Daily Sources 6/26

1. HSBC ISSUES $146.4 MILLION IN YUAN-DENOMINATED BONDS; THE PEOPLE'S BANK OF CHINA REITERATES CALL FOR NEW INTERNATIONAL CURRENCY

Aries Poon at the Wall Street Journal reports that HSBC Holdings PLC issued renminbi-denominated bonds on Thursday.

"SBC's 1 billion-yuan ($146.4 million) bond, aimed at institutional investors, was sold Thursday at 0.38 percentage point above the three-month Shanghai interbank offered rate, a person familiar with the deal said Thursday. That was toward the top end of the indicative range of 0.30 percentage point to 0.40 percentage point above Shibor, which now stands at 1.2925%.

Bank of East Asia plans to launch two-year yuan bonds with a coupon between 2% and 2.8%, with a retail tranche of more than 1 billion yuan, another person familiar with the situation said earlier."

Bloomberg reports that the People's Bank of China reiterated its call for a new international currency:

"To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s de-linked from sovereign nations."

Yves Smith at naked capitalism comments:

"The practical impediments to an SDR regime is the lack of deep trading markets for investments, But the transition from sterling as reserve currency to the dollar was a protracted, messy, and disorganized affair. The Chinese prefer order and particularly want a fixed rate (or at least narrow float as they have now) regime. They see floating rates as destabilizing and as bad for trade. They increase uncertainty which deters investment.

Again, this may simply be more insistent posturing. The Chinese tend to be frontal. But if nothing else, the Chinese are signaling that they are not happy with the status quo and expect change. The US simply has not been with that program. And we don't seem to have other ready ways to placate the Chinese. We've nixed deals we considered politically sensitive, to their outrage, and will continue to guard our advanced military technology. It isn't clear what China wants in the way of gives and gets here. Again, this may be playing to a domestic audience, but negotiators can get locked into what was initially mere playing to the gallery.

This salvo coming now is also going to be perceived to constrain US fiscal deficits if we need a second stimulus package (likely). I tend to buy the analysis that the spending shortfall is large enough that this isn't the inflationary monster that it is perceived to be. However, the fly in the ointment is first, that we have already thrown so much firepower into the sinkhole of the financial system with perilous little effect (restructuring debt, shorting up certain borrowers directly, reining in the banks, and smaller capital infusions would have been a much better course of action). In particular, the Fed efforts to create a zillion facilities to shore up TBTF markets that have become important channels for credit extension muddies the picture considerably."

2. SOME GERMAN ANXIETY RE: DIMINISHING INFLUENCE WITH THE US--AND WORLD

Gregor Peter Schmitz at Der Spiegel worries that very few representatives of the US government were at a reception for Chancellor Merkel held at the Library of Congress on Thursday.

"[T]here was just a single member of the House of Representatives (out of a possible 435) who bothered to show up to see the German chancellor. Interest for countries like Germany is no longer seen as a way to advance one's career in the US Congress. Those who take an interest in foreign policy have begun looking to Asia first. The only other politician of note at Merkel's reception [outside of former Sen. Chuck Hagel] was Alan Greenspan. But the 83-year-old is also now in retirement."

The Chancellor will be meeting with President Obama today, on the other hand, but the article does seem to express a genuine worry in Europe that it is being relegated to the margin in determining the international order. I suppose it is a legitimate concern, though Europe's role in the world is hardly marginal. (On the other hand, Germans no longer represent the largest ethnic group in the United States, as they did at the time of WWII.)

3. JOSCHKA FISCHER TO ADVISE NABUCCO

Der Spiegel reports that former German foreign minister Joschka Fischer has taken a job as a consultant to the Nabucco gas pipeline project.

"Fischer has joined the €7.9 billion ($11.1 billion) project as a political adviser, primarily to ensure that Turkey remains on board--but also to manage relations with other countries affected by the pipeline, including transit countries Bulgaria, Romania and Hungary."

"Ironically, Fischer's new position puts him across the fence from [ex-Chancellor Gerhard] Schröder, his former political partner from 1998-2005, when a coalition government of Schröder Social Democrats and Fischer's Greens called the shots in Berlin. Just weeks after losing his chancellor job to Angela Merkel in the 2005 elections, Schröder took a position as chairman of the board of a Gazprom consortium currently building a natural gas pipeline beneath the Baltic Sea from Russia to the northern German coast. Called Nord Stream, the 1,220 kilometer long pipeline is scheduled for completion in 2012 and is estimated to cost some €7.4 billion."

