.1% to ¥299.8 billion (~ $3.1 billion), the Finance Ministry said."

Brad Setser at Follow the Money notes:

"US exports to China are also down (15.6% y/y, through in the first four months of 2009, though a bit less in April itself). The eurozone’s exports to China are also down--though the 8% or so fall y/y fall in the eurozone’s exports to China seems a bit more modest than the fall in Japan’s exports to China.

China’s economy may have expanded over the last year, but that expansion clearly hasn’t fed through into more Chinese demand for US, European or Japanese goods."

In the meantime, Andrew Batson at China Journal reports that Guo Tongxin, an official at the National Bureau of Statistics, provided GDP estimates on a quarterly basis in contrast to Beijing's traditional practice of providing year on year data.

"The new estimates from Guo, which only cover 2008 and early 2009, may be a surprise for skeptics who suspect that China’s statistics officials are only capable of reporting nice-sounding numbers. These figures actually show the slowdown in the fourth quarter of last year was even sharper than most outside economists had believed.

Economists surveyed by the Journal in February had, on average, estimated that fourth-quarter GDP expanded at an annualized rate of 2.1%. Guo cited what he called a preliminary estimate that fourth quarter GDP grew 0.1% from the previous quarter, equivalent to an annualized rate of just 0.4%.

The headline year-on-year growth rate announced at the time, by comparison, was 6.8%--a gap that clearly shows how quarterly and annual growth rates can give very different pictures of economic turning points."

2. THE US AND EU LODGE WTO COMPLAINT AGAINST CHINA ALLEGING THAT BEIJING HAS BLOCKED THE EXPORT OF RAW MATERIALS

Gabriella Stern at China Journal reports that the EU and the US have filed a WTO complaint against China. The complaint alleges:

"that Beijing unfairly helps domestic makers of steel, aluminum and chemicals, among others, by effectively blocking overseas exports of raw materials (eg. the ingredients that go into steel, aluminum and chemicals)."

Stern adds:

"Brian Blackstone points out the irony that the US government is complaining about China holding back on exports when Washington’s usual stance is to complain about China flooding the world with its exports. There are, indeed, many ironies in the messy world of trade disputes. This is the Obama administration’s first WTO complaint against China and the timing is sensitive, given America’s deep dependence on Beijing’s purchases of US sovereign debt--and also the global importance of a Chinese economic recovery spurred by that government’s thus-far-effective stimulus program."

3. BEIJING SUSPENDS REFORESTATION EFFORT ON FOOD SECURITY CONCERNS

Jonathan Watts at the Guardian reports that Beijing has suspended the reforestation of marginal arable land on fears of food shortages.

"Lu Xinshe, deputy head of the ministry of land and resources, said the country was struggling to hold the 120 million hectare 'red line' considered the minimum land areas needed for food self-sufficiency.
...
By the end of last year, the amount of arable land in China had decreased to within 1% of the 'red line.'"

In November, Zhang Xiaoqiang, Vice Chairman of China's National Development and Reform Commission, set as a national strategic priority domestic production of 95% of their grain consumption through 2020--see Daily Sources 11/14 #5. China was facing the worst drought it has seen since 1951 at the beginning of the year--see Daily Sources 2/9 #13--I have no idea what the rainfall situation is now.

"[S]elf-sufficiency [of 95%] requires the production of 500 million metric tons of grain a year. To maintain this level, prime minister Wen Jiabao has said the state would increase spending on agricultural production by 20%, well above inflation."

4. GERMAN HOUSEHOLD CONSUMPTION UP IN Q1; CABINET ADOPTS FISCAL PLAN WITH DEFICIT SPENDING

Eurointelligence reports that German household consumption appeared to rise in the first quarter, per FT Deutschland.

"Why should this be so? First, the article says, unemployment was still low and will be rising more strongly later this year and in 2010. But also there have been a number of tax cuts, a large increase in pension payments, a large increase in public sector wages to support private sector incomes."

