North Korea shells a South Korean island, killing one South Korean marine and wounding several others; South Korea has scrambled fighter jets to the area and raised its military alert to the highest level. South Korean president Lee Myung Bak has convened an emergency cabinet meeting. The North Korean attack comes as South Korea’s annual Hoguk military exercises are under way (according to the NYT, the exercise has been sharply criticized by Pyongyang as “simulating an invasion of the North” and “a means to provoke a war.”). Low-level border skirmishes across the demilitarized zone and particularly the NLL are not uncommon even at the scale of artillery fire. Stratfor/WSJ/NYT.
China – Shanghai falls ~2% on worries about bank lending – China left yields on a 1-year bill auction flat W/W, providing some relief to investors who felt the country would aggressively push through higher rates. Meanwhile, the country today said it would increase the supply of agriculture products and sell more reserves of grains and oil to help cool price increases (this is seen as a more desirable technique to cool inflation than tighter monetary policy). However, benchmark lending rates rose to the highest level since Oct and there are reports that Chinese banks have achieved their full lending quota for ’10 already. Meanwhile, there remains a lot of concern that officials will have to ratchet up their inflation-fighting policies (Bloomberg headline today: “China inflation may prove too hot for price controls”) Reuters/WSJ/Bloomberg
Ireland – the latest – there wasn’t a ton of incremental news out overnight. PM Cowen has defied calls to step down, saying he will stay on until Parliament passes a budget, at which time he will dissolve Parliament and call elections (the expectation is that elections will be called sometime in late Jan). Cowen is set to unveil a 4-year austerity program on Wed and will present a budget to Parliament on Dec 7. There is the risk that his budget fails to pass in Dec, a possibility that became very real when two independent members of Parliament on Mon said they would withhold their support. Dublin continues to resist calls to raise its corporate income tax, although will unveil several other measures. Unions are warning the government that it risks unrest w/steep spending cuts and have organized a march on Nov 27. Reuters/FT/WSJ