Daily Sources 8/12

CHINA BUYING YEN

Tim Duy at Tim Duy's Fed Watch reports that the renminbi, dollar and yen are on a collision course. China is buying yen at a time where the yen is hitting record highs. If Japan responds by buying dollars, then China has managed to get Japan to help maintain the value of their dollar holdings as well as their ability to sell them. Well worth reading in full.

CHINESE STRATEGISTS SEE EXERCISES IN YELLOW SEA AS PART OF EFFORT TO ENCIRCLE CHINA WITH AN ASIAN NATO

Dai Xu at China.org.cn argues that the US is trying to build an Asian NATO to encircle China.


JAPANESE CONSIDER OPTIONS AFTER ATTACK ON TANKER

Takeo Kumagai and Pradeep Rajan at Platts report that the Japanese are considering how to increase security at the Straits of Hormuz after the bomb attack on the M Star VLCC. One option being considered is to only send tankers through the strait during the day time. However restricting passage to daytime hours would add to the congestion in traffic through the strait. Japan is stuck with importing oil through the Strait of Hormuz--80% of their oil supplies pass through it.

GREEK ECONOMY SHRINKS BY 1.5% IN THE SECOND QUARTER

The BBC reports that the Greek economy shrank by 1.5% in the second quarter from the first. The economy shrank by 3.5% from this time last year.

"That adds to 0.8% decline in GDP recorded for the first three months of the year, suggesting that the decline in the economy is speeding up."

INDUSTRIAL PRODUCTION IN INDIA RISES 7.1%

Kartik Goyal and Unni Krishnan at Bloomberg report that industrial production in India increased 7.1% in June from a year earlier. 7.1% is the slowest rate in 13 months and some see it as evidence that the economies in Asia are cooling.

TURKEY USED CHEMICAL WEAPONS AGAINST PKK

Daniel Steinvorth and Yassin Musharbash at Der Spiegel report that photos have been taken of dead PKK members which seem to demonstrate that Turkey used chemical weapons to kill them. German politicians are demanding an explanation from Ankara.

TOP IRAQI MILITARY COMMANDER SAYS US EXIT IS COMING TOO SOON

BBC reports that the top Iraqi military commander has indicated that the US plan to remove all its troops by 2011 is too soon. He said that the army will only be ready to take control of the situation in 2020.

IRAQ WILLING TO ACCOMMODATE IRANIAN PIPELINE TO SYRIA

Deutsche Presse-Agentur reports that the Iraqi oil ministry has published a press release stating that the government has no objection to a gas pipeline from Iran crossing Iraqi territory to Syria.

"'Iraq does not mind facilitating the extension of the Iranian gas pipeline through its territory to Syria and the Mediterranean Sea,' Iraqi oil minister Hussein al-Sharistani said in the statement"

CHINA AND IRAN AGREE TO BROADER OIL AND GAS COOPERATION; LUKOIL RESUMES GASOLINE EXPORTS TO IRAN; IRAN CANCELS TWO LNG PROJECTS

The Tehran Times reports that Iran's oil minister and China's vice premier met and agreed to broaden their cooperation in the oil and gas sector. Meanwhile, Reuters reports that Lukoil has resumed exports of gasoline to Iran.

"In July, Russia’s energy minister Sergei Shmatko said Russian companies would be ready to supply fuel to Iran if there were commercial interest and attractive terms."

However, the sanctions appear to be having an effect on Iran's natural gas plans, canceling two LNG projects Spencer Swartz reports in the Wall Street Journal. LNG technology is mostly held by Western firms.

EUROPEAN COMMISSION LAUNCHES INVESTIGATION INTO US BIODIESEL DUMPING

Isis Almeida at Platts reports that the European Commission is investigating whether US biodiesel exporters are avoiding anti-dumping duties by sending the product through a third country like Canada or exporting B19--19% biodiesel, 81% diesel--which is not subject to the anti-dumping tax.

US biodiesel receives a subsidy of $1/gal ($300/mt) if blended with diesel, which the European Union says represents unfair competition.

This led the European Commission to slap provisional anti-subsidy and antidumping duties on imports of US biodiesel in March 2009. The measure was extended for five years last July, with definitive antidumping duties on US biodiesel of Eur200-400/mt ($274-$548/mt).

CONGRESSMEN SEEK TO KILL $100 MILLION IN AID TO LEBANESE ARMY ON HEZBOLLAH FEARS

Daniel W. Drezner at Foreign Policy reports that members of the US Congress are seeking to stop $100 million in aid to the Lebanese Army.