In the meantime, Der Spiegel reports that Chancellor Merkel's cabinet adopted a fiscal plan for the next four years, which includes deficit spending.

"In total, it calls for €310 billion ($436 billion) in fresh debt from 2010 to 2013, including a whopping €86.1 billion ($121.2 billion) for 2010, far and away the largest single-year budgetary hole in the history of post-war Germany.

The 2010 total could even top €100 billion depending on the development of expenses related to Germany's economic stimulus packages (worth a total of €82 billion) and its bank bailout fund (worth €500 billion). Germany's previous record for fresh debt in a single fiscal year was the €40 billion borrowed in 1996. Steinbrück's new plan calls for new debt to begin falling after 2010, with €71.1 billion necessary in 2011, €58.7 billion in 2012 and €45.9 billion in 2013."

5. INTERNATIONAL INVESTORS LEARY OF NEW DELHI'S NEW DEBT ISSUANCE PLANS

Anil Varma and Anoop Agrawal at Bloomberg report that international investors appear uncomfortable with Indian Prime Minister Manmohan Singh’s plan to sell a record $74 billion in bonds this fiscal year.

"Foreign funds cut holdings of local-currency debt by 20% from a January peak to $5.7 billion, according to India’s Securities and Exchange Board. Investec Asset Management Ltd., Nikko Asset Management Ltd. and ING Investment Management, which together manage more than $15 billion in emerging-market debt, say they’re avoiding the market.

Yields are rising as Singh boosts spending on infrastructure and programs to reduce poverty, which he says are needed to return the economy to 9% growth, from the 6% forecast by the central bank for the year started April 1. Standard & Poor’s said June 22 that India may raise its budget deficit estimate in July to 6.5% of GDP, the most in 19 years. It has a negative outlook on the nation’s BBB- credit rating, the lowest investment grade."

6. KYRGYZSTAN REVERSES DECISION TO CLOSE MANAS AIR BASE TO US

Michael Schwirtz and Clifford J Levy at the New York Times report that Bishkek has decided to reverse its decision to end the US lease of the Manas air base.

"[T]he base is to be renamed a transit center, as opposed to an air base. And the Kyrgyz will control security around the base; currently, American military personnel do. The text of the new agreement specifies few other restrictions on how the United States can use the base. There do not seem to be any prohibitions on shipping weaponry.

One major change, though, is the rent. It will rise to $60 million annually from $17.4 million, Kadyrbek Sarbayev, Kyrgyzstan’s foreign minister, told the Kyrgyz Parliament on Tuesday.

Washington will also pay $36.6 million to expand the airport and will contribute tens of millions of dollars toward economic development and the fight against drug trafficking, Mr. Sarbayev said. He said the agreement would be for one year and would be contingent on the situation in Afghanistan."

The agreement must now be approved by parliament, which is reportedly a sure thing.

7. SINOPEC OFFERS $7.24 BILLION FOR ADDAX A WEEK AHEAD OF BAGHDAD'S OIL CONCESSION AUCTIONS

Kate Mackenzie at FT Energy Source reports that the rumored acquisition attempt of Addax Petroleum, which has a large stake in the Taq Taq field in Kurdish Iraq, are true. Sinopec has offered $7.24 billion for the company and the board has recommended the sale to its shareholders. Baghdad is set to auction concessions next week. Yesterday, the Kurdish government released a statement calling the planned auction "unconstitutional"--see Daily Sources 6/23 #5. On June 1, the Kurdish Regional Government presented Baghdad with a fait accompli, sending oil through the Iraq-Turkey pipeline without an arrangement for revenues to accrue to the operators of the fields--see Daily Sources 5/12 #8. Iraqi parliamentarians are openly calling for the resignation of oil minister Hussein al-Shahristani for his alleged mismanagement of the issue of oil concessions--see Daily Sources 5/21 #6.

