Financial Teasers 17 April 08

Top Stories

Rice rockets as grain prices rise
Rice futures in Chicago climbed for a fourth day as Turkey and the Philippines sought to buy the grain and global supplies dwindled. Wheat, corn and soybean prices also rose. "Compared with other grains, rice is the latest one to join the commodities rally," said Hiroyuki Kikukawa, an analyst at IDO Securities in Tokyo. ClipSyndicate/Bloomberg (17 Apr.) , Bloomberg (17 Apr.)

Australia's years of drought key to rice shortage: Six years of drought have dried up 98% of Australia's rice crop. The drought's effect on rice has produced the greatest impact on the rest of the world and is a key factor in skyrocketing prices. Many scientists believe it is an early signs that global warming is beginning to reduce food production. International Herald Tribune (17 Apr.)

Welch calls into question Immelt's credibility
General Electric Co. chief executive Jeffrey Immelt has to repair his credibility after the company surprised investors by cutting its profit forecast for the year, former CEO Jack Welch said. GE said financial market turmoil cut the value of investments and hurt end-of-quarter deals. The shares fell the most in more than two decades on April 11, the day the lower profit target was announced. "The company has to convince investors that something is going to change," JPMorgan Chase analyst Steve Tusa said. The New York Times (17 Apr.) , Bloomberg (16 Apr.)

Worries of gamed Libor rate may raise money-market rates
Money-market rates that began surging last year as the U.S. housing slump worsened may jump again on concerns British banks may be deliberately understating their borrowing costs. The British Bankers' Association threatened to ban members that give misleading quotes to rig the daily Libor average of rates at which the banks lend to each other. The Bank for International Settlements said in March some lenders may be manipulating the Libor fixing process to prevent their borrowing costs from rising. Bloomberg (17 Apr.)

Investment banks seeking replacement for Libor: Investment banks are exploring replacements to a key benchmark for short-term interest rates, the London interbank offered rate, amid frustration with the way that the index is constructed. Libor is used for settlement of interest rate contracts on many of the world's futures and options exchanges. The Wall Street Journal (subscription required) (17 Apr.) , Financial Times (16 Apr.)

U.K. works on plan to ease mortgage funding shortage
The British Treasury is understood to be completing a plan whereby the Bank of England would allow banks to trade mortgage-backed assets for government bonds instead of cash. The goal is to get the credit markets moving and lenders would be able to use the bonds as collateral for loans between themselves. "We have taken and will continue to take measures to try to ease the liquidity pressures in the financial sectors," said Sir John Gieve, deputy governor of the central bank. The Times (London) (17 Apr.) , Telegraph (London) (16 Apr.)

Report: Freddie Mac to ease conditions for big home loans
Freddie Mac is expected to announce a deal with Wells Fargo & Co., JPMorgan Chase & Co., and Citigroup Inc. that would make more funds available for big home loans. The agreement would open up loans between $417,000 -- the normal limit on mortgages that can be sold to Freddie Mac and Fannie Mae -- and the new $729,750 limit set by the economic stimulus package in February, the Wall Street Journal reported. Reuters (17 Apr.)

U.S. trends likely to push corn prices higher
Record U.S. corn prices, up more than 50% from a year ago, are likely to rise even further. American farmers are off to a slow start planting this season's crop due to rains and soggy fields. Farmers have switched more land from corn to high-priced soybeans. Reuters (16 Apr.)
Top debt rating for Brazil seems less certainBrazil has seen so many improvements in its macroeconomic performance in recent years that investors thought an investment grade bond rating would come soon. Analysts and ratings agencies are concerned that Latin America's largest economy may not be able to sustain its pace of GDP growth, and that it will struggle with rising inflation. "The country still has a relatively modest growth record," said Shelly Shetty, lead analyst on Brazil at Fitch Ratings. "Are we confident the volatility in Brazil's growth has been reduced? That's what we're looking at." Financial Times (16 Apr.)

Market Activity

Exporters, resources lead Asian stock markets increase
Gains on Wall Street spread to Asian stock markets Thursday. Tokyo shares gained on confidence in exporters such as Honda Motor Co. Resource companies in Sydney and Hong Kong rose amid talk that mining giant BHP Billiton could renew its takeover effort of rival Rio Tinto. Chinese stocks remained volatile after the central bank moved to cool inflation by increasing reserve requirements on banks. MarketWatch (17 Apr.)

Results from JPMorgan, Wells Fargo draw investor backing
In this financial climate, it seems investors are happy with any news short of complete disaster. JPMorgan Chase and Wells Fargo recently reported profit drops, which triggered a rally for troubled bank stocks. Analysts and investors alike seem somewhat soothed by news that two of the strongest U.S. banks remain well-capitalized and profitable despite the continuing crisis. ClipSyndicate/Bloomberg (16 Apr.) , The Wall Street Journal (subscription required) (17 Apr.)