"Now, I understand the Congressional impulse to do something here -- I really do. What I don't understand is how Congress thinks that withholding aid from the Lebanese military will weaken Hezbollah. Congress seems to think that anything that aids the Lebanese Armed Forces (LAF) will concomitantly aid Hezbollah. The latter group, however, has independent sources of financial, political and military support. It's better to think of the LAF as a competing power base than as a conduit to Hezbollah. Anything that weakens national institutions in Lebanon empowers the groups that can survive in a more anarchical environment -- and gee, whaddaya know, that would include Hezbollah."

INITIAL JOBLESS CLAIMS UP

Courtney Schlisserman and Tim Homan at Bloomberg report that initial jobless claims for the week ended August 7th rose by 2,000 to 484,000, the highest level since February.

"The number of people receiving unemployment benefits dropped, while those getting supplemental benefits surged by 1.34 million reflecting the government’s extension of eligibility."

HUD TO OFFER $1 BILLION IN INTEREST FREE LOANS TO FOLKS FACING FORECLOSURE

Lorraine Woellert and Kathleen M. Howley at Bloomberg report that HUD is to offer $1 billion in interest-free loans to help out folks who have lost income and are facing foreclosure on their homes.

"The Department of Housing and Urban Development plans to make loans of as much as $50,000 for borrowers “in hard hit local areas” to make mortgage, tax and insurance payments for as long as two years, according to a statement released today. The Treasury Department will also provide as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the statement."

Daily Sources 8/11

CHINESE ECONOMY SLOWING SOME FROM BREAKNECK SPEEDS

Keith Bradsher at the New York Times reports that the Chinese economy is slowing:

"The gradual slowing in China is evident in the factories that have turned the country into the manufacturing center of the world. Industrial output rose 13.4 percent last month compared with the same month last year.

By comparison, industrial output had been up 13.7 percent in June from a year earlier, and was up 16.5 percent as recently as May.

Much the same pattern was evident in fixed asset investment, which was up 24.9 percent last month compared with a year earlier. It had been ahead by 25.5 percent in June, and 25.9 percent in May.

Retail sales rose 17.9 percent in July compared with the same month last year, as Chinese consumers with rising wages continued to flock to stores for ever more spending. But sales had grown 18.3 percent in June compared with a year earlier, and had been up 18.7 percent in May."

What we would do for such growth!

RUSSIA DEPLOYS S-300 MISSILE SYSTEM IN ABKHAZIA

Dmitry Solovyov at Reuters reports that Russia has deployed a S-300 missile system in Abkhazia.

"The S-300, codenamed 'Favorite' in Russia, is a mobile, long-range air defense system that can detect, track and destroy ballistic missiles, cruise missiles and both high- and low-flying aircraft."

RUSSIAN ECONOMY GROWS BY 5.2% IN THE SECOND QUARTER FROM A YEAR EARLIER

Maria Levitov at Bloomberg reports that the Russian Federal Statistics Service said today in an email that its second quarter economic growth came in at 5.2% over the second quarter of last year.

IEA REPORTS THAT IRANIAN IMPORTS OF GASOLINE HURT BY SANCTIONS; TURKEY INDICATES IT WILL NOT COMPLY WITH GASOLINE SANCTIONS ON IRAN

Carola Hoyos at the Financial Times reports that the most recent IEA report says that the tougher sanctions on Iran have halved Tehran's gasoline imports.

"As a result Iran has been forced to pay a 25 per cent premium to market prices for its petrol deliveries as many companies shy away from supplying the country, the International Energy Agency reported on Wednesday."

Meanwhile, Orhan Coskun at Reuters reports that the Turkish Energy Minister told the wire service that Ankara will support sales of gasoline to Iran.

"Tupras, Turkey's sole refiner and gasoline exporter which is owned by Koc Holding, declined to say whether the company had sold anything to Iran. The refiner buys 33 percent of its crude from the Islamic Republic, however."

Also, if I remember correctly, Turkey imports some natural gas from Iran.

UN APPEALING FOR $459 MILLION FOR FLOOD RELIEF IN PAKISTAN

The Associated Press reports that the UN is appealing for $459 million in order to help flood victims in Pakistan.

"The UN Office for the Coordination of Humanitarian Affairs said 'the worst monsoon-related floods in living memory' has affected more than 14 million people and at least six or seven million require immediate humanitarian assistance including food, clean water, shelter and medical care."

