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 7/21

1. BANK OF CANADA RAISES INTEREST RATE TO 0.75%

Greg Quinn at Bloomberg reports that Canada yesterday raised its benchmark interest rate by a quarter percent to 0.75%. The central bank indicated that it would consider international developments before raising the rate further.

2. MEXICAN RETAIL SALES UP 5% IN MAY

Jonathan J. Levin at Bloomberg reports that Mexico's retail sales were up 5% from last year in May. The increase took place outside of Mexico's border regions with the US where drug cartel-inspired violence has become endemic. Americans are "thinking twice" before crossing the border to shop.

3. JF-17 MAKES A SPLASH AT FARNBOROUGH

Brian Spegele at China Real Time reports that the Chinese and Pakistani new fighter jet--the JF-17--made a splash at this year's Farnborough International Air Show in England.

"Aircraft sales are the most lucrative part of Beijing’s weapons exports, totaling some $815 million, China Daily reported."

The plane relies on Russian made jet engines, but the fact that China is willing to export its latest technology makes for a different arms theory than that practiced by the US.

4. INTERNET USAGE IN CHINA IS SURGING

Kevin Sullivan at the Compass reports that Chinese internet usage is surging.



23% of a billion is a lot of people.

5. CHINA FACING HOUSING BUBBLE?

James Hamilton at Econbrowser asks whether China is facing a housing bubble.



6. NEW SANCTIONS ON NORTH KOREA

Craig Whitlock and Karen DeYoung at the Washington Post report that the US has announced that it will impose further sanctions on North Korea.

7. INSURANCE COMPANIES ABANDONING IRANIAN SHIPPING

Thomas Erdbrink and Colum Lynch at the Washington Post report that insurance companies have abandoned their relationship with Iranian shipping in order to comply with new US sanctions. Ports will refuse to allow Iranian ships entry if they are not covered for potential damages. Worth reading in full.

8. KURDS BLOW UP TURKO-IRANIAN GAS PIPELINE

Ivan Watson and Yesim Comert at CNN report that Kurdish rebels today took credit for the bombing of a Turkish-Iranian gas pipeline.

"An official from BOTAS, Turkey's state oil and gas company, speaking on condition of anonymity, told CNN that the fire had been extinguished. However, the official said, it will take at least six days to resume pumping fuel through the pipeline. In the meantime, BOTAS has increased the flow of gas from Azerbaijan to compensate for the gas cut."

9. INDIA AND PAKISTAN DISPUTE KASHMIR DAM

Lydia Polgreen and Sabrina Tavernise at the New York Times report that tensions are rising over the construction of a dam in Jammu-Kashmir. Pakistan is worried that India will be able to control water flow to its farmers during planting season. Worth reading in full.

10. COLOMBIA LOOKING UP

Frontier Markets optimistically notes that Colombia is emerging from its drug war. Investors will be more likely to place their money in Colombia than, say, Venezuela.

12. HOUSING HEADED FOR A DOUBLE DIP?

Barbara Kiviat at the Curious Capitalist argues that a double dip in housing is likely.

13. CRUDE AND PRODUCTS STORAGE INCREASES

The EIA reports that crude oil stocks grew by .4 million barrels in the week ended July 16th. Gasoline stocks grew by 1.1 million and distillate stocks grew by 3.9 million barrels. The national price of gasoline rose by 0.4 cents to 272.2 cents per gallon for the week ended July 19th. (Prices between $2.50 and $3.00 per gallon is where you start to see modification of use.) For the week ended 7/16 refinery utilization crept up to 91.5%.

Daily Sources 7/20

1. BUNDESBANK SAYS CURRENT-ACCOUNT DEFICITS OF IRELAND, SPAIN, GREECE AND PORTUGAL THREATEN EUROZONE

Thomas Molloy at the Independent reports that the economic policies of Ireland, Spain, Greece, and Portugal represent a threat to the Eurozone as a whole and the entire Euro project.

"'These macro-economically erroneous trends' are 'a source of danger for other member countries and the currency region as a whole,' the Bundesbank wrote in its monthly bulletin. Deficit countries damage the eurozone's stability and 'it is urgently necessary to correct maldevelopments and avoid a repetition in the future'."

2. EUROPEAN COMMISSION TO BAN COAL SUBSIDIES BY 2014

James Kanter at Green reports that the European Commission has tentatively banned subsidies for coal mining starting 2014.

3. PEW SAYS THE DEVELOPED WORLD UNHAPPY WITH CHINA'S RISE

Free Exchange notes that concerns about China's economic might are high in the developed world. Much of the developing world ain't so keen on its rising military prowess either.



4. CHINA NOW THE WORLD'S LARGEST ENERGY USER

Grant Smith at Bloomberg reports that according to the IEA China is now the largest user of energy consuming 2,252 million metric tons of oil equivalent in 2009 versus the 2,170 million tons used by the US. Somewhat oddly, Shai Oster at China Real Time reports that the Chinese leadership has rushed to deny that it is now the largest energy user, saying that by their calculations the US remains top dog in that department.

5. JAPAN AND CHINA TO NEGOTIATE HOW TO DEVELOP UP EAST CHINA SEA GAS

Takeo Kumagai at Platts reports that Japan and China are seeking to schedule negotiations on how best to jointly develop the East China Sea gas fields which have been the source of some friction between the two governments.

6. US AND SOUTH KOREA TO CONDUCT NAVAL DRILLS NEXT WEEK

After a delay which caused some to speculate that the US was worried about upsetting China, Elisabeth Bumiller and Edward Wong at the New York Times report that the US and South Korea have agreed to hold naval exercises in the Sea of Japan and Yellow Sea next week. The exercises are in part a response to the sinking of a South Korean ship by a North Korean submarine four months ago. Beijing has strongly objected to the US holding naval drills in the Yellow Sea.

7. JAPAN TO CONSIDER ENERGY HUB AMBITIONS

Takeo Kumagai at Platts reports that Japan is considering using its spare storage capacity to act as an energy hub in the region. Japanese oil consumption is on a downward trend leaving considerable spare capacity. Some are considering using that spare capacity to export out into regional markets extra petroleum products, becoming the third trading hub in the region after Singapore and South Korea.

8. RUSSIA SENDS MISSION TO CLARIFY BORDER ON ARCTIC SHELF

Elena Kovachich at the Voice of Russia reports that

"The flagship of Russia’s polar fleet “Academician Fyodorov” has left for the Arctic on an expedition to clarify the outer border of the country’s continental shelf."

9. NABUCCO COMPLETES PUBLIC HEARINGS IN TURKEY

Alex Froley at Platts reports that the Nabucco pipeline project has completed the first round of public hearings in Turkey.

"Erdal Tuzunoglu, managing director for Nabucco Turkey, said: 'The completion of the public hearings is an important step towards the realization of the Nabucco project. The communities are very interested in the project and we feel that their concerns were addressed and discussed.'"

10. JUNE UNEMPLOYMENT BY STATE SHOWS IMPROVEMENT

Phil Izzo at Real Time Economics reports that the Bureau of Labor Statistics announced that most states--37--saw unemployment fall in June, while five saw an increase and in six there was no change. 27 saw a decrease in payroll employment while 21 saw an increase. Click on the link for neat interactive map and chart.