4. IRAQI OIL MINISTER FACES CRITICISM IN IRAQI PARLIAMENT

Samuel Ciszuk at IHS Global Insight reports that Iraqi oil minister Hussein al-Shahristani testified before the Iraqi Parliament on Tuesday and Thursday, meeting a barrage of criticism.

"[Chairman of the parliamentary Oil and Gas Committee, Ali Hussein Balou, led the assault on the oil minister’s policies, saying that the parliament would 'totally reject' the contracts unless it was allowed to ratify them, adding that 'we will not allow the Oil Ministry to move ahead, ignoring parliament and signing contracts in the first bidding round, since they are illegal and unconstitutional'. The outlook for the future was perhaps even more menacing, with Balou—from the Kurdish minority that is claiming full autonomy over its oil industry and reserves—promising that the fight would continue even if the licenses were awarded. 'If [Shahristani] dares to sign these contracts, he must assume responsibility for the consequences', Reuters quoted him as saying."

The energy committee issued a summons for the oil minister to appear in May--see Daily Sources 5/18 #4--and parliamentarians have been openly calling for his resignation since--see Daily Sources 5/21 #6.

5. QATAR AGREES TO SUPPLY PAKISTAN WITH 1.5 MILLION TONS LNG/YEAR

Chris Stanton at the Nation reports that Pakistani and Qatari officials yesterday concluded a preliminary agreement to ship 1.5 million tons of LNG a year to Pakistan.

"Pakistan had originally sought 3.2 million tonnes, but Qatar could not provide that amount, [Asim] Hussain [a petroleum and natural resources adviser to the Pakistani government] said. Pakistan regularly suffers power cuts because it has inadequate supplies of gas to fuel power stations.

The country faces a gas shortage of about 192 million cubic feet per day (cfd), according to estimates released earlier this year by the ministry of petroleum resources. That amount will grow to 507 million cfd next year and reach 3 billion cfd by 2015.

The volumes of LNG under discussion yesterday would work out to about 200 million cfd."

The proposed Iran-Pakistan-India pipeline (or just Iran-Pakistan pipeline) remains bogged down--presumably the problem remains a question of the price Pakistan would pay for the gas.

6. QATARI PM AND CHIEF OF EGYPTIAN INTELLIGENCE MEET IN RIYADH

Khaled Omar Abdel Halim at Almasry Alyoum reports that Qatari Prime Minister and Minister of Foreign Affairs Sheikh Hamad bin Jassem bin Jabr al-Thani told al-Jazeera that he had met with Omar Suleiman, the chief of the Egyptian General Intelligence Services, in Riyadh for talks mediated by Saudi Foreign Minister Saud al-Faisal.

"Hamad denied any rift between Egypt and Qatar. He said the tension between the two countries was caused by some Egyptian officials, who follow the principle of 'either you are with me or you are against me.' He also accused some American officials of trying to exploit their failure by showing incomprehensible sensitivity towards Qatar and all its initiatives. And he expressed that he cannot identify the next steps to bring the two countries closer to each other."

He also denied any link between the Hezbollah cell in Egypt and Qatar. (h/t Michael Collins Dunn at MEI's Editor's Blog.)

7. ISRAEL GRANTS PALESTINIAN SECURITY FORCES MORE FREEDOM TO OPERATE

Isabel Kershner at the New York Times reports that Israel has agreed to give Palestinian security forces more freedom to operate in the cities of Ramallah, Qalqilya, Bethlehem and Jericho.

"The Israeli military also recently removed several significant checkpoints inside the West Bank, in line with a policy of easing movement and improving daily life for the Palestinians so long as calm prevails."

8. 4 NIGER DELTA MILITANT GROUPS AGREE IN PRINCIPLE TO ABUJA'S AMNESTY OFFER; MEND ATTACKS OFFSHORE WELL HOURS AFTER OFFER MADE

Austin Ekeinde at Reuters reports that four militant groups have indicated that they want to meet with representatives of the government to discuss the details of the recent amnesty offer made by Abuja.

"Representatives of Ateke Tom, Farah Dagogo, Soboma George and Boyloaf--key leaders of armed gangs behind some of the most spectacular attacks--said they wanted to meet [President Umaru Yar'Adua] to work out details of the deal.