AN OVERVIEW OF THE INDIAN ENERGY SECTOR

Utpal Bhaskar and Elizabeth Roche at livemint.com gives a pretty good overview of the energy situation facing India.

VENEZUELA AND COLOMBIA REINSTATE DIPLOMATIC RELATIONS; COLOMBIA INDICATES THAT IT IS OPEN TO TALKS WITH FARC REBELS

The BBC reports that Colombia and Venezuela reinstated diplomatic relations yesterday. Relations were cut off after the Colombian government accused Venezuela of allowing Colombian rebels to operate from Venezuela. Juan Forero at the Washington Post reports that the new Colombian President, Juan Manuel Santos, has indicated that the government is open to talks with FARC.

BRAZILIAN GROWTH Q-O-Q WAS 1.32%

Andre Soliani and Iuri Dantas at Bloomberg report that Brazilian growth from the second quarter over the first quarter was at 1.32%, "compared with a 2.45% jump in the first three months of the year."

"Latin America’s biggest economy is regaining speed in the third quarter, growing 5 percent to 6 percent, after slowing in the second quarter, Finance Minister Guido Mantega said yesterday. Brazil’s gross domestic product expanded 9 percent from a year earlier in the first quarter, the fastest rate since 1995, led by domestic demand and a record rate of investment."

FOMC LEAVES BENCHMARK INTEREST RATE UNCHANGED

The Federal Open Market Committee left the US benchmark interest rates at 0-0.25% yesterday. Real Time Economics hosts the full statement of the FOMC.

US TRADE DEFICIT RISES TO $50 BILLION

Free Exchange reports that the US trade deficit rose to $50 billion:



FOOD PRICES TO STAY HIGH IN NEAR FUTURE; US WILL TAKE ADVANTAGE OF RUSSIAN BAN ON WHEAT EXPORTS

Michael Schuman at the Curious Capitalist reports that food prices are likely to stay high by the standard of recent history.

"But whatever happens to wheat over the next few weeks, food is still expensive by the standards of recent history, and is likely to stay that way. The Organization for Economic Cooperation and Development and the Food & Agriculture Organization spelled that out in a June report. Their outlook sees average wheat and coarse grain prices between 15% and 40% higher in real terms (adjusted for inflation) over the next 10 years than their average levels during the period between 1997 and 2006. Real prices for vegetable oils are projected to be more than 40% higher, while dairy prices are forecast to be on average between 16% and 45% percent higher."

Meanwhile, Alan Bjerga at Bloomberg reports that the US has been contacted by grain importers to see if the US can fill orders for wheat that have been cut off by the recent ban on wheat exports by Russia.

[Agriculture Secretary Tom] Vilsack said he expects markets to stabilize as more information on the drought’s effects, including tomorrow’s USDA crop forecasts, becomes available.

EIA REPORTS THAT CRUDE OIL STORAGE FELL BY 3 MILLION BARRELS IN WEEK ENDED AUGUST 6TH

The EIA today reported that stocks of crude oil fell by 3 million barrels to 355 million barrels the week ended August 6th. The amount of crude in storage is well above the historical average. Gasoline stocks rose by 0.4 million barrels countercyclically and distillate stocks grew by 3.5 million barrels. Both are also well above the historical average. Refining capacity utilization fell to 88.1%. The national price of gasoline rose 4.8 cents to 278.3 cents in the week ended August 9th.

Daily Sources 8/10

US AND VIETNAM HOLD JOINT NAVAL EXERCISES

BBC reports that the US and Vietnam are holding joint naval exercises in the South China Sea this week. "The week-long activities focus mainly on non-combatant exercises and are part of the 15th anniversary of diplomatic ties between Washington and Hanoi."

CHINA'S TRADE SURPLUS GREW TO $28.7 BILLION IN JULY

Keith Bradsher at the New York Times reports that China's trade surplus grew to $28.7 billion in July, "the largest total since January of last year."

SINOPEC TO COMPLETE OIL STORAGE PROJECT BY 2011

Platts reports that Sinopec announced on its website that it would complete its oil storage tank project on Cezi island by 2011. Once finished, the oil tanks would have a capacity of 84.91 million barrels and would bring Sinopec's total capacity to 122.65 million barrels.

CHINA NOT TO CLOSE 2000 + FACTORIES, BUT TO ELIMINATE EQUIPMENT AT THEM

Jason Dean at China Real Time reports that the story yesterday about China closing 2,000 + inefficient factories is an exaggeration.