11. THE WHITE HOUSE ANNOUNCES FORMATION OF NATIONAL OCEAN COUNCIL

John M. Broder at Green reports that the White House yesterday announced the creation of a National Ocean Council. The new body will not have the power to create new regulations, but will attempt to coordinate the policy of overlapping institutions regulating ocean policy. Worth reading in full.

Daily Sources 8/6

1. JAPANESE GOVT REPORT COMPARES PARTY PLANS FOR GREENHOUSE GAS EMISSIONS REDUCTIONS ON ECONOMY

Yoko Kubota at Reuters reports that the plan by Japanese opposition party to cut greenhouse gas emissions by 25% from 1990 levels by 2020 would, per a government report, "push down real gross domestic product growth by 3.2 percentage points and the unemployment rate could grow by 1.3 percentage points." The government plan for an 8% reduction from 1990 levels by 2020 would, per the report, "push down Japan's economic growth by 0.6 percentage points and raise unemployment by 0.2 percentage points in 2020."

2. PBOC'S MONETARY REPORT INDICATES EASY CREDIT POLICY TO CONTINUE, MINISTRY OF HUMAN RESOURCES WARNS EMPLOYMENT SITUATION GRAVE, ELECTRICITY DATA SHOWS STEEP FALLS IN CONSUMPTION, BANKS LEND LESS IN JULY CONTRA PBOC REPORT, AND BP SAYS GDP DATA MORE OR LESS TRUSTWORTHY

Andrew Batson at the Wall Street Journal reports that the People's Bank of China's quarterly monetary report reaffirmed its commitment to continuing easy credit policies.

"'China's economy is now in a critical period of stabilization and recovery, and maintaining stable and rapid economic growth is still the most important task we face ... . Although the general trend of stabilization in the [global] economy has been basically established, the process of recovery may be slow and tortuous.'

With global demand for China's exports still weak, a solid rebound depends on domestic consumption and investment, the central bank said. Chinese companies may be more willing to ramp up production now that inventories have been reduced.

Sentiment among private-sector businesses remains weak, it said, and consumers' worries about future income could crimp spending. 'The foundation of the economic recovery is not yet stable,' it said, echoing other agencies' recent comments."

In a somewhat different take on the question of whether migrant unemployed in China are a reason to worry from the story cited yesterday--see Daily Sources 8/5 #1--Yves Smith links to an AFP report that

"China Tuesday warned of a 'grave' situation in the jobs market with millions of graduates and migrant workers yet to find work as companies continue to struggle with the effects of the global slump...

'China's current employment situation is still grave and the pressure for job creation remains large,' said Wang Yadong, a senior official at the Ministry of Human Resources and Social Security's employment section."

She also notes that:

"First-half electricity use by small and medium-sized enterprises fell almost 50% year-on-year, as these companies were more exposed to the economic downturn, the National Bureau of Statistics said on August 3.

SMEs saw power consumption plunge 48.9% year-on-year, against a 5.9% industry-wide drop."

And in contrast to the affirmation of the People's Bank of China in its quarterly report mentioned above:

"China's big state-owned commercial banks extended around 168 billion yuan worth of new loans in July, down sharply from the 497 billion issued in June, banking sources told Caijing on August 4."

And she picks up on the story in the FT yesterday that if you add up the output numbers of the various provinces, they are 10% more than overall national output as reported by Beijing. And to muddy the waters further, Sheetal Nasta at Platts reports that the chief Asia economist of BP, Chi Zhang, said at an event at the British Chamber of Commerce in Shanghai Wednesday that

"'in general, [the] data reflects economic growth reality,' given that China is 'very manufacturing intensive and there has been a lot of industrialization and an urbanization process is going on.'

While he admitted the Chinese have been likely 'taking advantage of low energy prices,' he retreated from the notion that government stockpiling was inflating prices.

Speaking of the oil price spike in 2008, he said data from BP's annual statistical review, issued earlier this year, shows that the 'big spike' in (price) coincided with related economic activity, primarily supply-side constraints due to investment shortfalls, geopolitical issues and few technological breakthroughs."

The continuing incredulity regarding official output growth numbers in China was driven by the disparity between the electricity consumption numbers, which are no longer published--see Daily Sources 6/8 #6--later reinforced by skepticism expressed in the May report by the International Energy Agency which suggested that oil demand would have been stronger than reported if it were to reconcile with the GDP numbers and suggested the possibility that "Real GDP data aren’t accurate and shouldn’t be taken at face value"--see Daily Sources 5/14 #2.

3. GERMAN FINANCE MINISTER SAYS FINANCIAL SECTOR RETURNING TO 'CASINO CAPITALISM', ECB MAINTAINS BENCHMARK RATE AND INDICATES THERE WILL BE NO ADDT'L STIMULUS

Der Spiegel reports that Finance Minister Peer Steinbrück is in the media warning against the return of 'casino capitalism.' Among other comments, he said:

"In the United States and Britain, lobbyists are already questioning some regulatory measures."

and, in Germany,

"Taxpayers are continuing to completely finance big bonuses [at banking firms]."

Meanwhile, Christian Vits and Simone Meier at Bloomberg report that European Central Bank president Jean-Claude Trichet indicated that the bank is unlikely to provide further stimulus after its monetary committee left the benchmark interest rate at 1%.

"Rates are 'appropriate' and policy makers are 'satisfied' with their asset-purchase program and measures to improve the flow of credit, he said."

"The ECB currently predicts the euro-region economy will contract about 4.6% this year and 0.3% in 2010. Inflation will average about 0.3% this year and 1% in 2010. The bank aims to keep inflation just below 2%."

4. BANK OF ENGLAND TO EXPAND QUANTITATIVE EASING, LONDON TO REPLACE SHORT HAUL AVIATION WITH HIGH SPEED RAIL

Niel Shah at the Wall Street Journal reports that the Bank of England today announced it would expand its quantitative easing program, increasing purchases by £50 billion (~ $85 billion) to a total of £175 billion.

"The increase required the bank to get special permission from the UK Treasury, which had previously capped the program at £150 billion.

The expansion of the program suggests policy makers are still worried about the long term outlook for the UK economy despite a recent spate of positive data pointing to recoveries in house prices, manufacturing and services."

"While banks' reserves of cash have more than tripled since the central bank launched the program back in March, one broad measure of lending in the economy--M4 money supply excluding certain financial intermediaries--has hardly budged. In the second quarter, the measure was up just 3.1% from the same period a year earlier, the weakest expansion since 1999.

Beyond that, rising unemployment and peoples' efforts to pare down heavy debt loads are likely to weigh on consumer spending, by far the largest driver of demand in the UK economy. As of May, the UK unemployment rate stood at 7.6%, the highest level in 12 years."

Meanwhile, Dan Milmo and Julian Glover at the Guardian report that Downing Street has announced plans which would replace domestic air travel with a high speed--250 mph--rail.

"The transport secretary, Lord Adonis, said switching 46 million domestic air passengers a year to a multibillion-pound north-south rail line was 'manifestly in the public interest'. Marking a government shift against aviation, Adonis added that rail journeys should be preferred to plane trips.

