ECB and BoE raise rates to fight inflation

The European Central Bank said it had raised its three leading interest rates by 0.5 percentage points each, delivering a policy tightening it had primed financial markets to expect to combat inflation.

The ECB raised its main refinancing rate to three per cent from 2.50 per cent, meeting market expectations of a tightening in policy to curb inflationary pressures in the euro area.

It also raised its marginal lending rate to four per cent from 3.50 and its deposit rate to two per cent from 1.50 per cent.

The policy tightening came hot on the heels of an announcement from the Bank of England's Monetary Policy Committee that it was raising interest rates for the second time in three months, this time by a quarter point to 5.50 per cent, in a bid to ward off inflationary pressures.

The European Central Bank gave no immediate reasons for the first interest rate rise since it took policy control in January. It said ECB President Wim Duisenberg would explain the reasons for the move at a news conference.

But the way for an interest rate rise has been paved steadily by central bank officials over the last month, since Duisenberg himself made clear at a news conference on October 7 that the ECB was leaning towards a rate hike soon.

At that time, he cited strengthening economic growth, constant acceleration in the rate of expansion of M3 money supply and signs of inflation in some European countries as the reasons which could prompt a move.

With financial markets already so well prepared for the increase the reaction to the actual decision was muted.

Share markets across the euro zone built on moderate gains, but most indices were up less than one per cent.

$140bn Japanese stimulus package by next week

Japan is set to announce a 15 trillion yen ($140 billion) economic stimulus package late next week and policymakers are urging the central bank to be ready to ease monetary policy further if the yen surges again.

Economic Planning Agency chief Taichi Sakaiya, asked on Friday about reports that the package would total 15 trillion yen, told Reuters: "That would be close".

But he said public works and other core fiscal spending in the package would be about six trillion yen—at the low end of expectatons.

It remained unclear how much of that six trillion yen would need to be financed by selling government bonds for a supplementary budget for the fiscal year ending March 31, 2000.

The government must also cover an estimated one trillion yen in tax revenue shortfalls and the Finance Ministry is still deciding the price for a forthcoming sale of shares in Nippon Telegraph and Telephone Corp (NTT), which will cut the government's stake to about 53 per cent from 59 per cent.

Sakaiya said he did not expect the three-party ruling coalition to seek a further expansion of the package, which Prime Minister Keizo Obuchi has ordered as a means to keep a promise of economic growth in the current fiscal year. Obuchi faces a general election by next October.

Obuchi called for a package of more than 10 trillion yen and senior government officials had predicted it would be 11 trillion to 12 trillion yen, so this week's increase in the headline figure has put upward pressure on interest rates and the yen.

In addition to fiscal stimulus, the coalition will fire a shot across the bow of the Bank of Japan, urging the central bank to be watchful of the strong yen in conducfing monetary policy, a newspaper said.

Euro slips after ECB rate hike

The euro slipped back on Friday morning, slumping below the 1.04-dollar threshold for the first time for two months after Thursday's hike in euro-zone interest rates to three percent.

The euro suffered from a new found dollar strength at the end of a week which has seen firm gains on Wall Street, currently a major factor in influencing the dollar's exchange rate.

The euro fell to 1.0385 dollars from 1.0452 on Thursday. The single European currency was last this low on September 15.

Sterling meanwhile was also lower after an interest rate hike announced by the Bank of England on Thursday. The pound was buying 1.6212 dollars from 1.6392 dollars late Thursday.

The dollar was also higher against the Japanese currency, buying 105.55 yen from 105.03 earlier in Tokyo and 104.47 here on Thursday evening.

Currency watchers said after Thursday's rate hike that the European Central Bank had played its last trump card and had no more aces up its sleeve to bring to the defence of the euro.

Asian bourses perform poorly

Bourses across the region marked time on Friday ahead of the release of key data in the United States later in the day, with weak sessions recorded virtually across the board.

In Tokyo, share prices closed fractionally higher as investors bought information and telecom issues in late trading after taking profits on the previous day's gains.

