ECB chair flags rise in borrowing costs. Just when the Fed chairman Ben Bernanke and US Treasury Secretary Hank Paulson thought they successfully sold the new idea of a firmer dollar (and no more interest rate cuts in the US), along comes the big central bank on the block to blow the plan out of the water. A few musings from European Central Bank chief Jean Claude Trichet about a “possible” increase in borrowing costs next month, and up went the euro and down went the dollar. Commentators say the ECB meeting was divided between doves wanting no increase and hawks wanting a rate rise, now. So the President’s commentary is designed to send a signal that one is coming, but that it depends on the next round of economic news. Mr Trichet said the ECB was “in a state of heightened alertness” and described an increase in borrowing costs as “possible” rather than a certainty. It was a very different situation to the one in London where the Bank of England met, left rates intact and said nothing at all afterwards as new figures showed house prices falling for the fourth month in a row. In Asia, the central banks in Indonesia and the Philippines lifted rates: the Indonesian move came a few days after the Government allowed fuel prices to rise sharply. Other Central Banks are expected to follow the move in the coming week or so as higher oil prices bite across the region. As a result of the ECB comments and the euro’s rise, oil went up by $US5 a barrel after it fell under $US122 a barrel in New York. But Wall Street ignored that and rose 200 points on the back of better than expected May sales figures from discount retailers, but not from full service or specialist chains, and from a fall in jobless claims. — Glenn Dyer
No rise for NZ rates. Across the Tasman a hint of an interest rate cut later this year as the Reserve Bank of New Zealand left its key rate unchanged at 8.25%. That’s despite inflation running at high levels (to peak at 4.7% a year annual rate in September quarter and a 30% rise in oil prices since March). The Governor Allan Bollard said it simply in a monetary policy update: “The outlook for economic activity is now weaker than in our previous Statement (in March)..real household spending – the main driver of economic growth over the past few years – is now projected to contract over the next couple of years.” The central bank said the NZ economy shrank 0.3% in the first quarter as domestic demand slowed. First-quarter retail spending fell 1.2%, the biggest drop in 11 years, and employment declined the most since 1989. Economic growth will average 1.6% a year in the three years to March 2011; household spending growth will be flat and employment will decline for the next three years. And that’s bad news for those Australian companies with significant operations across the seas: the big four banks, Woolworths, Harvey Norman, Caltex, Fairfax and APN News and Media, are among the best known. For these Australian companies it will add to the coming pressures from the domestic slowdown here being engineered by the Reserve Bank. Australian share prices are starting to look a little “toppy”. — Glenn Dyer
Facebook’s growing pains. Fortune last month reported on the trouble facing one of the darlings of Web 2.0 – Mark Zuckerberg’s Facebook. Facebook was launched in 2004 and by last October was valued at US$15 billion (after Microsoft paid US$246 million for a 1.6% stake). Since then, Facebook has encountered some growing pains. US visitors have leveled off (although the number of international users continues to grow), while the company has been criticized for its controversial Beacon product from privacy groups and users. Most worrying, though, is how Facebook will be able to vindicate its lofty valuation. As Fortune noted last year, “Facebook only generated US$145 million in revenue … much of it from an ad deal with [part owner] Microsoft.” The reasonable question is – how can Facebook make money? While extremely popular, Facebook isn’t Google. The elegance of Google is that it generates virtually all of its revenue from AdWords, a business which is virtually part of its core function — showing users relevant webpages. By contrast, Facebook, like a traditional media company, needs to generate revenue as a by-play from its core business of social networking. The problem for Facebook, advertising on webpages has been notoriously unsuccessful, generating weak “clickthroughs” and poor returns. Facebook may be one of the “fastest rising dotcoms in history”, but unless it can work out a way to generate significant revenue, the US$15 billion price tag will remain a little rich. — Adam Schwab
Quakes causes drop in Chinese consumer sales. Sony Corp. and Sharp Corp. said sales in China may slow after the country’s deadliest earthquake in 32 years sent the nation into mourning, discouraging purchases. Sony’s camera sales are running 20 percent below estimates and it has scaled back projections for Bravia TVs, Haruyasu Nagata, the Tokyo-based company’s China president, said three weeks after the earthquake that killed more than 69,000 people. “This kind of mixed feeling is creating difficulties for us to do business in June and July,” Nagata said in an interview in Shanghai on June 3. China declared three days of national mourning in the wake of the 7.9-magnitude earthquake in Sichuan province. The May 12 temblor, the most powerful in 58 years, toppled 1.5 million houses, buried entire villages and displaced more than 15 million people. “Chinese people are going through a soul-searching period after the earthquake and that may have a cooling effect,” said Andy Xie, founder of Rosetta Stone Advisors in Shanghai and formerly Morgan Stanley’s chief Asia economist in Hong Kong. Osaka-based Sharp Corp., Japan’s biggest maker of liquid- crystal displays, also said it expects sales to be affected. “The entire nation is now in a mourning mood,” said Miyuki Nakayama, a Tokyo-based spokeswoman for the company. — Bloomberg
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Boom in food prices raises appeal of farmland as an investment. Huge investment funds have already poured hundreds of billions of dollars into booming financial markets for commodities like wheat, corn and soybeans. But a few big private investors are starting to make bolder and longer-term bets that the world’s need for food will greatly increase — by buying farmland, fertilizer, grain elevators and shipping equipment. One has bought several ethanol plants, Canadian farmland and enough storage space in the Midwest to hold millions of bushels of grain. Another is buying more than five dozen grain elevators, nearly that many fertilizer distribution outlets and a fleet of barges and ships. And three institutional investors, including the giant BlackRock fund group in New York, are separately planning to invest hundreds of millions of dollars in agriculture, chiefly farmland, from sub-Saharan Africa to the English countryside. — International Herald Tribune