The Federal Reserve nudged a key
U.S. interest rate higher, signaling modest concern about economic overheating, but left
its options open as to whether more rate rises might be needed in the future.
Confirming market expectations, the Fed said it had raised its target
for the federal funds rate which determines borrowing costs throughout the U.S. economy
and beyond, by a quarter-percentage point to 5 per cent. It left the less frequently used
discount rate unchanged at 4.5 per cent.
But in a surprise to financial markets, the Fed said it had dropped its
leaning toward higher rates in the future and instead adopted a neutral stance, indicating
that it is keeping an open mind about its future strategy.
Markets had widely expected the Fed to stick with its so-called
tightening bias, fearing the central bank would follow up this increase in borrowing costs
with more rises later this year designed to cool off the U.S. economy.
"Owing to the uncertain resolution of the balance of conflicting
forces in the economy going forward, the POMC (Federal Open Market Committee) has chosen
to adopt a directive that includes no predilection about near-term policy action,"
Financial markets reacted with relief that the Fed had not signaled a
greater willingness to raise rates more aggressively in the future, and analysts said the
chances of another rate hike at the FOMC's next meeting on August 24 had declined.
"This suggests that the Fed has no preconceived notion what it
will do next," said Jim Glassman, senior economist at Chase Securities Inc in New
York. "The odds of another rate hike in August have been reduced. "
Inflation-sensitive bond prices rose modestly, while U.S. stocks
rallied, wiping out earlier losses.
Higher interest rates tend to hurt stock prices by making bonds a
relatively more attractive place for investors to put their money.
Mergers & Acquisition
VodafoneAirTouch: Leading British and U.S. mobile phone
operators Vodafone and AirTouch completed their much trumpeted merger, creating the
world's biggest mobile telephone outfit and the second largest quoted company in London.
Frontier Corp said it would meet with Qwest
Communications International Inc to discuss the long distance phone company's $12.3
billion takeover offer, while also maintaining its existing $11.4 billion merger agreement
with Global Crossing Ltd.
BTAT&T: British Telecommunications Plc and AT&T
Corp have received U.S. antitrust clearance for their $10 billion global joint venture,
putting the deal on track for final regulatory approval by the autumn.
Internet venture capital company CMGI Inc
will buy a majority stake in Compaq Computer Corp's AltaVista Internet search engine
business for $2.3 billion in stock and debt, CMGI and Compaq said. In exchange, Compaq
will acquire an equity stake in CMGI, as well as a $220 three-year note from the Internet
SuezNalco: French utilities giant Suez Lyonnaise des Eaux
SA announced that it will acquire Nalco Chemical Co, an American-water-treatment group,
for $4.1 billion.
RenaultZIL: France's auto giant Renault signed a deal with
Russia's ZIL truck maker, laying the groundwork for a joint venture to produce and sell
trucks and engines in Russia.
SwissairSAA: Swissair bought a 20 per cent stake in South
African Airways (SAA) in a deal South Africa's new government hopes will lift efficiency
at Africa's largest airline and prove it is serious about speeding up
Lucent Technologies Inc. the world's No 1
telecommunications equipment maker, said it will buy start-up Nexabit Networks Inc for
about $900 million in stock, moving to expand its offerings of highspeed networking
British Aerospace Plc said it had received a
green light from the European Commission on its acquisition of the Marconi defence arm of
Britain's General Electric Co Plc.
Korean inflation rate drops to 34-year low
The appreciation of the won currency and falling global prices of raw
materials have helped South Korea achieve its lowest six-month inflation rate in 34 years,
the finance ministry said.
A ministry official said the inflation rate, gauged by the consumer
price index (CPI), was an average of 0.6 per cent for the first six month of this year,
the lowest six-month figure since 1965 when South Korea began to keep records on
All Daewoo CEOs resign en masse
Chief executives of South Korea's Daewoo Group resigned en masse after
the conglomerate's planned business swap deal with the rival Samsung Group faltered.