Bottom call by bank CEOs doesn't sway investors
The heads of JPMorgan Chase & Co., Lehman Brothers Holdings Inc., and Goldman Sachs Group Inc. all say the worst days are over for banks. Investors have shown they don't believe it. Total write-downs were about $97 billion at the end of December, then surged to $181 billion by the end of February. Until banks disclose the full extent of their write-downs and credit losses "people are going to sit on the sidelines," said Rose Grant, managing director of Eastern Investment Advisors. ClipSyndicate/Bloomberg (16 Apr.) , Bloomberg (16 Apr.)

Bond traders disappearing in poor-performing Colombia
Colombian brokerages are pulling back from bond trading as the country has become the worst performer of Latin America's major debt markets. Colombia's benchmark bonds dropped 17% in the past two years. The country's five biggest bond trading firms have slashed the number of traders they employ by 80% in that time. Bloomberg (17 Apr.)

Rio Tinto shares rise on talk of higher BHP offer
Shares in Rio Tinto rose to a four-month high in Sydney Thursday on rumors that mining rival BHP Billiton may increase its $147 billion hostile bid. Rio Tinto in February rejected a sweetened all-stock offer by Melbourne-based Billiton, saying the bid undervalued the mines and growth prospects of the world's third-largest mining company. ClipSyndicate/Bloomberg (17 Apr.) , The Sydney Morning Herald (17 Apr.)

Economics

Fed's Beige Book shows inflation up, growth rate down
New data from the U.S. Federal Reserve Bank show a worrying increase in inflation along with a growing economic slowdown. The downbeat Beige Book summary of regional economic conditions said manufacturers planned to raise selling prices to recover increases in their raw material costs. Analysts viewed the report as supporting another Fed interest rate cut on April 30. Reuters (16 Apr.)

U.S. retailers cutting back -- on financial data
Along with grim economic times, American retailers are revealing less of the financial information they have long shared with investors. This year, Starbucks, CVS Caremark, Macy's, and Jos. A. Bank have stopped the standard industry practice of reporting monthly sales and estimating quarterly profit. The stores say practices are outdated and encourage short-term decision-making. Others suspect the real reason is to avoid issuing embarrassing numbers that can drive down a retailer's stock price.The New York Times (17 Apr.)

Global banking regulators look to toughen standards
The world's top banking regulators moved to toughen rules that the credit crisis exposed as too lax. The proposals from the Basel Committee on Banking Supervision, which sets global standards for banking regulation, aim to patch weaknesses in the global regulatory structure. The committee said the measures would push banks to establish risk-management methods and improve procedures for valuing and disclosing assets. Financial Times (17 Apr.) , The Wall Street Journal (subscription required) (17 Apr.) , International Herald Tribune/Reuters (16 Apr.)

China's central bank boosts capital reserve ratio to 16%
China's central bank announced that it will raise the amount of money lenders are required to hold in reserve by half a percentage point, to a record 16%. The People's Bank of China has raised the ratio three times this year and 10 times last year. Goldman Sachs says the increase demonstrates the central bank's monetary tightening strategy, which the investment bank maintains will not be enough to control expansion or inflation. People's Daily (China) (17 Apr.)

Financial Products

Claymore launches first solar exchange traded fund
The Claymore/MAC Global Solar Energy Index fund, which tracks 25 mostly foreign companies that make equipment, produce materials or provide services related to solar energy, launched earlier this week. Index Universe notes that only about 200 publicly traded companies have solar energy interests. U.S. News & World Report (15 Apr.)

Global banking regulators look to toughen standards
The world's top banking regulators moved to toughen rules that the credit crisis exposed as too lax. The proposals from the Basel Committee on Banking Supervision, which sets global standards for banking regulation, aim to patch weaknesses in the global regulatory structure. The committee said the measures would push banks to establish risk-management methods and improve procedures for valuing and disclosing assets. Financial Times (17 Apr.) , The Wall Street Journal (subscription required) (17 Apr.) , International Herald Tribune/Reuters (16 Apr.)

China's central bank boosts capital reserve ratio to 16%
China's central bank announced that it will raise the amount of money lenders are required to hold in reserve by half a percentage point, to a record 16%. The People's Bank of China has raised the ratio three times this year and 10 times last year. Goldman Sachs says the increase demonstrates the central bank's monetary tightening strategy, which the investment bank maintains will not be enough to control expansion or inflation. People's Daily (China) (17 Apr.)

Financial Products

Claymore launches first solar exchange traded fund
The Claymore/MAC Global Solar Energy Index fund, which tracks 25 mostly foreign companies that make equipment, produce materials or provide services related to solar energy, launched earlier this week. Index Universe notes that only about 200 publicly traded companies have solar energy interests. U.S. News & World Report (15 Apr.)