'We accept peace as encapsulated in the said offer of amnesty,' they said in a joint statement.

'Depending on the outcome (of the meeting with Yar'Adua), the leaders will then announce when they will begin to hand over the arms and munitions in their possession to the federal government,' the statement said.

Nigeria's chief of defense staff, Air Chief Marshall Paul Dike, said the security forces would observe a cease-fire and respect all the terms of the amnesty. But he warned the army would respond if attacked."

The four groups are from the states of Rivers and Bayelsa and all have ties to MEND, the umbrella militant organization. Meanwhile, Dulue Mbachu at Bloomberg reports that MEND said it had blown up an oil well in Shell’s Afremo offshore field hours after the amnesty offer made by President Yar'Adua. The attack was

"in response to 'a punitive' raid by the military on Agbeti community in Delta state, Jomo Gbomo, the spokesman for the group, also known as MEND, said in an e-mailed statement today."

The FT has a cool interactive map of the Niger Delta and its key oil and gas infrastructure here:



9. BRAZIL'S CENTRAL BANK CUTS FORECAST FOR 2009 GDP TO 0.8%, UNEMPLOYMENT FALLS SLIGHTLY

Andre Soliani and Iuri Dantas at Bloomberg report that Brazil's central bank cut its forecast for GDP growth in 2009 to 0.8% from 1.2%.

"'Consumption, which accounts for the bulk of aggregate demand, is relatively resilient,' policy makers said in a quarterly report released today. 'Monetary policy, without hurting the commitment to the inflation target, and fiscal policy tend to help the recovery of economic activity.'"

The national statistics agency announced yesterday that the unemployment rate in the six main metropolitan regions fell in May to 8.8% from 8.9%.

10. PDVSA TO ISSUE $3 BILLION IN DOLLAR DENOMINATED BONDS TO COVER DEBTS

Dulue Mbachu at Bloomberg reported yesterday that PdVSA will sell as much as $3 billion in dollar denominated zero-coupon bonds to cover its obligations, per a statement by central bank President Nelson Merentes.

"No investment bank from outside Venezuela is involved in the bond placement, Merentes said. Local investors will be able to buy the bonds at the official exchange rate of 2.15 bolivars per dollar ... .

Buyers will only be able to trade the bonds in the local market, according to the company statement. The minimum purchase is $2,000 per investor."

11. US PERSONAL INCOME UP 1.4% IN MAY FROM APRIL, PERSONAL SAVINGS AT HIGHEST RATE SINCE DEC 93

Jeff Bater at the Wall Street Journal reports that personal income rose by a seasonally-adjusted rate of 1.4% in May from April, per the Commerce Department.

"Disposable personal income in May--income after taxes--jumped 1.6%, driven by the aid package President Barack Obama signed in February to spur the economy. Disposable income rose 1.3% during April.

Personal saving as a percentage of disposable personal income was 6.9% in May, the Commerce Department said. It was 5.6% in April and 4.3% in March.

The 6.9% rate was the largest since 7.6% in December 1993."

The price index for personal consumption expenditures excluding food and energy rose by 1.8% in May year over year. Core PCE climbed 0.1% in May from April.

12. INTERACTIVE TIME LINES OF FINANCIAL CRISIS FROM THE NY FED

The NY Fed published a useful interactive time line of the financiaL crisis and the international response. It also published one for the US. (h/t James Hamilton at Econobrowser.)

Daily Sources 3/3

1. Eurointelligence reports that according to a story in El Pais the director of the western hemisphere department of the IMF--Nicolás Eyzaguirre--at a conference in Oporto said that the organization would revise its global economic growth numbers downward shortly. The current forecast is 0.5% growth, the revised number may well be negative.

2. Greg Quinn at Bloomberg reports that the Bank of Canada reduce its benchmark rate by 0.5% to 0.5% today.

"'The Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing,' the Ottawa-based central bank said in a statement. Details of how such a plan would be used will be released in April with a new economic forecast, the bank said"

3. Joshua Gallu at Bloomberg reports that Swiss GDP contracted by 0.3% in the fourth quarter from the third. "Exports fell 8.1% and investment declined 3.1%."