"In fact, the MIIT’s list is generally quite specific about which equipment in which factory should be eliminated: two blast furnaces at Haicheng City Xiyang Steel Co. in Liaoning province, one cement mill at the Hongdong County Huoyue Construction Materials Co. in Shanxi, 91 rotary drums at the Shijiazhuang City Tongtai Leather Industry Co. in Hebei etc. Only about a dozen factories are listed for full closure, including a pair of paper plants in Hebei, five printing-and-dyeing operations in Guangdong, and a trio of liquor factories in Sichuan."

JAPAN LEAVES BENCHMARK RATE AT 0.1%

Mayumi Otsuma at Bloomberg reports that the Bank of Japan has left its benchmark interest rate at 0.1%.

"[Bank of Japan Governor Masaaki] Shirakawa said the discussion of the yen, which is approaching a 15-year high against the dollar, dominated today’s meeting because of the risk it poses to exporters and the economy."

KNOC DISCOVERS OIL IN KURDISH REGION OF IRAQ

AFP reports that the Korean National Oil Company (KNOC) has discovered oil in the Kurdish region of Iraq.

"[T]he Korea National Oil Corp (KNOC) said in a statement it was too early to estimate the size of the reserves. It said a formal announcement of the discovery would be made only after consultation with local authorities."

The newspaper that broke the story reported that there was an estimated 2 billion barrels in the newly found reserves. South Korea has been banned from participating in any oil concessions in the rest of Iraq because it has chosen to participate in exploration in Kurdistan before the relationship between Baghdad and Kurdistan has crystallized in terms of oil.

45% OF ELECTRICITY IN PORTUGAL TO COME FROM RENEWABLES THIS YEAR

Elisabeth Rosenthal at the New York Times reports that

"[n]early 45% of the electricity in Portugal’s grid will come from renewable sources this year, up from 17% just five years ago."

[C]omplaints about rising electricity rates are a mainstay of pensioners’ gossip here. Mr. Sócrates, who after a landslide victory in 2005 pushed through the major elements of the energy makeover over the objections of the country’s fossil fuel industry, survived last year’s election only as the leader of a weak coalition.

KAZAKHSTAN LARGEST PRODUCER OF URANIUM IN THE WORLD


Nirode Masson at IDN reports that Kazakhstan is now the largest producer of uranium in the world.

"Kazakhstan has a major plant making nuclear fuel pellets and aims eventually to sell value-added fuel rather than just uranium. It aims to supply 30 percent of the world fuel fabrication market by 2015, according to World Nuclear News (WNN)."

GATES SUGGESTS CLOSING OF JOINT FORCES COMMAND IN NORFOLK

Thom Shanker at the New York Times reports that Defense Secretary Gates has announced plans to close the Joint Forces Command in Norfolk, Virginia, as part of a plan to reduce spending by the military.

"The White House, which is under intense political pressure to address the rapid increase in the national debt, quickly stepped in to back Mr. Gates, saying his plan would free money that could be better spent on war fighting."

WORKER PRODUCTIVITY FELL IN JULY BY AN 0.9% ANNUAL RATE

Courtney Schlisserman at Bloomberg reports that "the measure of employee output per hour fell at a 0.9% annual rate, the first drop since late 2008."

"Hours worked climbed at a 3.6% rate, leading to a 2.6% increase in the amount of goods and services produced.

A lengthening workweek signals employers have reached efficiency limits after productivity climbed by the most in five decades in the 12 months to March."

HOTTER SEAS LEAD TO POSSIBILITY OF MORE DANGEROUS HURRICANES

Brian K. Sullivan at Bloomberg reports that a hotter Atlantic Ocean is likely to lead to more and stronger hurricanes this hurricane season. The sea is hotter now that it was when hurricane Katrina formed.

HIGHER TEMPERATURES REDUCE RICE YIELDS

Richard Black at BBC reports that a new study has found that higher temperatures reduce the rice yield globally.

"Yields have fallen by 10-20% over the last 25 years in some locations.

The group of mainly US-based scientists studied records from 227 farms in six important rice-producing countries such as Thailand, Vietnam, India and China."

NON-FARM EMPLOYMENT MOSTLY FLAT FOR LAST DECADE


Free Exchange hosts a graph of non-farm employment from 1939 and notes that in the last decade the gauge has been mostly flat.