In Hong Kong, share prices dropped 0.3 per cent on light profit that took the edge off recent sharp gains.

Singapore share prices ended barely higher on cautious trading ahead of a holiday weekend.

Australian share prices fell 0.5 percent after an afternoon slump on a sell-off of select blue-chips.

Indonesian share prices closed 1.2 per cent higher, buoyed by selective buying in blue chips amid the release of nine-month results for some stocks.

Malaysian share prices closed 0.9 percent lower with sentiment still undermined by uncertainty over the date of the general election.

Shanghai's B shares rebounded 1.6 percent following six straight sessions of declines.

Eurostocks slip on profit-taking

Market caution ahead of US employment data and pre-weekend profit-taking pushed European stocks lower on Friday but drug stocks remained the highlight as the bidding war for US drug giant Warner-Lambert intensified.

European government bonds edged higher, extending Thursday's gains in the wake of the European Central Bank's interest rate hike which is seen keeping a pre-emptive lid on inflation and reducing the chances of larger series of rate hikes later on.

The S&P 500 December future traded only one to two ticks higher by the European mid-session, indicating a steady start for US shares at best.

In Europe, the Dow Jones pharmaceuticals sector was up more than three per cent, buoyed by a near $80 billion bid from Pfizer Inc for Warner-Lambert Co. that sought to trump WarnerLambert and American Home Products Corp's plans for a friendly $70.5 billion deal.

France's CAC-40 slipped 0.29 per cent, Germany's GDAX index dipped 0.51 per cent.

The Euro STOXX 50 index STOXX50E stood 0.45 per cent lower and the FTSE Eurotop 300 lost 0.4 per cent.

 

Mergers & Acquisitions

American Home Products Corp—WarnerLambert Co: U.S. drug makers American Home Products Corp and WarnerLambert Co confirmed they were in talks that could lead to the biggest drug merger in history, a possible $65 billion deal that sparked a drug-sector rally on prospects of further consolidation in the industry.

Shell—BASF: Oil giant Royal Dutch Shell and German chemicals group BASF said they planned to forge a $6 billion joint venture that would be the world's largest polypropylene maker. Shell Petroleum and BASF said talks to merge their polyolefins units in a 50-50 joint venture were at "an advanced stage".

Leo Group—MacManus Group: The Leo Group and the MacManus Group jointly announced they will merge, creating a new top-tier global advertising and diversified marketing services company headquartered in Chicago with more than $1.7 billion in annual revenues, 500 operating units in 90 countries and 16,000 employees.

Hyundai—Josun: South Korea's Financial Supervisory Commission (FSC) said it signed a memorandum of understanding to sell Josun Life Insurance Co to Hyundai Securities and four other Hyundai Group affiliates.

Allianz—Pimco: Shares in Allianz AG rose modestly after Germany's biggest insurer won access to the world's biggest asset management market by sealing a $3.3 billion takeover of a majority of U.S. fund firm Pimco.

Danzas—AEI: Deutsche Post unit Danzas has made an agreed $1.4 billion bid for leading U.S. forwarder Air Express International, European industry sources said.

 

Results

KLM: Dutch flag carrier KLM posted a 57 per cent drop in second-quarter net earnings amid cut-throat competition on major routes. Northwest, reported net profit of 152 million guilders ($72.52 million) for the quarter to Sebtember 30.

Siemens: German industrial and technology group Siemens AG posted a 37 per cent surge in l998-99 net profit. Siemens, reported that preliminary net profit for the year ended September 30 swelled to 3.64 billion marks.

M&S: Marks & Spencer Plc reported a steep fall in first half profits. Profits before tax for the six months to September 25 fell to £192.8 million ($317.5 million) from £337.4 million.

Ares-Serono: Swiss biotechnology company Ares-Serono International SA posted record third-quarter results. The Geneva-based firm, reported third quarter net profit at 47.52 million Swiss francs ($31.16 million) up from 25 million francs on a like-forlike basis taking into account a restructuring charge.