4. Peter Baker at the New York Times reports that Russian President Medvedev told Interfax that Moscow is "'working very closely with our U.S. colleagues on the issue of Iran’s nuclear program,' but not in the context of the American missile defense plan." Medvedev, who was in Spain, was quoted as saying:

"No one links these issues to any exchange, especially on the Iran issue. What we are getting from our US partners shows at least one thing: Our US partners are ready to discuss the issue. It’s good, because several months ago we were getting different signals—-that the decision has been made, there is nothing to speak about, that we have done everything as we have decided."

5. Mark Landler at the New York Times reports that Secretary of State Clinton said today that the Obama Administration will send two senior officials to Damascus to begin discussions with Syrian President Bashar al-Assad.

"'We don’t engage in discussions for the sake of having conversations,' Mrs. Clinton said, after a meeting with the Israeli foreign minister, Tzipi Livni. 'There has to be a purpose to them, there has to be some benefit accruing to the United State and our allies.'

The officials are Daniel Shapiro, who oversees Middle East issues at the National Security Council, and Jeffrey D. Feltman, the acting assistant secretary of state for Near East affairs. Mr. Feltman is a former ambassador to Lebanon, while Mr. Shapiro advised the Obama campaign on the region."

6. Barak Ravid at Haaretz reports that Israel has drawn up a set of "red lines" it will present to the Obama Administration regarding its potential talks with Tehran.

"1. Any dialogue must be both preceded by and accompanied by harsher sanctions against Iran, both within the framework of the UN Security Council and outside it. Otherwise, the talks are liable to be perceived by both Iran and the international community as acceptance of Iran's nuclear program.

2. Before the dialogue begins, the US should formulate an action plan with Russia, China, France, Germany and Britain regarding what to do if the talks fail. Specifically, there must be an agreement that the talks' failure will prompt extremely harsh international sanctions on Iran.

3. A time limit must be set for the talks, to prevent Iran from merely buying time to complete its nuclear development. The talks should also be defined as a 'one-time opportunity' for Tehran.

4. Timing is critical, and the US should consider whether it makes sense to begin the talks before Iran's presidential election in June."

Advice, of course, is one thing ... "red lines?" The strange news about the mode of advice coming from Israel is fairly reminiscent of the story in January about then-Prime Minister Olmert calling up then-President Bush to put the kibosh on US efforts at the UN regarding Gaza (see Daily Sources 1/13 #9.) Meanwhile, Glenn Kessler at the Washington Post reports that Secretary Clinton expressed doubts about the likelihood of talks with Iran working out in a private meeting with the foreign minister of the UAE.

"Clinton 'said she is doubtful that Iran will respond to any kind of engagement and opening the hand out and reaching out to them,' said a senior State Department official, who requested anonymity because he was describing a closed-door conversation."

Though I think it is wise to regard the potential of talks of Iran as particularly compelling, the repeated suggestion on the part of Israeli leadership that they are driving US policy is extremely unhelpful. James Dobbins has an opinion piece in the Washington Post which makes the point: To Talk With Iran, Stop Not Talking. "James Dobbins was the Bush administration's first special envoy for Afghanistan, in which capacity he worked with Iranian officials in late 2001 to help form a successor regime to the Taliban in Kabul."

"The time for exchanges of presidential correspondence and even face-to-face meetings may come, but that is not where to begin. Dropping the barriers to routine diplomatic exchanges between responsible officials speaking on the basis of existing policy is the easiest, lowest-risk means of crossing the threshold from not talking to talking. It also offers the possibility of getting the dialogue started now, while delaying higher-visibility, higher-risk initiatives until after the Iranian election. "

Worth reading in full.

7. Ladane Nasseri at Bloomberg reports that Iranian oil minister Gholamhossein Nozari OPEC will arrive at a "solution" to boosting oil prices at the March 15 meeting, but that it is unlikely to cut production further. Tehran is traditionally a price hawk, continually calling publicly for price increases (even while almost always being the largest cheater on the supply allocation.) Meanwhile, Karyn Peterson and Margot Habiby at Bloomberg report that a survey by the wire service shows that OPEC reduced its exports by 770 kb/d to 27.775 mb/d in February from January, or about 2.7%."Members with output quotas, all except Iraq, pumped 25.390 mb/d, 545 kb/d more than their target of 24.845 mb/d."