A CALL FOR A GLOBAL ARCHITECTURE FOR FOOD POLICY

Joachim von Braun at the Financial Times argues that a global architecture for food policies is overdue. He further states that food security is worse now than it was in 2008 when food riots took place around the world.

Daily Sources 8/9

1. SOUTHEAST ASIA BUYING WEAPONS AT BREAKNECK RATE

Jon Ponfret at the Washington Post reports that a recent publication by the Stockholm International Peace Research Institute shows that concerns over China's rise has pushed countries in Southeast Asia to almost double their weapons purchases from 2005 to 2009.

"The buying spree is set to continue, with reports that Vietnam has agreed to pay $2.4 billion for six Russian Kilo-class submarines and a dozen Su-30MKK jet fighters equipped for maritime warfare. This is in addition to Australia's stated commitment to buy or build nine more submarines and bolster its air force with 100 U.S.-built F-35s. Malaysia has also paid more than $1 billion for two diesel submarines from France, and Indonesia has recently announced that it, too, will acquire new submarines."

2. CHINA TO CLOSE 2,000 ENERGY INEFFICIENT FACTORIES

Keith Bradsher at the New York Times reports that China will close 2,087 steel mills, cement works and other energy-intensive factories by September 30 in order to try and increase its energy efficiency.

3. CHINA MAKES NO PUBLIC COMMENT ON SEIZURE OF ITS FISHERMEN

Brian Spegele at China Real Time reports that China has still made no public statement regarding the seizure of three fishermen by North Korea, allegedly for fishing in the North Korean exclusive economic zone.

4. HUGO CHAVEZ TO MEET NEW COLOMBIAN PRESIDENT TO TRY AND DAMP DOWN TENSIONS

Christopher Toothaker at the Associated Press reports that Hugo Chavez will meet the new Colombian president--Juan Manuel Santos--will meet in Colombia to discuss how to reduce tensions between the two countries.

5. PRESIDENT MEDVEDEV ARRIVES IN ABKHAZIA ON SUNDAY

CNN reports that Russian President Medvedev arrived Sunday in Abkhazia where he will meet with his counterpart, Sergey Bagapsh.

6. FORMER PRESIDENT OF MEXICO FOX CALLS FOR THE LEGALIZATION OF DRUGS

Jonathan J. Levin and Jens Erik Gould at Bloomberg report that the former President of Mexico, Vicente Fox, has called on the country to legalize drugs as a way of tamping down drug cartel violence.

8. COMPANIES ARE SEEKING LICENSES TO BUILD 22 NEW REACTORS

Chuck McCutcheon at the Christian Science Monitor reports that companies in the US are seeking licenses from the US Nuclear Regulatory Commission to build and operate 22 new reactors. A Gallup poll in March found that 62% of Americans now favor nuclear power.

9. US INCOMES FELL BY 1.8% IN 2009

Phil Izzo at Real Time Economics reports that US incomes fell by an average of 1.8% in 2009. The article includes a sortable chart of income growth by city.

10. KRUGMAN NOTES THAT CRITICAL INFRASTRUCTURE IN THE US IS BEING ALLOWED TO FALL INTO DISREPAIR

Paul Krugman at the New York Times reports that localities are letting their roads go to gravel, turning off the lights, and pushing through big cutbacks in education funding while the rest of the world is in the process of building up their infrastructure. A good read.

Daily Sources 8/5

1. THE ECB AND BANK OF ENGLAND MAINTAIN THEIR BENCHMARK INTEREST RATES

Gabi Thesing at Bloomberg reports that the European Central Bank left its benchmark rate at 1% today--the sixteenth month the rate has been at 1%.

"Separately, the Bank of England left its main rate at 0.5% and kept its bond-stimulus plan at 200 billion pounds ($318 billion)."

2. EVANS PRITCHARD ARGUES THE SPIKE IN WHEAT PRICES IS LIKELY TO GO DOWN; RUSSIA BANS EXPORT OF WHEAT FOR THE REST OF THE YEAR

Ambrose Evans Pritchard at the UK Telegraph says that the current problems with wheat are not the same as the problems which caused the 2008 wheat price spike. Global wheat stocks are much higher, the cost of oil is down, and there are likely to be bumper harvests in the US and elsewhere. In the meantime, Andrew E. Kramer and Jack Healy at the New York Times report that Russia announced today that it would ban grain exports through the rest of the year.

"In announcing the ban, which is in force from Aug. 15 to Dec. 31, Prime Minister Vladimir V. Putin said that Russia had sufficient stockpiles of grain but that blocking exports was an appropriate response to the worst drought in decades.