'For reasons of carbon reduction and wider environmental benefits, it is manifestly in the public interest that we systematically replace short-haul aviation with high-speed rail. But we would have to have, of course, the high-speed network before we can do it,' he said."

5. GEORGIAN AND RUSSIAN OFFICIALS TRY TO CALM WORRIES ABOUT NEW FIGHTING BREAKING OUT, SAAKASHVILI LAYS BLAME FOR 2008 CONFLICT ON MOSCOW IN OP ED

Jim Heintz at the Associated Press reports that senior officials in Tblisi and Moscow are walking back from rhetoric suggesting the possibility of renewed fighting.

"The deputy chief of Russia's general staff says Georgia is too weak after the war that devastated its military and caused an estimated $1 billion damage to the struggling country.

Georgia's national security adviser, however, says the danger of new fighting appears low because of 'preventive diplomacy' and because Russia knows a new war would undermine its influence among neighbors and rapprochement with the West."

In the meantime, Georgian President Mikheil Saakashvili has an op ed in today's Washington Post which lays the blame on last year's conflict squarely on Russia. Key excerpt:

"Russian provocations have not stopped; snipers in Russian-controlled areas have killed 28 Georgian policemen. In recent days, Moscow has engaged in a series of provocative acts and statements, echoing its prelude to last year's invasion. Even as the world watches, Moscow has vetoed monitoring missions from the United Nations and the Organization for Security and Cooperation in Europe. In violation of the cease-fire, Russia also denies European Union monitors access to the occupied territories.

Despite all this, and contrary to some expectations, Georgia has rebounded. Our democratic institutions are growing. Foreign investors are returning. The world should recognize that the kind of behavior Russia exhibited last August threatens not only Georgia but our entire region."

6. TURKISH PM MEETS WITH HEAD OF LARGEST TURKISH KURD PARTY, ANKARA SIGNS ON TO SOUTH STREAM

Nicholas Birch at the Wall Street Journal reports that Prime Minister Recep Tayyip Erdogan of Turkey met with the leader of the main Kurdish party in the country Wednesday, in what is the first meeting of the head of government with the party in the country's history.

"[M]any analysts say the new Kurdish opening is qualitatively different from anything that came before.

'For the first time ever, Turkish state institutions are working in synch to solve the problem,' said Henri Barkey, a Turkish expert at the Carnegie Endowment for International Peace, a Washington-based think tank.

The main catalyst for Turkey's new sense of urgency is Washington's announcement that it plans to pull its soldiers out of Iraq, Turkey's southern neighbor, by 2011.

The planned withdrawal has speeded up a rapprochement between Turkey and Iraqi Kurds, whose relations have been blighted for years by the PKK's use of Iraqi Kurdish mountains for its military bases."

"'There is an economic side to the rapprochement. "Turkey wants to use northern Iraqi gas for Nabucco,' says Bayram Bozyel, a Turkish Kurdish politician, referring to a pipeline project that the US and EU hope will help break a Russian stranglehold on European natural-gas supplies. 'And the [Iraqi] Kurds want to pump gas north.' That would be risky in the midst of a guerrilla war. The PKK claimed responsibility last year for a bomb attack on a major oil pipeline that passes through the same region."

Well worth reading.Today Russia and Turkey signed a deal to route Russia's South Stream pipeline through Turkey, per Charles Recknagel at RFE/RL.

"'The South Stream pipeline is a much needed project that is particularly important in the context of ensuring the energy security of the whole of Europe and the development of a broad range of ties between Russia and Turkey,' Putin said. 'Our negotiations showed that we can find solutions, together with the Turkish leadership, that open the way to new, large-scale energy projects.'"

7. IRAN LOWERS OFFICIAL PRICE OF OIL SOLD TO ASIA, QATAR LOWERS OFFICIAL PRICE OF OIL, FOLLOWING SAUDI ARAMCO REDUCTION ON PRICE TO ASIA

Yee Kai Pin at Bloomberg reports that the National Iranian Oil Company will reduce the official selling price of Iranian Light into Asia for the first time in four months.

"[NIOC] will set Iranian Light for September at 9 cents a barrel above the average of Persian Gulf benchmarks Oman and Dubai grades, based on a quarterly formula tied to prices set by Saudi Arabian Oil Co. The premium will be down $1.75, or 95%, from August and will be the smallest in seven months."

Meanwhile, Yee Kai Pin reports that Qatar Petroleum will also reduce the official selling price of Qatari crudes.

"The state-owned company cut its July price of Qatar Land crude oil to $65.50/b, down $5.60 from June, the official Qatar News Agency said on its Web site. The July price of Qatar Marine grade was reduced by $5.38 to $64.72/b. The cuts are the first in five months."

Earlier this week, Saudi Aramco cut its official selling price of Arab Light into Asia--see Daily Sources 8/3 #6. (The middle eastern national oil companies have different official prices for different regions of the world.)

8. DUBAI'S PROPERTY PRICE COLLAPSE SHARPEST IN WORLD

Kevin Brass at the New York Times reports that Dubai's property market is leading the world in price collapse.

"Dubai prices have dropped 32% in the last year and 40% in the last quarter, according to the latest edition of the Knight Frank Global House Price Index, released today.

Along with Dubai, Latvia (36%) and Singapore (23.8%) saw the largest declines since the first quarter of 2008, the property firm reports."

9. MEND LEADER INDICATES MOST NIGER DELTA MILITANTS WANT TO TAKE ADVANTAGE OF AMNESTY PROGRAM WHICH OFFICIALLY BEGAN TODAY; ANALYSTS DOUBT DIRE NIGERIAN PRODUCTION NUMBERS

Dulue Mbachu at Bloomberg reports that the leader of Nigerian militant group MEND indicated in a telephone interview that most fighters want to accept the government's amnesty program, saying "Like the government, we also want peace for there to be development."

"A government panel set up last year recommended raising the share of revenue going to states in the oil region to 25% from the current 13%. MEND wants the oil region to control 100% of oil revenue and pay a tax to the central government, according to the group’s spokesman, Jomo Gbomo.

'Whatever the people are demanding is also what I want,' Okah said, declining to commit to a figure.

The MEND leader said militant commanders in the oil region are divided between those who want money in exchange for weapons, as offered by the government, and those who want their political demands met.

'Personally I want a situation where weapons will be surrendered without cash,' Okah said. 'Because people can submit their weapons and buy new ones.'"

BBC News reports on the amnesty program which officially began today.

"Officials said gunmen who accept amnesty would be given 65,000 naira ($433; £255) a month for food and living expenses during the rehabilitation program, which runs from 6 August to 4 October.

But the main rebel group in the region, the Movement for the Emancipation of the Niger Delta (MEND), has not yet said it will take part in the amnesty.

'When we choose to disarm, it will be done freely, knowing that the reason for our uprising which is the emancipation of the Niger Delta from neglect and injustice has been achieved,' the group said in statement e-mailed to the AFP news agency.

The group, which called a temporary ceasefire last month after one of its leaders was freed from jail, is in talks with senior officials about the terms of any possible amnesty."

Tom Burgis at FT Energy Source reports that many believe that the current numbers for oil production coming from official Nigerian government sources are deliberately understated.