8. The Oil & Gas Journal reports that Islamabad is considering imports of Qatari LNG as opposed to Iranian natural gas imports via the proposed Iran-Pakistan-India pipeline. All sides have been arguing about price for years now and the question of price is complicated by arguments within the Iranian parliament over how best to utilize their natural gas resources. I also believe that nearly all Qatari plans for natural gas production capacity from their reserves are already accounted for, which suggests that perhaps Doha asked for a proposal.

"Pakistan has asked Iran to link the gas price to 70% of the price of crude oil against Iran's demand of 78%. According to Pakistan's ministry of petroleum, LNG imports from Qatar may ultimately be cheaper, as the construction and maintenance of the $7.4 billion pipeline would not be required. ...

Petroleum ministry officials sent the prime minister a proposal for importing LNG from Qatar, which would cost $12/MMbtu tied to an oil price of $100/bbl, while the price of Iranian imported pipeline gas would be $11/MMbtu."

On a Btu basis, $100/b of oil is about $17.24/MMBtu. (78% of that is about $13.45/MMbtu; 70% is about $12.07/MMBtu.) Iran apparently is asking for a price revision one year after commencement of the project and every three years subsequent to that--which seems reasonable enough, but is not the way that contracts are generally done in natural gas.

"According to the petroleum ministry, Iranian gas would be feasible only for power generation; it would be too costly for domestic and commercial gas consumers. According to a comparison based on a $40/bbl oil price, the cost of nuclear-based power generation is 4.1¢/kwh; imported gas would cost 8.8¢/kwh; Thar coal, 8.8¢/kwh; imported coal 9¢/kwh; oil 10¢/kwh; and wind-sourced power 12¢/kwh."

Discussions have been going on since forever--and I have written before that I thought the project has been compromised by earlier events--and I would say this news is further evidence of that. And yet the discussions continue.

9. Maher Chmaytelli and Nicholas Comfort at Bloomberg report that the Libyan National Oil Company has urged that ConocoPhillips, Hess Corp. and Marathon Oil Corp. to lower their share of production from the Waha oil venture.

"National Oil Chairman Shokri Ghanem said last year that Libya sought to cut foreign producers’ oil take to less than 20 percent, from as much as 49 percent. Libya has already revised contracts with Eni SpA, Occidental Petroleum Corp., OMV AG, Petro-Canada and Repsol YPF SA.

'The council agreed that negotiations should continue with the companies that are still procrastinating in approving the contractual changes proposed by National Oil,' the state producer said."

10. Desmond Tutu has an opinion piece in the New York Times excoriating other African leaders--which recently gave Sudan the chair of the Group of 77--for not endorsing the actions of the International Criminal Court which is expected to issue a warrant for the arrest of President Omar Hassan al-Bashir today. Franklin Graham, the CEO of the Billy Graham Evangelistic Association has an opinion piece in the New York Times arguing that the US should urge the UN Security Council to suspend the proceedings of the International Criminal Court to put a stop to the warrant, because to issue the warrant would likely plunge Sudan into further violence. He argues that peace needs to come before justice can be dispensed. I would go further and point out just how unlikely it will be to get Bashir to expect international opinion of him to get better in the future, meaning that his future is now tied to control of Sudan at any cost. Both are worth reading.

11. Jane Perlez and Waqar Gillani at the New York Times reports that militants attacked the Sri Lankan cricket team today. Eight people have been killed, of them six were policemen providing security. I can't imagine that such an act would make any organization all that popular in Pakistan.

12. Barry Ritholtz at the Big Picture carries the Bank of America's graphic Federal Open Market Committee guide:



Won't see a sizable number of voting inflation hawks until 2011.

13. Platts has entered the debate over WTI's suitability as a global or American crude oil pricing benchmark with a proposal for an alternative, the Americas Sour Marker (ASM).

"Following an extensive analysis of crude oil pricing in the US, Platts has concluded that WTI pricing is exhibiting a significant disconnect from global oil economics as well as from US Gulf Coast economics, a condition that is likely to persist. Market signals emanating from WTI create a distorted perception, as prices could be falling in Cushing, Oklahoma, while rising elsewhere or rising in Cushing while falling or stable elsewhere as seen in September when the US prices rose intraday by $25/b.

Platts believes that alternative pricing models can serve to provide better representation of the value of crude oil in the broader Americas markets. It is proposing to offer an alternative formed by the most competitive of four crude oil streams, Mars, Poseidon, Southern Green Canyon and Thunder Horse. These four crudes would form the Americas Sour Marker."