'We need to prevent a rise in domestic food prices, we need to preserve the number of cattle and build up reserves for the next year,' he said during a televised cabinet meeting, according to The Associated Press. 'As the saying goes: reserves don’t make your pocket heavy.'"

3. PEMEX REDUCES ACTIVITIES IN NORTHERN MEXICO DUE TO DRUG VIOLENCE

Upstream online reports that Pemex, the Mexican state oil company, has scaled back drilling and maintenance in the north's Burgos basin due to the deteriorating security situation there because of the ongoing drug violence in the region.

4. CHINA ADDED THE MOST WIND POWER IN 2009, SURPASSING THE US

Austin Carr in Fast Company reports that China overtook the US in 2009 in terms of added wind power capacity. Cumulatively, the US still has more wind power, but if this trend continues not for long.



5. RELIANCE TAKES THIRD STAKE IN MARCELLUS SHALE GAS

Rakteem Katakey at Bloomberg reports that Reliance Industries of India has agreed to pay $392 million for a 60% stake in acreages in the Marcellus shale-gas areas of central and northeast Pennsylvania held by Carrizo Oil & Gas Inc. This is the third US shale gas acquisition Reliance has made this year.

6. VIOLENCE IN DARFUR ON THE RISE

Neil MacFarquhar at the New York Times reports that violence in Sudan's Darfur region is on the rise again as the referendum on independence in southern Sudan approaches.

7. INITIAL JOBLESS CLAIMS CLIMB TO 479,000

Bob Willis at Bloomberg reports that "Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April."

8. RETAIL SALES IN JULY WERE FLAT YEAR-OVER-YEAR

MasterCard's SpendingPulse reports that overall July sales were flat year over year.

"Michael McNamara, Vice President, Research and Analysis for SpendingPulse, observes 'Overall, retail sales continued to tread water, following the pattern set with June's sales when consumers demonstrated a reluctance to make larger purchases, and instead, traded down. Particularly, we are noticing some weakness in industry sectors that rely on higher priced ticket items such as furniture and discretionary areas such as luxury and jewelry. We are also seeing this pattern echoed in the restaurant business, where we have seen consumers shift from full-service restaurants and particularly fine dining, to limited-service and quick-service outlets.'"

Daily Sources 8/4

August is surely a slow news month.

EUROPEAN HOME PRICES HAVE MUCH ROOM TO CORRECT

Barry Ritholtz at the Big Picture hosts a graph of developed nations' home prices.



As you can see there is plenty of room left for correction in the European housing markets.

CHINA TO HAVE 500 MILLION BARRELS OF PETROLEUM PRODUCTS STORAGE BY 2015

David Winning at the Wall Street Journal reports that Chinese petroleum product storage tanks are set to grow by 500 million barrels by 2015. In addition, China is adding 338 million barrels to the existing 102 million barrel strategic petroleum reserve. Filling these tanks will put upward pressure on the price of oil. Building the tanks will also dampen the dreams of other countries with spare storage capacity, South Korea and Singapore, to sell into the Chinese market.

CHINA'S CAR SALES NOW FAR SURPASS US'S

Alex Taylor III at Fortune Magazine reports that China is expected to sell 15.6 automobiles in 2010, a 20% rise from the year before. Auto sales in the US are expected to reach 11.6 million units this year.

CHINESE BANKING REGULATOR ASKS BANKS TO PERFORM STRESS TESTS TO SEE WHAT WOULD HAPPEN WITH 60% REDUCTION IN HOUSING PRICES; NEW STUDY SHOWS THAT SMALLER CITIES NOT FACING SIMILAR HOUSING PRICING PROBLEMS IN CHINA

Bloomberg reports that China's banking regulator last month asked its banks to perform stress tests to see what would happen if housing prices declined.

"Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively."

Meanwhile, Aaron Back at China Real Time reports that Standard Chartered has conducted a survey of "Tier 2 and 3" cities and found that they are not suffering from deep corrections.

"'The Tier 2 and Tier 3 cities have not seen much of a correction in land or apartment prices. Moreover, developers’ sentiment about sales volumes seems pretty good, and they do not appear to be postponing construction,' Standard Chartered said in a report on Tuesday. 'This is important, since if sales and construction activity holds up in most Tier 2 and Tier 3 cities, then the economy will not tank, and the State Council will not be forced to loosen real-estate or monetary policy.'"