"On Wednesday afternoon, a Nigerian oil executive speaking in private snorted at the idea that production could be so low, suggesting 1.6m b/d was more accurate. Stewart Williams, principal sub-Saharan Africa analyst at energy consultancy Wood Mackenzie, puts production at 1.5m b/d to 1.6m b/d.

Why the discrepancy? Analysts with a cynical streak (easily acquired in a country so riddled with corruption and electoral violence) remark that it is in the state’s interest to create a sense of crisis as it tries to force through a comprehensive reform of the oil sector.

That the bill has merits--including the promise of greater transparency and restructuring the hopelessly ineffective state company--misses the point. Oil companies and the delta’s influential governors, who stand to get less cash as a result, are united in opposition to it.

The oil companies, too, are making data scarce at the moment. Like the government, they may have an interest in uncertainty as the negotiations continue."

10. BRAZILIAN SENATE'S INVESTIGATION INTO PETROBRAS TAX EVASION AND CORRUPTION CHARGES BEGIN TODAY, LULA INDICATES THAT HE BACKS FULL CONTROL OF PRE-SALT FOR PETROBRAS

Helder Marinho and Alexander Ragir at Bloomberg report that the Brazilian Senate's investigation into tax evasion and corruption allegations against state oil company Petrobras began today.

"An 11-member Senate committee, led by a member of [Brazilian President Luiz Inacio Lula da Silva's], Workers’ Party, is investigating the allegations. [CEO Jose Sergio] Gabrielli told Petrobras’s 74,000 employees in a July 14 letter that the company fired three employees after an internal investigation, and cooperated with the prosecutor’s office and federal police, into the bidding process for oil platforms.

Gabrielli, Chief Financial Officer Almir Barbassa and Haroldo Lima, the head of Brazil’s petroleum regulator, are among officials the committee in charge of the probe will invite to testify, according to a list senators handed to reporters during a session of the probe committee held today.

The officials will not be legally summoned or required to speak under oath, and the hearings will be arranged at their convenience, Senator Romero Juca said today in Brasilia. Juca, the head of the government coalition in the Senate, is responsible for leading the probe and writing its reports. Fired Petrobras executives will not be called to testify, he said."

"Since Lula first took office in January 2003, lawmakers have set up 25 committees to investigate everything from health insurance plans to piracy of industrial goods and corruption, according to CAC Consultoria Politica, a Brasilia-based political consultancy. While some ended without any conclusion, a 2005 investigation into allegations the Workers’ Party paid bribes to legislators in exchange for votes in Congress led to the resignation of Lula’s chief of staff, Jose Dirceu."

Natuza Nery at Reuters reported yesterday that Lula was to propose to Congress today that Petrobas be the exclusive operator of new offshore sub-salt oil fields. In June, resolutions were being introduced in the Brazilian Senate to create a new, 100% state-owned company, to lease Brazil's sub-salt fields--see Daily Sources 6/12 #11. (A majority of voting shares in Petrobras are owned by the government, but foreign investors own about 60% of its total outstanding stock.)

11. VENEZUELA TO PURCHASE SEVERAL DOZEN TANKS FROM RUSSIA, BANS COLOMBIAN STATE OIL COMPANY FROM PARTICIPATION IN ORINOCO BELT

Fabiola Sanchez at the Associated Press reports that President Hugo Chávez in a news conference yesterday said that Venezuela was going to purchase several dozen Russian tanks in a deal he wants to seal during a visit to Russia in September.

"'We're going to buy several battalions of Russian tanks,' Chavez said ...

Chavez's government has already bought more than $4 billion worth of Russian arms since 2005, including helicopters, fighter jets and Kalashnikov assault rifles.

The socialist leader called Colombia's plan to host more US soldiers a 'hostile act' and a 'true threat' to Venezuela and its leftist allies. He warned that a possible US buildup could lead to the 'start of a war in South America,' but gave no indication that Venezuela's military is mobilizing in preparation for any conflict."

"Cuban ex-President Fidel Castro supported Chavez in a column published Wednesday on the Cubadebate Web site, saying that 'Venezuela isn't arming itself against the sister nation of Colombia, it's arming itself against the (US) empire.'

'The threat ... is directed at all the countries' of South America, Castro wrote."

Meanwhile, Upstream online reports that Chávez told journalists yesterday that Ecopetrol, Colombia's national oil company, will have no role in developing the Orinoco belt.

"Chávez said ... that Colombia’s increased cooperation with the US to fight guerrillas and drugs is part of the US’s long- term plan to invade Venezuela and seize the Orinoco Belt."

"Ecopetrol was one of 19 companies that paid $2 million apiece for detailed information on the Carabobo block in the Orinoco Belt."

12. 24% OF OWNER-OCCUPIED HOMES UNDER WATER IN US, PERSONAL SAVINGS RATE INCREASE AHISTORICAL IN FACE OF REDUCED FEDERAL TAX RECEIPTS, AND AS UNEMPLOYMENT LOOKS SET TO CONTINUE TO RISE

Nick Timiraos at Developments reports that 24% of owner-occupied homes had mortgage debt which exceeded the market value of the home in question at the end of June, according to data from Equifax and Moody’s Economy.com.

"That number rises to 32% when looking at the share of homeowners with mortgages that don’t have equity left in their homes.

Overall, 16 million homeowners are 'upside-down' on their mortgages, up from 10 million, or 15% of owner-occupied homes, one year ago.

Nearly 10% of owner-occupied homes now have mortgage debt with loan-to-value ratios of at least 125%, and roughly half of those homes have mortgage debt with loan-to-value ratios of 150% or more."

In her most recent series of posts, Rebecca Wilder at News N Economics notes that a) this recession is different from past recessions in the sense that the personal savings rate is trending up:



And b) that the Daily Treasury Statement of August 4 "shows that the 1-month cumulative sum of income tax receipts (withheld plus paid taxes) is dropping at a 13% annual pace." She comments:

"This is the most up-to-date macroeconomic information out there, as most of the reports are 1-2 months old at the time of release. And the implication of this DTS is: that personal income and spending, which just released this week for June ... are likely to be weak into July."

In that vein, Barry Ritholtz links to a graph by Bruce Murray, CEO of WANTED USA, plotting the actual month over month change in non-farm unemployment against year over year percent change in hiring demand:



13. RAIL TRAFFIC VOLUMES BOTTOMED OUT AT 18.9% BELOW LAST YEAR'S NUMBERS

The Railfax report is out today, and seems to indicate that rail traffic volumes have reached a bottom and holding steady at about 18.9% below their seasonal levels. Their chart for weekly loaded units in North America for the week ended August 1 in four week rolling averages:



Their chart for crushed stone and lumber and wood products, key components in construction, in four week rolling averages for North America:

Daily Sources 8/4

1. IEA WARNS THAT $70 OIL COULD UNDERMINE ECONOMIC RECOVERY

Kate Mackenzie at the Financial Times reports that the IEA's chief economist, Fatih Birol, told the newspaper in an interview that oil prices above $70/b would likely undermine any economic recovery.

"'If we go one step further, if we see prices go much higher than that, we may see it slow down and strangle economic recovery,' he said of oil prices on Friday, when the European benchmark was around $70."

