Jul 31 - Aug 06, 2000

UK economy bounces back

Britain's economy expanded by a stronger-than-expected 0.9 per cent in the second quarter from the first, preliminary data showed Friday, a figure that re-ignited fears of a further rise in interest rates.

U.K. gross domestic product rose an annualized 3.1 per cent compared to a year earlier, the Office of National Statistics reported, slightly higher than the 3 per cent in the first quarter. It marked the highest annual rate in two years.

The quarterly figure was the best since the third quarter of last year and compares to an unusually weak 0.5 per cent in the first quarter.

Peter Osler at GNI said the numbers were at the high end of expectations, which hovered around 0.8 per cent, with strength coming in the service sector.

"It raises the chances of a rate hike but I would not say that is certain."

The Bank of England has raised interest rates from 5 per cent to 6 per cent between last September and February this year, in a bid to cool the steamy economy. Many economists have said rates are now at or close to their peak in the cycle.

The pound firmed a quarter of a cent against the dollar on the news to nearly $1.52 while gilts (government bonds) and interest rate futures dipped on concerns rates may have to rise again, especially as the figures come after strong retail sales numbers earlier this year.

Jeremy Stretch at Royal Bank of Scotland said there had been a strong rebound from the slowdown of the first quarter.

"But I don't think this categorically points towards the necessity for further tightening from the Monetary Policy Committee. But certainly from this sort of level of activity you can't rule it out."

Within manufacturing, there was a return to strong growth in electrical and optical equipment, including mobile phones. There was also recovery in the output of computers. Energy output was high because of unseasonably low temperatures in April and May, but wet weather lowered construction output.

U.S. House votes to lift ban on U.S. food

In a setback for GOP leaders, the House of Representatives has voted to ease the 38-year-old U.S. trade embargo against Cuba, by voting to lift limits against U.S. food and drug sales and allowing Americans to travel freely there.

It was a major victory for farm, business and other groups trying to ease the sanctions and a blow to Republican leaders, who oppose easing the embargo.

After supporters argued that increased contacts would help weaken Castro's hold over the Communist nation, Congress voted 232-186 to stop enforcing rules that limit the ability of Americans to travel to Cuba.

It then voted 301-116 to halt enforcement of rules banning exports of U.S. food and rules limiting sales of American medicines.

But the House voted 241-174 to reject a broader proposal from Rep. Charles Ranger, D-New York, that would have ended almost all embargoes against trade with Cuba.

These votes seem certain to strengthen the position of Rep. George Nethercutt, R-Washington, leader of the farm-state lawmakers who earlier this year tried to lift the food and medicine embargo against Cuba, but hit opposition from GOP leaders.

Both sides agreed to a compromise last month that Republican leaders promised to try making into law. The Thursday votes seem to have increased pressure on leaders to make sure that, at the very least, the compromise finds its way into law.

Anti-Castro legislators said his regime would be propped up by allowing Cuba to get more trade and tourists.

Re. Ileana Ros-Lehtinen, R, Florida, said the revenue Cuba would gain from easing restrictions would help "the worst violator of human rights in all of the Western Hemisphere."

Europe hit by Nokia gloom

A profit warning from Finnish mobile phone maker Nokia rained on Europe's earnings parade Thursday.

Frankfurt's Xetra Dax index led the top losers, falling 118.68 points, or 1.6 per cent, to 7,183.44.

London's FTSE 100 fell 35 points, or 0.55 per cent, to close at 6,352.1, with cable company Telewest Communications (TWT) down 7.3 per cent and mobile phone service provider Vodafone AirTouch (VOD) off 4.1 per cent.

The CAC 40 blue chip index closed up 18.53 points, or 0.3 per cent, to 6,511.53, with Alcatel (PGCE) gaining 3.9 per cent.

Zurich's benchmark SMI index fell 0.2 per cent.

The pan-European FTSE Eurotop 300, a broad index of the region's largest stocks, was down 1.1 per cent to 1,609.06, with its electronics equipment component down 3.1 per cent and its information technology sub-index plunging 8.3 per cent after Finland's Nokia sank 15.5 per cent.

Profit warnings hole Asia

Asian markets slumped on Friday amid concern that technology companies face slowing earnings, after high-profile firms in Europe and the U.S. indicated future profits would fall short of analysts' expectations.