8. LARGE MIDDLE EASTERN BUY US$/€ PROGRAM REPORTED

Macro Man reports that there "appears to be a large EUR/USD buy program emanating from the Middle East."

9. US TO SEND AMBASSADOR TO DAMASCUS AFTER 5 YR HIATUS

Patrick Rucker at Reuters reports that the US will send an ambassador to Syria, after having recalled the ambassador in 2005.

10. US EMBASSY IN KHARTOUM WARNS OF POTENTIAL ISLAMIC MILITANT ATTACKS ON GOVT

Andrew Heavens at Reuters reports that the US embassy in Sudan has issued a statement warning of attacks by Islamic militants on the government in Khartoum. The statement read in part:

"Statements threatening violent action against the government of Sudan have been posted on a jihadist website, following the death of a suspected Islamic extremist."

In the meantime, BBC News reports that representatives of southern and northern Sudan have agreed to abide by a ruling at the Hague's Court of Arbitration on the status of Abyei in talks led in Washington, DC, by US Sudan envoy Scott Gration.



Much of Sudan's oil wealth is in the region. The south began demobilizing earlier this month--see Daily Sources 6/11 #9.

11. CARACAS DOLLAR SALE PRIORITIES HURTING REGIONAL EXPORTERS TO VENEZUELA

Andrea Jaramillo at Bloomberg reports that Fabricato Tejicondor SA, Colombia’s biggest textile maker, has announced that exports to Venezuela have fallen by about 70% after Caracas decided to stop allowing the industry's importers to purchase dollars at the official exchange rate.

"Importers ... have to buy dollars in Venezuela’s unregulated parallel market, where the bolivar trades at 6.63 per dollar, a rate that is 68% weaker than the official 2.15-per-dollar, said Fabricato Chief Executive Officer Oscar Ivan Zuluaga. He said the surge in the cost in bolivar terms 'put a brake on demand' in Venezuela, which accounts for about half of Fabricato’s exports."

On April 24, the Venezuelan finance minister said that Caracas would make imports of food and medicine a priority in allotting dollars for sale at the official rate this year.

12. NEW ONE FAMILY HOME SALES UP 0.6% IN MAY FROM APRIL, DOWN 32.8% YOY

Barry Ritholtz at the Big Picture reports that sales of new one-family homes were up 0.6% in May from April, but notes that the margin of error is plus or minus 17.8%.

"And as expected, April’s data was revised downwards.

Year over year, sales fell 32.8%--a valid number relative to the error (±10.9%) below the May 2008 estimate ...."

He links to a Barron's Econoday chart plotting new homes sales since January 2006:



13. DURABLE GOODS ORDERS UP 1.8% IN MAY FROM APRIL

Shobhana Chandra and Courtney Schlisserman at Bloomberg reports that the Commerce Department announced today that orders for durable goods rose 1.8% from April.

"Economists projected goods orders would drop 0.9 percent, according to the median of 75 forecasts in a Bloomberg News survey. Estimates ranged from a decline of 3.9% to a gain of 1%. Commerce revised the April gain to 1.8% from a previously reported 1.9% increase."

14. US COMMERCIAL CRUDE STOCKS DOWN 3.8 MB, GASOLINE UP 3.9 MB, REFINERY UTILIZATION UP TO 87.05%

The EIA reports that commercial crude stocks were drawn down by 3.8 million barrels in the week ended June 19 to 353.9 million barrels. Holdings are well above the historical range for this time of year, but have been falling steadily in recent weeks. A Bloomberg News survey had the median expectation of analysts for a 950,000 barrel draw. Commercial gasoline stocks grew by 3.9 million barrels and are at the bottom of the historical range for this time of year. Distillate stocks grew by 2.1 million barrels and are 32.7% larger than the comparable week last year. The national average price of gasoline rose to $2.691/gallon for the week ended June 22. Refinery utilization for the week ended June 19 rose to 87.05% from the 85.90% seen in the week ended June 12.