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
But he said public works and other core fiscal spending in the package
would be about six trillion yenat 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
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
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
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
France's CAC-40 slipped 0.29 per cent, Germany's GDAX index dipped 0.51
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 CorpWarnerLambert Co:
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.
ShellBASF: 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 GroupMacManus 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.
HyundaiJosun: 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.
AllianzPimco: 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.
DanzasAEI: Deutsche Post unit Danzas has made an agreed
$1.4 billion bid for leading U.S. forwarder Air Express International, European industry
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
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
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
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
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
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
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
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.