Japan's Nikkei average of 225 stocks plunged 343.44 points, or 2.1 per cent, to 15,838.57, led by consumer electronics titan Sony and the country's No.1 computer maker Fujitsu.

In Hong Kong, the Hang Seng dropped 330.47 points, or 1.9 per cent, to 17,119.62. The Straits Times in Singapore lost 17.5 points, or 0.9 per cent, to 2,039.62, led by banking heavyweight DBS Group and chipmaker Chartered Semiconductor Manufacturing.

Australia's S&P/ASX 200 shed 6.4 points, or 0.2 per cent, to 3,251.8. Natural resources producer Broken Hill fell more than 1.2 per cent even after posting record full-year profit of A$2.03 billion ($1.2 billion).

The U.S. Nasdaq composite index fell 145.47, or more than 3 per cent, to 3,842.25 on Thursday, while the Dow Jones Industrial Average gained 69.65 to 10,586.113.

Greenspan in the House

Strides in productivity have helped propel the U.S. economy to its longest expansion on record, and it is crucial to ensure that those advances continue to keep the economy growing at a sustained, non-inflationary pace, Federal Reserve Chairman Alan Greenspan said Tuesday.

In a question-and-answer session following testimony on the current state of the economy to the House Banking Committee, Greenspan said that keeping the supply of goods and services on the same level as Americans demand for them is critical to keeping inflation, contained.

Risk supervisory assessors in banks

Indonesia's central bank will deploy permanent on-site supervisory risk assessors in domestic banks, beginning with four state banks and the five largest private banks, a report said on Thursday. Bank Indonesia (BI) deputy director for bank supervision, Idris Kadir, said the personnel, who will start taking up position at the end of July, will attempt to identify risks faced by the banks.

For example, credit risks, exchange risks and strategic risks, Kadir said according to the Bisnis Indonesia daily.

These risks are the ones influencing the future health of the banks, he added according to the Media Indonesia daily. Kadir said the nine banks together accounted for 75 per cent of country's banking assets.

Japan's auto exports increase

Japan's auto exports rose 2.8 per cent to 2,221,012 units in the first six months of 2000 from a year earlier, for the first semi-annual rise in two years, the Japan Automobile Manufacturers Association said on Thursday.

In the first half of the year, exports to Asia surged 48.6 per cent to 196,935 units thanks to strong demand in Southeast Asia such as Thailand, Malaysia and Indonesia. US-bound exports rose 14.7 per cent to 851,910 units, up for the fourth year in a row. Exports to Europe fell for the second straight year, down 14.7 per cent to 590,280 units as a result of the stronger yen and weaker euro.

Huge gas discovery in Bangladesh

Independent technical consultants have confirmed that Bibiyana gas field, discovered jointly by two major US oil companies — Occidental and Unocal — three years ago, has about six trillion cubic feet of gas. It is considered a very big reserve by any standard and this has straightaway raised the quantity of proven gas reserves by a bout 50% in the country.

Occidental was originally awarded Block 12 by the government and it entered into a joint venture agreement with Unocal. The two, according to the company sources, went for a three-dimensional survey for the first time in the country that was subsequently followed up by drilling of an appraisal well.

147b euro FDI

Foreign direct investment (FDI) by European Union firms outside the EU totalled 243.2 billion euros in 1999, Eurostat statistics agency said on Thursday.

FDI inflows from outside the bloc amounted to 95.7 billion euros, meaning net FDI outflows totalled 147.5 billion euros, the data showed.

Mergers & Acquisitions

AOL—TWX: America Online Inc. and Time Warner faced their critics Thursday, defending their planned $120 billion merger to federal regulators in the face of accusations by competitors and consumers that the massive deal could stifle customer choice.

Conseco: Conseco Inc. has taken its troubled Conseco Finance unit off the market, choosing instead to restructure the division and sell off other assets, Chairman Gary Wendt said Thursday.

Cisco—NuSpeed: Cisco Systems Inc. agreed Thursday to acquire privately held NuSpeed Internet Systems for $450 million in stock, in another move to expand its footprint in storage area networks.