2. CHINA MAY CHANGE RULES TO MAKE SUBORDINATED BONDS INELIGIBLE AS CAPITAL, WHICH SHOULD REDUCE THE VOLUME OF CREDIT

Wang Ming and Rose Yu at the Wall Street Journal report that the China Banking Regulatory Commission

"may deem subordinated bonds issued by a bank ineligible as capital if those bonds are held by another bank, the person said. The banking regulator estimates about half the subordinated bonds in circulation are held by other banks.

The amount that banks in China can lend is governed by technical capital ratios -- the more capital, the more room to lend. A big way banks have raised capital is by selling yuan-denominated subordinated bonds, or debt instruments that offer investors less protection in the event an issuer can't repay but also a higher yield than regular bonds."

"Analysts said any curb on how subordinated debt can be used would likely slow lending, because it would limit the appetite of the market's biggest investors, which are banks.

'If the regulator excludes cross-held subordinated bonds from being classified as part of banks' capital, banks will have to try to sell their bonds to nonbanking investors,' said Guo Tianyong, the director of the Finance Research Center at Beijing's Central University of Finance and Economics. That will be difficult, Mr Guo said, and 'as a result, banks will slow the pace of subordinated-bond issues, which would eventually lead to a slowdown in credit growth.'

She Minhua, an analyst at Haitong Securities, said, 'Changing the rules would effectively cause a further decline in banks' capital adequacy ratios, so the fastest way for them to maintain a healthy ratio would be to cut loans.'"

3. CHINESE SEABORNE OIL IMPORTS UP 26% IN JULY YOY

Bloomberg reports that preliminary data from the Chinese Ministry of Transportation indicates that Chinese seaborne imports grew by 26% in July from a year previous.

"Chinese ports unloaded about 16.27 million metric tons, or 3.8 million barrels a day, of imported crude last month ... ."

4. NORTH KOREA RELEASES US JOURNALISTS DURING FORMER POTUS VISIT

Heejin Koo at Bloomberg reports that North Korean leader Kim Jong Il pardoned and ordered the release of two American journalists who had been arrested after allegedly crossing into North Korean territory.

"By seeking an amnesty, the US appears to be conceding that the two reporters broke North Korea’s laws, Paik [Hak Soon, a researcher on North Korean issues at Sejong Institute] said.

'The visit indicates that the US and North Korea are willing to resolve this matter through dialogue,' he said. 'We’ll have to see if this expands to the nuclear issue.'"

"The former president and the North Korean leader 'had an exhaustive conversation' and a 'wide-ranging exchange of views on the matters of common concern,' [the] Korean Central News Agency said without giving further details. The country’s National Defense Commission hosted Clinton at a dinner in his honor, the agency said."

Pyongyang has been long seeking direct bilateral talks with the US regarding its disputes with the international community.

5. AUSTRALIAN CENTRAL BANK LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 3%, RETAIL SALES ARE DOWN 1.4% IN JUNE FROM MAY

EcPulse reports that the Reserve Bank of Australia decided today to maintain their benchmark interest rate at 3%.

"[Reserve Bank Governor] Stevens said in his statement that the world economy started to show clear signs of stability, thanks for the global stimulus plans set by governments around the world that led to an improving outlook for the world economy. He added that the US economy reached a turning point, while the economy in the euro zone is still weak."

Meanwhile, Jacob Greber at Bloomberg reports that Australian retail sales fell by 1.4% in June from May.

"Today’s report suggests the impact from A$12 billion ($10 billion) in government cash handouts to households is waning after consumer spending helped Australia avoid a recession in the first quarter. Still, the economy may expand in the second quarter after retail sales rose 2% in the three months through June. Economists forecast a 1.3% gain.

'We still have retail sales at a very strong levels,' said Ben Dinte, an economist at Macquarie Group Ltd. in Sydney. 'With the strengthening consumer sentiment, we should see retail sales hold up.'

The quarterly retail sales figure accounts for as much as 25% of Australia’s gross domestic product, Dinte added."

6. RUSSIA AND TURKEY TO SIGN PACT TO BUILD OIL PIPELINE WHICH WOULD BYPASS THE BOSPHORUS

Ali Berat Meric and Stephen Bierman at Bloomberg report that Russia and Turkey will sign an accord to build a pipeline to send oil to the Mediterranean bypassing the Strait of Bosphorus.

"OAO Gazprom, Russia’s largest company, and Turkey’s Calik Holding AS will sign an accord to build a pipeline between the northeastern port of Samsun and a terminal at Ceyhan on Turkey’s Mediterranean coast, Russian Energy Minister Sergei Shmatko told reporters in Ankara today before a visit by Russian Prime Minister Vladimir Putin later this week."

7. GERMAN BIRTH RATE MAY HAVE DECLINED

Der Spiegel reports that a report released yesterday by Eurostat indicates that

"for every thousand inhabitants in Germany, only 8.2 children were born in 2008. Which indicates a decrease of 0.1% in the German birth rate and makes Germany the only EU member in which the crude birth rate did not increase between 2007 and 2008."

8. HILLARY CLINTON EXPRESSES CONCERN REGARDING HIKERS ARRESTED NEAR IRANIAN BORDER

Nada Bakri at the Washington Post reports that yesterday Secretary of State Hillary Clinton expressed concern about the welfare of three American hikers who were arrested after entering an area near the Iranian border. Of course, the incident will be used by elements in Tehran as evidence that the recent elections unrest is the result of foreign meddling.

9. MEXICO MAY INTRODUCE FUEL EFFICIENCY STANDARDS

Robert Campbell at Reuters reported yesterday that the head of the Mexican National Ecology Institute, Adrian Fernandez, said in an interview that Mexico is planning to introduce fuel efficiency standards for all new cars sold in the country.

"The government is currently studying which type of standards to impose but it is leaning towards a plan that would be similar to proposed fuel efficiency rules in California or other parts of the United States, ... Fernandez said in an interview.

'The standard will cut gasoline imports by as much as a new refinery.'"

Imprecise, but it would have a significant effect.

10. VENEZUELA TO NATIONALIZE COFFEE COMPANIES, LAUNCHES INVESTIGATION INTO SWEDISH ARMS FOUND IN FARC CAMP

Steven Bodzin and Daniel Cancel at Bloomberg report that Venezuelan President Hugo Chávez said today on state television that he was considering nationalizing two coffee companies after having seized their processing plants yesterday. He said,

"We’ve intervened in these big companies. Now we are conducting a study to expropriate them. They will become property of the nation."

Meanwhile, the Associated Press reports that Caracas has indicated it has launched a probe into how arms purchased from Sweden ended up in the hands of FARC guerrillas in Colombia.

"Justice Minister Tareck El Aissami said authorities had launched 'an internal investigation ... to determine the origin and destination of these weapons,' referring to Swedish-made AT-4 launchers that Colombia says were found in a cache belonging to guerrillas.

El Aissami gave no indication, however, that Chavez's administration was easing its stance toward Colombia amid a diplomatic fight that erupted last week after Colombian President Alvaro Uribe complained the weapons had been acquired by the Revolutionary Armed Forces of Colombia ... ."

