The week's top news in world financial markets from Maximus Capital

  • 2010-01-27

USA

Federal Reserve policy makers are considering adopting a new benchmark interest rate to replace the one they’ve used for the last two decades. The central bank has been unable to control the federal funds rate since the September 2008 bankruptcy of Lehman Brothers Holdings Inc., when it began flooding financial markets with $1 trillion to prevent the economy from collapsing. Officials, who start a two-day meeting this week, have said they may replace or supplement the fed funds rate with interest paid on excess bank reserves. “One option you might want to consider is that our policy rate is the interest rate on excess reserves and we let the fed funds rate trade with some spread to that,” Richmond Fed President Jeffrey Lacker told reporters in the beginning of January. The central bank needs to have an effective policy rate in place when it starts to raise interest rates from record lows to keep inflation in check.

Euro zone

German business confidence rose more than economists forecast to an 18-month high in January as the global economic recovery boosted exports. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 95.8 from 94.6 in December. That’s the highest since July 2008 and the tenth straight increase. Economists expected a gain to 95.1. The index reached a 26-year low of 82.2 in March last year. Rising foreign sales, fueled by Asian demand, may help offset a slide in domestic spending and ensure Germany’s economy continues to expand. The government said last week it will raise its 2010 growth forecast to 1.5 percent from 1.2 percent even as some of its stimulus measures expire. Europe’s largest economy shrank 5 percent last year.

CIS countries

United Co. Rusal Ltd.  the world’s largest aluminum producer, said it raised HK$17.4 billion ($2.2 billion) in the first initial public offering by a Russian company in Hong Kong. Rusal, controled by billionaire Oleg Deripaska, priced 1.61 billion new shares, equivalent to a 10.6 percent stake, at HK$10.80 each. The offer attracted 229 investors, with Russian state-run Vnesheconombank taking a 3.15 percent stake in the company, or more than a quarter of the new shares, according to Rusal. NR Investments Ltd., the principal investment company of Nathaniel Rothschild, took 0.48 percent and New York hedge-fund manager Paulson & Co. 0.47 percent, it said. The offering, delayed by regulators at least twice, comes less than two months after the Moscow-based company completed Russia’s biggest corporate debt restructuring. Deripaska, chief executive officer of Rusal, also persuaded Hong Kong billionaire Li Ka-shing and Malaysia’s Robert Kuok to invest.

Ukrainian opposition leaderc Viktor Yanukovych, who is ahead in opinion polls to become Ukraine’s next president, said he would seek a compromise with the IMF to unlock a $16.4 billion bailout. Payments on the loan were frozen by the Washington-based International Monetary Fund after the government failed to adopt the 2010 budget and cut spending. The money is needed to finance the budget and pay for Russian natural-gas imports, which amount to more than 50 percent of Ukraine’s total gas needs.

 

Written using materials from Bloomberg and  Reuters Research