The resignation of 50 Daewoo chief executives strengthened speculation
that Daewoo, the country's second largest conglomerate, had been plagued by chronic cash
S. Korea lifts 21-yearold ban on Japanese goods
South Korea lifted a 21year-old ban on selected made-in-Japan products,
triggering fears of an onslaught by Japanese cars and home electronics on the once-closed
The ministry of commerce industry and energy said the ban, introduced
in 1978 to shield the local market from competitive Japanese products, had been terminated
Initially, scores of Japanese products were barred from entering South
Korea, but the list gradually dwindled to 16 items, including cars, cameras, television
sets, video cassette recorders and rice cookers.
But South Korea's aversion to Japanese products goes beyond the realms
of trade competition. For decades there have been restrictions on Tokyo's exports amid
lingering resentment over Japan's 35-year colonial rule here.
While some Japanese cars already cruise the roads of Seoul they were
all produced in the United States and elsewhere. Electronics goods made in Japan have also
been imported widely through illegal channels.
Economists said Japanese players would not immediately flood the market
here as Korean products remained price-competitive. But they warned the market share of
Japanese goods would grow rapidly in five years.
Ironically, Asia's economic upheaval helped Seoul advance its
liberalisation timetable. South Korea's trade deficit with Japan shrank dramatically to
$4.6 billion last year from $13 billion a year ago.
The researcher said South Korean consumers would be given a broader
choice and benefit from improved aftersales services and high secondhand prices.
"Even if the yen falls to make Japanese products cheaper, Korean
products will maintain an edge," he added.
The state-run Korea Trade-Investment Promotion Agency also ruled out
any immediate shock, saying Japanese manufacturers needed a year to establish sales and
Tehran takes steps to ease forex controls
Iran has authorised state banks to exchange hard currency gained from
exports at an official floating rate close to the currency's black market value,
The decision is the latest move by the government to ease strict
foreign exchange controls which have been widely blamed for stagnating non-oil exports.
Mojtaba Khosrowtaj, head of the state Export Promotion Centre, said
that a top government economic body had authorised banks to exchange the hard currency
income of exporters at the floating rate set a day earlier on the Tehran Stock Exchange,
the daily Hamshahri reported.
The exporters had earlier been only allowed to sell their hard cash
income directly to importers at the bourse, a process which often led to delays of several
Russian rouble steady
The Russian rouble held steady as the central bank launched a new more
open trading session, replacing a previous special session that restricted foreign
The new session, on which the central bank will continue to base its
official rate, allows access to any buyers of hard currency after being previously
restricted to the central bank and companies importing goods.
HK bourses wrangle over valuations
The first bout of wrangling over valuations of the Hong Kong stock and
futures exchanges has erupted with the stock exchange firmly rejecting merger terms
proposed by the futures exchange.
Morgan Stanley Asia Ltd. adviser to the Hong Kong Futures Exchange Ltd.
has valued the Stock Exchange of Hong Kong at $614 million and The Hong Kong Futures
Exchange at $563 million, a source said.
The stock exchange rejected that valuation.
French industry survey boosts EU growth hopes
A sharp improvement in French industrial confidence reported reinforced
expectations of a steady recovery in economic growth across the euro zone, analysts said.
A closely watched survey by France's national statistics institute,
INSEE, said industry leaders' personal outlook improved to 14 in June from seven in May,
while the score for their general outlook was minus nine compared to minus 18.
"This is the clearest pointer so far to industrial recovery in
Euroland," said Gwyn Hacche of HSBC Economics. "We expect strong industrial
recovery in the second half of the year."
A positive figure shows the margin by which the percentage of
respondents reporting an improvement outnumbers the percentage saying things have
Although the surprisingly strong headline figures concealed weaker
foreign demand and orders, it followed similarly bullish business confidence readings
recently from Germany and Belgium.
Orange unveils roaming agreement up Swisscom
Orange Communications SA launched Switzerland's third mobile telecoms
network, and outraged rival diAX by announcing a roaming agreement with Swisscom by which
it covers 90 per cent of the country.