JAL: JAL's parent-only net profit fell 65.2 per cent from a year earlier to 6.36 billion yen in the first half of 1999-2000. while parent current profit slid 36.1 per cent on the year to 18.74 billion yen.

SIA: National carrier Singapore Airlines posted a 23.2 per cent rise in net profit to S$577 million on the back of a 14.3 per cent rise in turnover to S$4 .30 billion for the six months ended September 30.

 

Jakarta urged to strengthen IBRA

The IMF urged Indonesia to strengthen controls at the agency charged with overhauling its troubled banking system in response to the Bank Bali corruption scandal.

International Monetary Fund Asia-Pacific director Hubert Neiss also said talks were progressing on the resumption of loans which were blocked over the Bank Bali affair and events in East Timor.

Speaking after talks with President Abdurrahman Wahid, Neiss said changes were needed at the Indonesian Bank Restructuring Agency (IBRA) and stressed it was vital the agency be politically independent.

Neiss said he discussed with Wahid the report by international accountants Price Waterhouse Coopers into the Bank Bali affair which was made public Tuesday.

Airbus sees $18b Malaysian order

Airbus Industrie said it expects airlines in Malaysia to buy about 180 new aircraft worth $18 billion over the next 20 years.

Airbus regional communications director Simon Lee said demand for air travel over the 20year period is likely to match the 6.1 per cent annual growth forecast for the AsiaPacific market.

"Total requirement for this market we estimate at 180 new aircraft," Lee told a news briefing. "The value we estimate would be at $18 billion."

Hong Kong, Disney strike deal

Hong Kong and The Walt Disney Co announced a multi-billiondollar deal to build a theme park and resort complex in this special administrative region of China, the third Disneyland outside the United States.

Hong Kong leader Tung Cheehwa said the new theme park and resort would add some magic to the city's image and boost its economy after two years of hardship.

"This world class development will mark the beginning of a new era for Hong Kong," he said.

But analysts questioned whether Tung had paid too much, with the government investing HK$22.45 billion ($2.9 billion) in the Disney park and accompanying infrastructure.

Disney, by contrast, will invest HK$2.45 billion, or a tenth of the government layout. Their new joint venture company, Hong Kong International Theme Parks Ltd. will raise an additional HK$2.3 billion in commercial loans for the project.

The deal drew criticism that the government, instead of private investors, was taking a lead role in the economy. Hong Kong officials said the government could sell part of its holding from a year after the park opens in 2005.

Big Three automakers report weak U.S. sales

Detroit's traditional Big Three automakers reported weaker U.S. vehicles sales in October, while foreign nameplates continued their assault on the American market with another strong month.

Overall industry sales for the month rose 2.7 per cent to more than 1.36 million units, with all automakers reporting on Tuesday. Sales continued at a strong pace, but slipped to a seasonally-adjusted annual rate of 16.6 million units for the month from 17.1 million for September.

S. Korea-gets ready to fight financial crisis

South Korea's government will this week face one of the toughest tests of its reform crusade as foreign and domestic creditors squabble over how best to dismantle the giant Daewoo Group.

But despite the stumbling blocks, government officials have expressed confidence that they can ward off chaos on financial markets generated by the Daewoo debacle.

Their debt rehabilitation plans for key Daewoo units unveiled this week hit a snag after foreign creditors failed to agree with Daewoo on how to handle a reported $6.7 billion in loans to the crumbling group.

Curbs eased on futures investment

Taiwan said it was easing restrictions to allow foreigners to invest part of their futures investment funds in other financial products to attract more investment in the small equity futures market here.

Under the decision, which became effective immediately, such investors are allowed to invest part of their funds in bonds, time deposits, money market instruments and hedging products, the Securities Exchange and Futures Commission said in a statement.

Japan's niche lenders in trouble

Amid accelerating criticism over the business practice of Japan's small business lenders, their major creditor banks have started to rethink financing policies in what analysts say could be an added blow to the lenders.

Japan's top financial regulator Michio Ochi said that major domestic banks have begun restraining loans to niche lenders, while Citibank N.A., a top foreign creditor, said it was keenly watching developments before making any decisions.