Corning—Nortel: Fiber-optic cable maker Corning Inc. said Thursday it ended talks about buying Nortel Networks Corp.'s optical components business, a deal that reportedly could have been worth $100 billion.

Symantec—Axent: Computer security provider Symantec Corp. said Thursday it will acquire Axent Technologies Inc. in a stock swap worth $975 million, accelerating its move into the market for large security business systems.

Dresdner Bank AG—Commerzbank AG: A $40 billion-plus German banking merger collapsed Wednesday as Dresdner Bank AG and Commerzbank AG failed to agree on how to value the deal.

Results

BT: British Telecommunications PLC reported pretax profit of $852 million (or about 10 cents a share), beating analysts' estimates of $684 million.

Deutsche Telekom: Deutsche Telekom AG, said first-half income from operations fell 26 per cent to 700 billion ($658 billion), depressed by the cost of expanding its mobile-phone business.

Alcatel: Alcatel, posted a bigger-than-expected 37 per cent jump in second-quarter operating earnings to 638 million. Analysts polled by Reuters expected operating profit to be between 530 million to 555 million.

Glaxo Wellcome: Glaxo Wellcome PLC, said pretax profit in the first half of 2000 rose 20 per cent to £1.6 billion. Earnings rose by one-fourth to 31.8 pence a share, as sales grew 12 per cent to £4.6 billion.

DaimlerChrysler: German/American automaker DaimlerChrysler AG earned $1.67 billion, or $1.66 a share, in the second quarter, compared with $1.41 billion, or $1.41 a share, in the year-earlier period.

DuPont: DuPont Co., said second-quarter earnings rose to $949 million, or 90 cents a diluted share, from $886 million, or 78 cents a share, a year earlier.

3M: Minnesota Mining & Manufacturing Co., reported second-quarter earnings of $470 million, or $1.18 a diluted share, up from $421 million, or $1.17 a share, a year ago.

Sony: Sony posted a group net loss of ¥88.3 billion ($809.6 million) in the three months ended June 30, compared with a profit of ¥18.43 billion a year earlier.

AT&T: AT&T posted earnings, excluding special items, of $1.9 billion, or 57 cents a share, for the second quarter. The company earned $1.6 billion, or 49 cents a share, a year earlier.

Texaco: Texaco Inc., posted earnings before special items of $641 million, or $1.17 a share, just below the $1.18 a share forecast of analysts surveyed by earnings tracker First Call. The company earned $286 million, or 52 cents a share, in the year-earlier period before special items.

Dow: Dow Chemical Co., reported earnings of $527 million, or 77 cents a diluted share, up from $410 million, or 61 cents a diluted share, a year earlier.

Halifax: Halifax PLC reported a 21 per cent increase in six-month profits. Halifax said pretax profit rose to £885 million from £733 million a year earlier.

Prudential PLC: Prudential PLC, reported a higher-than-expected 14 per cent rise in first-half operating profit. Operating profit rose to £425 million, or 24.4 pence a share, from £372 million, or 13.9 pence, a year earlier.

Exxon: Exxon Mobil reported second-quarter earnings of $1.18 a share, more than double its year-earlier results.

Chevron: Chevron Corp. reported a profit of $1.14 billion before one-time items, or $1.75 a share, up from $350 million, or 53 cents a share, in the year-earlier period.

All eyes on Microsoft

Bridging the gap between its separate consumer and corporate PC operating systems, Microsoft Corp. announced Thursday that it will soon release a test version of Windows software that will give home users many of the features of Windows NT technology.

Microsoft's Chief Financial Officer John Connors on Thursday said the company plans to spend $4.4 billion in the next fiscal year to develop Web-related software, wireless devices, games, the MSN network and consumer services.

Tobacco launches legal assault

U.S. cigarette makers launched their post-trial legal assault on a record-shattering $145 billion punitive damage award, filing papers to move the landmark Florida state court case on behalf of sick smokers to federal court, lawyers said Tuesday.

Based on a motion to intervene in the Engle case filed by a union health care plan, lawyers representing the major tobacco firms filed notice Monday in Miami U.S. District Court to transfer the entire 6-year-old class-action lawsuit to federal court.

"We filed a notice of removal of the case, which actually transfers the entire case to federal court," Philip Morris attorney Michael York said. "The case is no longer pending before the circuit court."