ECB to change collateral ... more oil in Brazil ... OPEC to keep pumping ... Ike on the way

"You can't buy the euro as a long-term investment,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities in Tokyo (from BBG this morning) ... funny how quickly things change. Seems like yesterday people were saying the same thing about the dollar. Currencies are broadly stable this morning with the ECB in focus. The expectation is that they'll acknowledge the slowing growth everyone else has been aware of for some months, although I wouldn't hold my breath.

Before the pre-meeting curfew we saw some pretty hawkish statements from the ECBs on the need to protect price stability from the threat of second round/ wage price spirals, and since then there have been reports that theGerman steel workers' union will push for an 8% pay rise ... More interesting will be the potential changes on accepted collateral. If the ECB aren't careful they could end up cutting off the oxygen supply to otherwise distressed banks, effectively tightening policy ... the $ certainly feels like its turned. It is, for the time being, the world's reserve currency and a global liquidity squeeze implies a global dollar shortage. But its moved a long way in a short period of time and today isn't the day to be putting short EUR trades on. This afternoon sees the ADP employment changes, which are supposed to give a heads up on tomorrows payrolls ... but don't ... non-mfg ISM survey out too ...

US equities staged a mini comeback in the last half hour, although still eneded slightly down. Looks like the financials and oils were behind it, but equities are lower in Asia as I write with shipping stocks driving the decline. The Baltic Freight index has been in freefall this past few weeks so there is clearly some catchup going on with the stocks ... I'd be more worried about the shipping supply that's about to hit the market over the next couple of years ...

Petrobras found more oil in its sub-salt layer, this time in the states of Rio grande do Norte and Sergipe. It seems like all they have to do is sink a hole in that part of the world ... there are certainly plenty more announcements to come. Right now, Tupi has an estimated 8bn barrels although the expectation is that recent drilling will firm that up to 10-12bn. An announcement on the Jupiter field is expected this year too. Total estimates for the entire sub-salt structure run to 30bn barrels. The "Brazilian play" stocks - BG, Rep and GALP - will likelycontinue to benefit from this news flow for another few quarters, but not like they did on the original announcements made last year, when the magnitude of what was down there was first glimpsed at. Instead, attention will likely turn to the unprecedented magnitude of likely investment required. Right now, Tupi is expected to be onstream by 2012. Yet when Kashagan was discovered in the Caspian inn 2000 it was expected to be on stream by 2005. We are still wating. The latest estimate is for production to start in 2014, the Kazakhs said this morning (it had been 2013). That's an nine year delay on a project that was supposed to take five years ... incidentally, the original capex expectation was $10-14bn. Now it is $19bn. I will be very surprised indeed if Tupi, the most challenging oil extraction the industry has yet known, will be anywhere near operationaly by the currently scheduled 2012.

Bloomberg report that OPEC (read Saudi Arabia) will ignore pleas from Iran and Venezuela for output cuts in the face of the current price decline. Odd that the Iranians and Venezuelans are already squealing with prices comfortably over $100 - they seem to have gotten used to the extra cash quite quickly. Chaves with his military build up and his pet socialist projects, Amadinijad with his populist (and highly inflationary) economics. One way for them to shore up their finances would be to reduce the huge subsidies on domestic gasoline use, allowing them more oil to export. Gasoline in Iran and Venezuela is something like 40c and 20c per gallon respectively! But they won't. Such a policy would be too sensible, and too painful (the Iranians rioted when gasoline shortages pushed up prices a few years ago and if there's one thing unstable unelected regimes are terrified of it's a people united by anger). As it is they remain, stragely, as uncomfortably beholden to the Saudis as the rest of us.

Meanwhile on the hurricane front, Ike has exploded into a Cat 4 hurricane. Its too early to project exactly where it will make landfall because, unusually, it is still mid Atlantic and some distance from. The weather men hope to be able to make a better guess by the weekend. Before then we'll have a better idea of where Hanna will end up. Currently only a tropical storm, she's expected to make Cat 2 by the weekend although in all likelihood head towards the East Coast of Florida missing the oil installations.