12. RUSSIA SIGNS ACCORD WITH NICARAGUA TO EXPLORE FOR OIL AND GAS

Eric Watkins at the Oil & Gas Journal reports that the Nicaraguan government has signed accords with a Russian consortium allowing for oil and gas exploration and production in the country.

"'The concessions include the Caribbean and Pacific, both offshore and on land,' said Francisco Lopez, president of the Nicaraguan Petroleum Enterprise. He said a technical board would be installed to analyze implementation of the agreement.

Russia’s Deputy Prime Minister Igor Sechin said the proposed exploration in Nicaragua would be carried out by the Russian National Oil Consortium, created on Oct. 8, 2008, and comprising Rosneft, Gazprom, Lukoil, TNK-BP, and Surgutneftegaz."

13. ANTIGUA AND BARBUDA NAMES HIGHEST PEAK ON ISLANDS "MOUNT OBAMA"

Nika Kentish at the Associated Press reports that the Antiguan Prime Minister, Baldwin Spencer, today renamed the highest mountain in Antigua and Barbuda "Mount Obama." He said at the dedication ceremony:

"This great political achievement by Barack Obama resonated with me in a way that I felt compelled to do something symbolic and inspiring. As an emancipated people linked to our common ancestral heritage and a history of dehumanizing enslavement, we need to at all times celebrate our heroes and leaders who through their actions inspire us to do great and noble things."

14. HAVIV ARGUES 'SHADOW INVENTORY' LOOMS OVER US HOUSING MARKET

Julie Haviv at Reuters reports that so-called "shadow inventory" is hanging over the US home market.

"'The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg,' said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington.

According to Zillow's latest Homeowner Confidence Survey, 12% of homeowners said they would be 'very likely' to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8% said 'likely,' while 12 percent said 'somewhat likely.'

The survey of 2,123 adults aged 18 and older, of whom 1,357 are homeowners, was conducted online.

Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million US houses, condos and co-ops, Humphries said."

15. HURRICANE SEASON UNDERWAY IN US, GAO STUDY FINDS REFINERY OUTAGES HAVE VERY SMALL AFFECT UPON PRICE

Jesse's Café Américain notes that the hurricane season is underway, and that the peak is usually in mid-September. He notes that "Hurricanes offer a tempting opportunity for energy 'investment.'" I would note, however, that insofar as a legitimate reason for hedging goes, hurricanes are certainly one--and those who want to hedge will need counterparties. Meanwhile, Michael Giberson at Knowledge Problem has the fascinating news that the Government Accountability Office has released a report showing that refinery outages generally have a very small affect upon prices. The report, which I have not had time to read, can be found here.

16. WAL-MART LAST WEEK ISSUED $1.1 BILLION IN SAMURAI BONDS

In a story I missed last week, Lisa Twaronite at MarketWatch reported that Wal-Mart issued US$1.1 billion in yen-denominated bonds (¥100 billion).

"The market for samurai bonds--yen-denominated bonds issued by foreign institutions in Japan--evaporated in the global credit storm. But including Wal-Mart's offering, samurai issuances in July are expected to exceed 200 billion yen--the largest amount since June 2008, Japanese business daily Nikkei reported Wednesday."

Apparently the market is drowning in dollars. (h/t Chuck Butler's Daily Pfenning.)

Daily Sources 7/29

1. UN WARNS THAT DEVELOPED WORLD WILL FACE WATER PROBLEMS DRIVEN BY GLOBAL WARNING AND OUTLINES GRIM SCENARIO FOR DEVELOPING WORLD

Thalif Deen at IPS reports that UN Secretary-General Ban Ki-moon yesterday said that

"The United States, Spain, Australia and the Netherlands are likely to face the consequences of climate change resulting in water-related disasters, including droughts, floods, hurricanes and sea-level rise.

'Even the world's richest nations are not immune,' UN Secretary-General Ban Ki-moon warned Tuesday.

Citing official US figures, he said the state of California, the world's fifth largest economy, 'could see prime farmland reduced to a dustbowl, and major cities running out of water by the end of the century'.

Blaming it on the negative impact of global warming, he said that climate is changing--globally. 'And so, therefore, must we.'

He quoted scientists as saying that by 2020, 75 to 250 million people in Africa will face growing shortages of water due to climate change.

'Yields from rain-fed agriculture could fall by half in some African countries in the next 10 years. These are frightening scenarios,' he declared."

(h/t Aqua Blog Maven at Aquafornia.)

2. JAPANESE RETAIL SALES DOWN 3% YOY IN JUNE

Toru Fujioka at Bloomberg reports that Japanese retail sales fell 3% year over year in June, from May they fell 0.3%.

"'The worst is over but that doesn’t completely wipe out households’ concerns,' said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. 'Japan’s recovery will be weak until a pickup in jobs and wages boosts consumer spending.'"

3. CHINA CUTS GASOLINE AND DIESEL PRICES

Wan Zhihong at China Daily reports that Beijing has cut the prices of gasoline and diesel by 220 yuan per ton or 3%, effective today.

"This equals price cut of 0.16 yuan per liter in gasoline prices (~$0.089/gallon) and 0.19 yuan per liter (~$0.105/gallon) in diesel prices. It is the second price cut on fuel prices this year.

The price cut was in response to recent falls in global crude prices, according to the National Development and Reform Commission (NDRC), the country's top economic planning body.

China adopted a new oil pricing system this year, under which domestic fuel prices would be adjusted when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes more than 4% over a period of 22 working days."

Bloomberg reports:

"Pump prices for 90 octane gasoline will be set at a maximum of 5.7 yuan ($0.83) a liter, or about $3.14 a gallon, in Beijing, the National Development and Reform Commission said in a statement on its Web site. Prices were adjusted to reflect the decline in global crude prices, said China’s top planning agency."

The reduction in price will encourage demand, of course.

4. MANUFACTURERS SAYS CHINESE COST OF LABOR NOT FALLING IN RESPONSE TO GLOBAL DOWNTURN, REPORTS OF ILLUSORY REAL ESTATE BOOM

The American Chamber of Commerce recently released a report which says that the cost of labor is not falling substantially in China despite the global economic slowdown.

"Even with the current economic conditions, manufacturing in China has become more expensive. Companies reported that costs are still rising--up to 15% in 2008 compared to an increase of 10% in 2007--particularly in compensation costs for management, support staff and blue-collar workers as well as raw materials. Although labor and raw materials costs have come down from the premium levels of last summer, they are expected to rise again once market conditions improve.

Finding reliable, experienced talent has always been a challenge in China and despite rising unemployment during the current downturn, companies must ensure turnover remains at a minimum for when growth resumes.

• 86% of companies reported implementing pay-for-performance compensation plans.
• 62% of companies said they were providing training and development programs."

(h/t Carlos Tejada at the China Journal.) Meanwhile, China Stakes reports that while the Chinese real estate market appears to be in the midst of a boom, defaults are on the rise.

"Statistics show that from May 1 to July 24, which seemed to be good days for Shanghai's real estate market, many housing projects were seeing over 30% cancellations, and the cancellation rate of some projects was as high as 125%. Behind the 'boom' of the housing market are irregular behaviors such as getting bank loans by cheating and making fake housing purchasing contracts.