PALESTINIAN PRESIDENTIAL ADVISER SAYS PEACE MAY CREATE 20% ECONOMIC GROWTH IN PALESTINE

Jonathan Ferziger at Bloomberg reports that a key adviser to the Palestinian president said that the Palestinian economy may grow by as much as 20% if there is peace with Israel.

EIA REPORTS 2.8 MILLION BARREL CRUDE DRAW DOWN IN STOCKS

The EIA reported today that for the week ended July 30 crude oil stocks drew down by 2.8 million barrels to 358 million barrels. Crude oil stocks are well above the five year historical average. Gasoline stocks grew by 0.7 million barrels and distillate stocks grew by 2.2 million barrels. Refining capacity utilization grew to 91.2%. For the week ended August 2nd, national gasoline prices fell by 1.4 cents to 273.5 cents.

Daily Sources 8/3

NETHERLANDS TO LEAVE NATO

Robert H. Reid at the Washington Post reports that the Netherlands became the first NATO country to withdraw its troops from Afghanistan this Sunday.

"Canada has announced that it will withdraw its 2,700 troops in 2011, and Polish President Bronislaw Komorowski has promised to pull out his country's 2,600 troops the year after."

EURO ZONE MANUFACTURING PMI WAS 56.7 IN JULY

Prieur du Plessis at Investment Postcards from Cape Town reports that

"The Euro Zone Manufacturing PMI of 56.7% for July released by Markit yesterday was even better than the earlier flash estimate of 56.5% − a number that surprised on the upside. Despite all the gloom and doom about the prospects for the euro zone, growth of both manufacturing production and new orders accelerated to the fastest growth since April while employment rose at its fastest rate in 26 months."

For a table of PMIs and their trends, click on the link.

CHINA'S US DOLLAR HOLDINGS NOT OUR PROBLEM

Yves Smith at naked capitalism pours cold water on the notion that Chinese holdings of large amounts of US dollar reserves is somehow the US's problem.

KUWAIT COMFORTABLE WITH $75 - $85 /B OIL

Bloomberg reports that Kuwait is comfortable with oil prices in between $75 and $85/b.

"'We are satisfied with the range of $75 to $85,' Sheikh Ahmad Al Abdullah Al Sabah said in Moscow on Tuesday. 'We don’t anticipate any cuts but we do encourage other OPEC countries to be more compliant.'"

MANUFACTURING PMIs FOR EMERGING ECONOMIES POINT TO GROWTH SLOWING

Prieur du Plessis at Investment Postcards from Cape Town notes that "the Markit Manufacturing PMIs for emerging economies generally point to growth slowing in the manufacturing industries in the respective countries." For a table of PMIs and their trends, click on the link.

TREASURY SECRETARY SAYS THE RECOVERY IS WITH US

Treasury Secretary Timothy Geithner has an op-ed at the New York Times entitled Welcome to the Recovery. My guess is that its more than a tad premature, but it's worth reading.

CONSUMER SPENDING STAGNATED IN JUNE

Timothy R. Homan at Bloomberg reports that consumer spending stagnated in June, with purchases unchanged after a revised downward increase of 0.1% in May. The savings rate increased to 6.4%.

PENDING HOME SALES FELL BY 2.6% IN JUNE

Peter Boockvar at the Big Picture reports that "[a]fter dropping a whopping 30% m/o/m in May after the expiration of the tax credit, Pending Home Sales unexpectedly fell by 2.6% in June vs a forecasted rise of 4%."

WORLD BANK PAPER CONCLUDES THAT BIOFUELS NOT THE CAUSE OF GRAIN PRICE SPIKE OF 2006-2008; WORST DROUGHT IN 50 YEARS IN RUSSIA DRIVING UP GRAIN PRICES AGAIN

Renewable Energy World.com reports that a new white paper from the World Bank concludes that biofuels were not responsible for the spike in grain prices from 2006 - 2008. Although the report concludes that ethanol was a factor, it points to a number of other factors that caused the price spike, including energy prices, speculation in the futures market, and poor weather conditions in certain areaas. Meanwhile, Maria Kolesnikova at Bloomberg reports that Russia is facing the worst drought in fifty years is threatening the winter grain sowing plans.

"Wheat jumped to a 22-month high in Chicago trading yesterday, extending a 38 percent advance in July that was the biggest since 1973."

Daily Sources 8/2

The China Car Times reports that"China now has 65,000km of highways across the nation, making it the second largest highway network in the world after the United States." According to the state's 2020 plan, China should have 100,000km of highways by then, about the same as what we have in the US. This should provide a tremendous economic boost over time as well as security dividends in China where it will be easier to deploy troops from one place to another.