Without the Swisscom deal, which Orange called nonexclusive and
temporary, the company would have covered just over 50 per cent of the country's
Orange will invest 1.4 billion Swiss francs ($910 million) by 2008, of
which 1.2 billion will come before 2001. Some 300 million of this has already been
invested, officials said.
Toyota may build new production line in U.S.
Toyota Motor Corp will likely build a new production line or plant in
the United States to cope with robust demand, the company's new president Fujio Cho said.
Japan's Mr Yen to take a bow
Japan's to financial diplomat Eisuke Sakakibara will exit the stage of
global finance shortly as part of a sweeping personnel reshuffle as politicians seek a
clean slate at the powerful Finance Ministry.
A senior government source said that the highprofile Sakakibara known
as "Mr Yen" for his influence in currency markets, will be replaced by his
deputy, Haruhiko Kuroda, in an annual reshuffle expected around July 8.
Japan may tighten grip on banks
Japan plans to tighten control on major banks if their capital health
fails to recover despite an injection of public money, a leading business daily said.
The government pumped some 7.5 trillion yen ($61 billion) in public
funds into 15 major Japanese commercial banks in March in a bid to help clean up their bad
loans, in exchange for preferred stock.
Now it is looking to convert the preferred stock into common stock,
which would give the government voting rights in management decisions, the Nihon Keizai
Shimbun newspaper said.
A government watchdog on ailing financial institutions will implement
the stock swap for a recipient bank if its capital-to-asset ratio drops below half the
officially required level, the report said.
The watchdog, the Financial Reconstruction Commission (FRC), will
formally announce the plan by the end of this month, the daily said.
Apec economies urged to speed up liberalization
Asia-Pacific business leaders told the 21 Apec member economies to
speed up liberalisation or their commitment to free trade would be thrown into doubt.
"We will certainly be making very strong recommendations that we
believe the individual action plans have got to be improved substantially, " Philip
Burdon, New Zealand chairman of the Apec Business Advisory Council (ABAC), told a business
Apec economies, who are working to eliminate tariff and non-tariff
barriers, agreed in Indonesia in 1994 to create a region of free and open trade and
investment no later than 2010 for developed economies and 2020 for developing economies.
Canada unveils major financial reforms
Canada unveiled a sweeping package of bank reforms to better arm the
nation's financial sector for global competition, but didn't give the banks everything
Canadian Finance Minister Paul Martin, responding to years of
complaints from the financial services industry that ageing regulations were hampering
their competitiveness loosened regulations governing mergers, ownership limits and
BCCI creditors may get $500m more
Liquidators of Bank of Credit and Commerce said they hoped to release
estimated provisions of over $500 million to creditors as any future stigma cases
proceeding further looked unlikely.
The decision followed dismissal by a London High Court judge of five
test cases involving former employees of the failed bank claiming they were
"stigmatised" when seeking further employment as a result of their involvement
The cases were looked at with the expectation that the decisions on
those would provide guidelines to deal with all other cases.
The judge's decision, however, underlined "the extreme
difficulties any former employee would have in proving that they suffered financial loss
as a result of the events surrounding BCCI's collapse," the liquidators said.
French banks return to takeover ring
Talks between the Bank of France and three leading French banks
involved in a long-running merger wrangle collapsed in the early hours, leaving the
markets to decide the fate of the French banking industry.
The central bank said talks between senior executives of BNP Societe
Generale and Paribas, and Bank of France Governor JeanClaude Trichet were unable to reach
a compromise leaving all the bids open.
Coke sees steep fall in earnings
CocaCola Co, hurt by a ban on its beverages this month in France and
Belgium, said it expected second-quarter case volume to decline by one to two per cent
worldwide and six to seven per cent in Europe.
The soft drinks giant said that second-qualter earnings per share would
suffer because of lower sales in key markets as a result of "difficult" economic
conditions, induding a temporary ban in France and Belgium after a health scare.