Among the top ten housing projects with the highest cancellation rates, 60% are developments by small and medium real estate companies. 'In fact, it is still difficult for small and medium developer to get credit support from banks,' said a sales manager of a medium real estate company.

Now it is common for developers to sell an apartment to an employee as a "reward" and then secure a loan from a bank with the housing purchasing contract signed by the employee. 'There's a window between the sale and the issuance of housing ownership certificate, during which employees can decide whether to keep or cancel the contract,' the sales manager added."

Prieur du Plessis at Investment Postcards from Cape Town links to a video of Hugh Hendry

"walking around the streets of China (presumably Beijing or Shanghai) and pointing out numerous empty buildings. Huge debt must have been incurred in erecting these buildings and without tenants there is no prospect of servicing the debt. What’s more, the workmanship also seems shoddy as a nearly-completed 13-story building in Shanghai collapsed last month.

Who will pick up the tab for creating all the overcapacity in the Chinese economy?"

Worth checking out.

5. EUROZONE BANKERS TIGHTENING CREDIT, FRUSTRATING STIMULUS EFFORTS

Margot Patrick, Laurence Norman, and Nina Koeppen at the Wall Street Journal report that the European Central Bank released a report today showing that eurozone banks continued to tighten credit in the second quarter, frustrating efforts at stimulus.

"Banks in the 16-country euro zone further tightened their credit standards in the second quarter, and companies and households may even face slightly tougher requirements in the current quarter, the European Central Bank said in a report on bank lending released Wednesday."

"'Access to credit has become clearly more difficult,' said Ifo Institute President Hans-Werner Sinn, commenting on the think-tank's latest credit constraint survey for German industry and trade, also published Wednesday. 'Despite the expansive monetary policy of the ECB, banks have become more restrictive in granting credit,' Mr Sinn said."

Worth reading in full.

6. TURKISH CENTRAL BANK GOVERNOR INDICATES RATE CUTS TO CONTINUE


Ali Berat Meric and Steve Bryant at Bloomberg report that the governor of the Turkish central bank--Durmus Yilmaz--has indicated that it will continue to cut the benchmark interest rate and is unlikely to raise the rate until some point in 2011.

"The bank reduced its forecast for year-end inflation to 5.9% from 6%, assuming that 'policy rates are further lowered in the short term and held unchanged until the end of 2010,' Yilmaz said at a news conference in Ankara today. Inflation was 5.7% in June, compared with the bank’s year-end target of 7.5%."

7. BAGHDAD PLEDGES SUPPORT IN SUPPRESSING THE PKK

Thomas Grove and Pinar Aydinli at Reuters report that Iraqi Minister of State for National Security Shirwan al-Waeli told a news conference in Ankara that Baghdad will cooperate with Turkish and American efforts to suppress the Kurdish Workers' Party (PKK) until it is eliminated.

"Waeli and Turkish Interior Minister Besir Atalay told the joint news conference they expected concrete results of their cooperation by the time they meet again in Iraq in October but provided no further details."

8. IRAQI CABINET APPROVES THE RE-INCORPORATION OF A NATIONAL OIL COMPANY, OIL EXPORTS AND REVENUES INCREASE

Dow Jones Newswires reports that the Iraqi cabinet yesterday approved a law which would establish an Iraqi national oil company; it now must be approved by the parliament.

"The reinstated national oil company would act as the parent of the existing three major Iraqi oil operators--the South Oil Co., Iraq's largest petroleum company in Basra; North Oil Co. in Kirkuk; and Missan Oil Co. in Ammarh in southern Iraq."

"'In the new draft law we didn't mention the fields that the new company would run,' [Thamir] Ghadhban [an energy adviser to Prime Minister Nouri al-Maliki] said. 'The fields to be operated by the company would be determined by a federal oil and gas council yet to be established,' he said.

The previous law stated that the INOC would have authority to conclude service and management contracts with international oil companies to improve oil recovery from producing fields. It isn't known if that provision was retained in the new law."

Meanwhile, Ben Lando at the Iraqi Oil Report reports that the Iraqi Oil Ministry announced that oil exports and revenues increased in June.

"The Oil Ministry data show oil exports reached 1.923 mb/d last month, up from 1.906 mb/d in May. Iraqi crude fetched an average $64.37/b, a more than $7/b increase on May.

Iraq earned nearly $62 billion in oil revenue last year and through July 22 this year’s exports have brought in $17.11 billion, according to the U.S. State Department’s most recent Iraq Status Report. It also estimated July production thus far at 2.46 mb/d and exports at 1.99 mb/d."

9. KYRGYZ POLICE BREAK UP ELECTION PROTESTS

The Associated Press reports that Kyrgyz police broke up opposition rallies protesting the recent Kyrgyz election results, which they contend were rigged.

"The opposition planned separate rallies and marches around the country Wednesday, rather than call all of its supporters to the center of the capital, Bishkek, in an effort to avoid a confrontation with police."

10. IRANIAN DEATHS IN DETENTION FUELING PUBLIC ANGER

Robert F Worth at the New York Times reports that accounts regarding the abuse of protesters arrested in Iran is fueling widespread anger at the administration.

"The head of Iran’s Supreme Administrative Court, Ayatollah Ghorbanali Dorri-Najafabadi, said more prisoners would be released by the end of the week. He added that a 'serious judicial inquiry' was being conducted into the deaths that have occurred in prisons since the June 12 election.

On Wednesday, there were conflicting reports about whether the government had released Saeed Hajjarian, a prominent reformist figure whose family said he was being subjected to torture.

Iran plans to put 20 people accused of rioting on trial starting Saturday, the official IRNA news agency reported. They are charged with 'attacking military units and universities, carrying firearms and explosives, organizing thugs and rioters, and vandalizing public property.'

On Tuesday, the state-financed English-language broadcaster Press TV quoted Farhad Tajari, deputy head of the parliamentary judicial commission, as saying that the former deputy interior minister, Mostafa Tajzadeh, and former deputy speaker of Parliament, Behzad Nabavi, were in detention facing major security charges and could be released on bail.

The prisoner releases appear to be the act of a government desperate to defuse the issue, coming quickly after the head of Iran’s judiciary promised Monday that the detainees’ cases would be expedited."

11. OBAMA ADMINISTRATION TO EASE SANCTIONS ON A CASE-BY-CASE BASIS WITH SYRIA

Sharon Otterman at the New York Times reports that Obama Administration officials yesterday indicated that a message was conveyed by George Mitchell to Syrian President Bashar al-Assad that the US will take new actions to ease sanctions on Syria on a case-by-case basis.

"[T]he American government [will] try to expedite the process for obtaining individual exemptions to the sanctions, which prohibit the export of all American products to Syria except food and medicine.

The move will particularly affect 'requests to export products related to information technology and telecommunication equipment and parts and components related to the safety of civil aviation,' said a State Department spokesman, Andrew J Laine."

The law imposing sanctions on Syria itself will, at this stage, remain untouched, but the Administration is indicating that OFAC will take a broader view when considering corporate requests for individual waivers.