CHINESE PMI FALLS TO 51.2

Peter Boockvar at the Big Picture reports that China's state Purchasing Managers' Index fell to 51.2. (Numbers above 50 indicate expansion; below 50 indicates contraction.)

GUANGZHOU AND HONG KONG ANTI-MANDARIN PROTESTS

Carmen Ng at China Real Time reports that there has been a second protest in Guangzhou and Hong Kong regarding the plan to change some prime time TV programming from Cantonese to Mandarin speaking. The first took place July 25th.

JAPANESE JULY PMI FELL SLIGHTLY TO 52.8

Prieur du Plessis at Investment Postcards from Cape Town reports that Japanese Purchasing Managers' Index fell slightly to 52.8. (Numbers above 50 indicate expansion; below 50 indicates contraction.)



GERMAN ELECTRICITY AND NATURAL GAS DEMAND UP 8% IN 1H

Andreas Franke at Platts reports that natural gas and electric power demand in Germany grew by 8% in the first half of the year over the same period one year ago.

"Based on its latest estimates, electricity consumption was up by 4.6% at 274 billion KWh, while the use of natural gas was 14% higher than in the first half of 2009, the BDEW said in the statement.

According to the BDEW, the main reason for the demand increase is the positive development of industrial production in Germany, which accounts for 40-45% of energy demand, while the demand for gas was also boosted by the long winter."

Demand has still not recovered to pre-crisis levels, however.

SPAIN TO CUT SUBSIDIES TO PHOTOVOLTAIC POWER PLANTS BY 45%

Victor Mallet at the Financial Times reports that Spain's industry ministry has announced the subsidized electricity prices paid to photovoltaic power plants by up to 45%. Worth reading in full.

AFTER NUCLEAR DEALS, SOUTH KOREA AND UAE AGREE TO COOPERATE IN OIL AND GAS EXPLORATION AS WELL AS STOCKPILING OIL IN SOUTH KOREA


Shinhye Kang and Ayesha Daya at Bloomberg report that after having secured a deal to build the UAE nuclear power plants South Korea and the Emirates have agreed to cooperate on oil and gas exploration and for the stockpiling of oil in South Korea. Part of Seoul's energy security program has to do with oil stockpiling by various producers in South Korea to take advantage of quick changes in the Asian oil market. South Korea gets to draw down on those stockpiles in case of an emergency disruption in oil supply. The UAE is a major entrepot for stockpiling oil in the Middle East.

DELINQUENCIES GROW IN COMMERCIAL REAL ESTATE MARKET

Yves Smith at naked capitalism reports that the commercial real estate sector is feeling pain:

"• All deals seasoned at least a year have a total unpaid balance of $767.76 billion, with $60.45 billion delinquent – a 7.87% rate (up from only 5.28% six months prior).
• When agency CMBS deals are removed from the equation, deals seasoned at least a year have a total unpaid balance of $736.75 billion, with $60.39 billion delinquent – a 8.2% rate (up from only 5.46% six months prior).
• Conduit and fusion deals seasoned at least a year have a total unpaid balance of $655.41 billion, with $54.69 billion delinquent – a 8.35% rate (up from only 5.33% six months prior)."

JULY PMI DOWN TO 55.5

Shobhana Chandra at Bloomberg reports that US manufacturing grew at a slightly slower rate in July than June. The Institute for Supply Management's Purchasing Managers' Index fell to 55.5 from 56.2 in June. (Readings above 50 indicate growth; readings below 50 indicate contraction.)

BEN BERNANKE SAYS CONSUMER SPENDING TO PICK UP IN COMING MONTHS

Scott Lanman and Steve Matthews at Bloomberg report that Fed chief Ben Bernanke said in a speech today that consumer spending was likely to pick up in coming months.

HARLESS ARGUES THAT STRUCTURAL UNEMPLOYMENT NOT A PROBLEM

Andy Harless at Employement, Interest and Money argues that we are not seeing new structural unemployment, but rather cyclical unemployment. Worth reading in full.

MAXINE UDALL REPORTS THAT ROADS ARE BEING ALLOWED TO REVERT TO GRAVEL

Maxine Udall reports that in the US highways are being allowed to turn back to gravel. This should have significant detriments going forward, including that the amount of gas to travel from one place to another on gravel roads is higher than on paved roads. A must read.