Friday, October 24, 2008

Roundup: October 24


OPEC will cut oil production by 1.5mn bbl/day, with most of the cuts coming from Saudi Arabia -- or so they agreed today in Vienna. Whether the cut in production will actually happen is anyone's guess - and whether it will be enough to stem the falling price of crude in the face of fears about a global depression is another.

US equity markets opened orderly today, though equity futures were limit down before the open after Sony warned on the high yen (leading the Nikkei down 9.6% and the Kospi down 10.6%), John Lewis (a major UK retailer) sales came in down 7.6% YoY for last week, Volvo missed targets, and Daimler, Renault, and Peugeot warned. GM and Chrysler have announced further cuts in capacity; Credit Suisse posted a SFR1.26bn loss for the quarter, and Swedbank is raising capital -- the Nordic banks are heavily exposed to the stressed Baltic states. In a beautiful anomaly, interest rate swaps were trading negative yesterday, as banks scrambled to buy hedges in a market dislocated by the failure of Lehman. The recession is here, if there had been any doubt -- the one bright spot was US September existing homes sales, up 5.5%, but tracking a period before the Lehman collapse and subsequent dislocation in credit markets.

CDS on sovereign debt for Ukraine (26%), Kazakhstan, Russia, Latvia, Indonesia, Argentina (38%), and Pakistan (32%) all traded above 1000bp, raising the spectre of a sovereign default. CDS on a number of European sovereigns were trading above 100bp (Italy, Greece, Portugal, and Ireland), with most of the largest industrial economies' debt trading in the range of healthy or slightly stressed corporates. Russia has halted trading on the Micex until Tuesday after a more than 14% decline in shares, and the ruble has fallen to a 2-year low against other currencies. This week's Economist reviews the Eastern European economies.

PNC will buy National City, among the largest US regional banks, for about $5.2bn. The taxpayer will be funding the deal to the tune of $7.7bn of asset purchases under the TARP. PNC is valuing the target's loan portfolio at 82.5 cents on the dollar.

Information Processing laments the lack of intellectual honesty among academic economists.

The Economist claims that sales of Halloween masks predict the Presidential election (Obama is in the lead).


Kgalema Motlanthe is urging Morgan Tsvangirai not to boycott multiparty talks in Harare on Monday. Tsvangirai's MDC says it will attend the talks. IRIN reports that the military has taken control of the distribution of agricultural inputs, including seed, in Zimbabwe, giving it a powerful new weapon to enforce consent.

Amnesty International is urging China to release Hu Jia, just awarded the Sakharov Prize by the EU.

A new World Bank report highlights the role of restricted access to land in the economic collapse of the West Bank, where GDP has declined by 40% in eight years. Tzipi Livni has announced she will form a government by Sunday or call for new elections, giving ultra-orthodox Shas -- likely a necessary part of any coalition government in Israel -- an ultimatum to strike a deal.

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