12. UN WARNS OF WORSENING SITUATION IN SOUTH LEBANON

Naharnet News Desk reports that the UN has warned of a deteriorating situation in south Lebanon.

"The warning was made by Oscar Fernandez-Taranco, Assistant Secretary-General for Political Affairs, during a Security Council meeting on the Middle East.

Taranco urged both the Israeli and Lebanese sides to 'end' their violations of Security Council Resolution 1701 which halted a 34-day war between the Jewish state and Hizbullah in the summer of 2006."

(h/t Michael Collins Dunn at the MEI's Editor's Blog.)

13. VENEZUELA RECALLS COLOMBIAN AMBASSADOR, THREATENS TO SHUT OFF TRADE, FARC SAYS HAD MADE NO ELECTION CAMPAIGN CONTRIBUTIONS TO ANY FOREIGN CANDIDATE, VENEZUELAN OIL MINISTER SAYS JAPAN-VENEZUELAN ORINOCO E&P JV WILL BE FINALIZED BY YEAR END

Christopher Toothaker at the Associated Press reported yesterday that Venezuela has recalled its ambassador to Colombia and threatened to halt imports from the country on the accusation aired by Bogota that anti-tank weapons found in a FARC stash came from Venezuela.

"Chávez also said he would sever diplomatic ties completely and seize control of Colombian-owned businesses 'if there's one more accusation against Venezuela.'"

"Chávez also raised the possibility of shutting down a 139-mile (224-kilometer) pipeline that carries 5.7 million to 8.5 million cubic meters (200 million to 300 million cubic feet) of natural gas daily from Colombia to oil installations in western Venezuela.

'The gas that comes from Colombia isn't indispensable for us. We could shut down that gas pipeline,' he said."

Tensions between Caracas and Bogota have long been tense, most recently inflamed by US plans to expand our military presence at three military bases in Colombia--see Daily Sources 7/22 #12. Meanwhile, the Associated Press reported yesterday that FARC officially denied that it had contributed to the 2006 election campaign of Ecuadorian President Rafael Correa. Correa recently publicly asked FARC to confirm that he had received no campaign contributions from the militant organization. FARC stated that it had at no time contributed to any election campaign in any foreign state.

"The FARC's ruling secretariat contends in a July 25 communique that video given to The Associated Press earlier this month by Colombian officials was manipulated by Bogota and Washington. The video shows the FARC's No 2 leader reading a letter in which contributions to Correa's campaign are mentioned."

Meanwhile, Carlos Camacho and Takeo Kumagai at Platts report that Venezuelan oil minister Rafael Ramirez announced yesterday that Japan and Venezuela will have an exploration and production plan for the Junin area of the Orinoco belt ready by October and a JV to carry out the E&P activity will be launched by year-end.

"Ramirez did not mention, which Japanese companies would be given the E&P contract (in a minority role, by law) together with PDVSA, but Mitsubishi, Itochu, Mitsui and Marubeni all have ongoing energy projects in Venezuela."

14. US MANUFACTURED DURABLE GOODS DOWN 2.5% IN JUNE FROM MAY, DOWN 27.7% YOY, MORTGAGE ASSOCIATION WARNS THAT INCENTIVES FOR MODIFYING MORTGAGES INSUFFICIENT

The Commerce Department today announced that new orders for manufactured durable goods in June fell $4.1 billion or 2.5% from May. Excluding transportation equipment, new orders rose 1.1%. Un-seasonally adjusted year over year new orders were down 26.7%, excluding transportation they are down 23.4% year over year. Meanwhile, Al Yoon at Reuters reports that the Independent Mortgage Servicers Coalition has issued a warning that the government incentives to modify bad mortgages may prove counterproductive.

"'We are in a position where it's a very tough balance act, and that's weighing heavily on us now,' said [Bruce] Rose [CEO of Carrington Capital Management, LLC], in an interview on Monday. 'This is a classic case of an unfunded government mandate.'

The costs of borrowing to finance delinquent payments to bond investors far outweigh expected revenue from incentives paid by the government, Rose said. The government will pay servicers $1,000 for every loan modified, and another $1,000 a year for three years if the borrower stays current.

The group since September has approached the Treasury, the Federal Reserve and Congress for help in funding the temporary 'advances' that are fully reimbursed when a loan is modified or foreclosed, Rose said. Help offered through the Fed's Term Asset-Backed Securities Loan Facility (TALF,) which allows for the pooling of advances for sale to investors, has backfired, and is increasing financing costs, he said."

(h/t Yves Smith at naked capitalism.)

15. COMMERCIAL CRUDE STOCKS WAY UP, REFINING UTILIZATION DOWN, IEA SUGGESTS $50-60 BOTTOM FOR OIL PRICE

The EIA reports that commercial crude stocks built by a whopping 5.1 million barrels in the week ended July 24 to 347.8 million barrels. The stock levels are above the five year historical range for this time of year and the build was versus the median expectation of analysts of a 1.5 million barrel draw, per a Bloomberg survey. Gasoline stocks were drawn down by 2.3 million barrels and are near the top of the five year historical range. Distillate stocks, on the other hand, continued to build by another 2.1 million barrels versus analyst expectations of a 1 million barrel build. Distillate--diesel and heating oil--stocks are well above the historical range for this time of year, there are 32.1 million barrels more distillate held in commercial stocks than the equivalent week last year, or 24.6% more.



The ongoing build is consistent with the reports from the American Truckers Association, the American Association of Railroads, and US major ports. Total US refining utilization fell to 84.57% from the 85.84% reported for the week previous. For the week ended July 27, the national average of regular gasoline prices rose by 4 cents to $250.3/gallon, just inside the range where you start to see demand fall. The EIA report includes the following observation:

"On May 21, NOAA predicted a 70% probability that nine to 14 named storms will form within the Atlantic Basin during the current hurricane season, including four to seven total hurricanes of which one to three will be intense. These ranges are slightly above the seasonal average. Using these storm projections, the STEO analysis estimates the uncertainty surrounding seasonal shut-in projections. The median of the probability distribution represents an outage of 4.5 million barrels for the entire season, which is the assumption that the STEO uses for its forecasts for crude oil production."

Upstream online reports that Eduardo Lopez, a senior oil demand analyst at the International Energy Agency told Reuters that

"The evidence so far suggests that prices have probably reached a floor which maybe around $50 to $60. So, unless something dramatic were to happen, its plausible...prices will remain again at around that level, of course with probably a lot of volatility."

Monday Mark Shenk at Bloomberg noted that the current demand projections from the IEA do not correlate well with its past correlation with global GDP growth--see Daily Sources 7/27 #12.

16. FARM STATES INFLUENCE ON FOREIGN ENERGY POLICY--SHOCKED, JUST SHOCKED

Keith Johnson at Environmental Capital has a nice anecdote of how farm-state congressmen influence US foreign policy--including energy policy.

"Iowa’s Republican Sen. Chuck Grassley is holding up the nomination of Thomas Shannon to become ambassador to Brazil. The problem? Mr. Shannon has hinted he’s in favor of repealing the $0.54 cent-per-gallon tariff the US levies on imports of Brazilian sugar-cane ethanol—a direct threat to the farm-state interests Mr. Grassley represents."

Worth reading in full.