Dec 25 - 31, 2000
U.S. GDP revised lower
The U.S. economy grew at its slowest rate in four years in the third
quarter, the government said Thursday in its final reading on gross domestic product for
the July-September period.
The Commerce Department cut its estimate of GDP the total output
of goods and services to a 2.2 per cent growth rate in the quarter from the 2.4 per
cent reported a month ago. GDP is the broadest measure of the nation's economy.
That was less than half the second quarter's sizzling 5.6 per cent
growth rate and the slowest since a 2 per cent rate in the third quarter of 1996.
The final third-quarter numbers came in even weaker than Wall Street
analysts predicted. Analysts had expected a final reading of 2.4 per cent, according to a
survey by Briefing.com.
A key index of inflation rose 1.8 per cent, which was a shade below
Wall Street forecasts of 1.9 per cent. Weaker exports contributed to the reduced reading,
the Commerce Department said.
The report is the latest pointing to much slower growth in the world's
largest economy. The Federal Reserve said Tuesday that the economy now faced more risk of
a downturn than from inflation, signaling it was set to cut rates next year in a bid to
prevent a recession after nearly 10 years of growth the longest expansion in U.S.
Kathleen Camilli, chief economist at Tucker Anthony, told CNNfn's
Before Hours that the Fed could potentially step in even before its next scheduled meeting
in late January to reduce interest rates if the markets take a major tumble before then.
She has lowered her estimate of fourth-quarter GDP to 2.8 per cent from
5.5 per cent, "because indeed it looks like the Christmas selling season is turning
out to be a little lackluster."
The slowing economy has sparked debate between Clinton officials and
the incoming administration of president-elect George W. Bush, who is angling for tax cuts
as a centerpiece of his program for growth.
The Bank of Japan, bowing to mounting evidence that growth has peaked,
on Monday lowered its forecast of the country's economic recovery for the first time since
The central bank said in its monthly report for December that the
world's second-largest economy was still gradually recovering, but at a somewhat slower
pace because of a slowdown in the growth of exports.
"Overall, the economy is likely to follow a gradual upward trend,
led mainly by business fixed investment," the report said.
The downgrade mirrors a similar move last month by the EPA. A source at
the government's Economic Planning Agency (EPA) said growth in year ending March 31 could
be as low as 1.2 per cent and not 1.5 per cent as previously forecast.
The central bank's new report follows a sober assessment on Friday by
BOJ Governor Masaru Hayami, who said that the recovery had stalled and that a renewed
pick-up would depend on external factors.
Other evidence last week also suggested that the economy is losing
steam after a burst of growth supported by capital spending on information technology and,
to a lesser extent, by exports and government spending.
The BOJ's quarterly "tankan" business survey showed sentiment
had weakened, while the Ministry of Finance's own survey of corporate sentiment for the
third quarter was so weak that economists now estimate that gross domestic product shrank
during the July-September period.
A preliminary estimate pointed to GDP growth of 0.2 per cent in the
Europe closes in the red
European markets closed in the red Thursday as telecom and technology
stocks retreated, following warnings from U.S. counterparts AT&T and Lucent
London's FTSE 100 index closed down 66.8 points, or 1.1 per cent, at
6,109.9. In Frankfurt the electronically traded Xetra Dax shed 48.05 points or 0.77 per
cent to end at 6,200.7, while the blue-chip CAC 40 index in Paris dropped 25.58 points or
0.4 per cent to 5,740.72.
In other markets, the AEX index in Amsterdam dropped 0.2 per cent,
Zurich's SMI closed down 0.6 per cent and the MIB 30 in Milan fell 0.3 per cent. The Ibex
index, Madrid's stock market benchmark, was Europe's exception, climbing 1.2 per cent.
The broader FTSE Eurotop 300 index, a basket of the region's biggest
stocks, dropped 0.94 per cent to 1505.62, with its computer sector losing 3.1 per cent and
the telecom sub-index ending 2.5 per cent down.
Mixed trade in Asia
Gains on the Nasdaq did little to impact markets in Japan, but
elsewhere Asian markets saw modest gains.
In Tokyo, the Nikkei 225 was nearly flat down 21.62 points or
0.16 per cent to 13,401.59 by midday. In Hong Kong, the Hang Seng was up 1.31 per cent at
The Hang Seng Index was up 1.31 per cent, or 192.35 points, at
14,851.67 at 10:17 a.m.
The Korea KOSPI was up 0.22 per cent, or 1.14 points at 513.04. Samsung
Electronics was down 0.6 per cent at 265,500 won. SK Telecom was down 0.6 per cent at
In Taiwan, the Weighted Index was up 38.04 points, or 0.79 per cent, at
4,855.26. Taiwan Semiconductor Manufacturing Co. was up T$0.50 at T$79.50, while rival
United Microelectronics Corp. was up T$0.10 to T$43.90.
In Singapore, the Straits Times Index was up 0.88 per cent, or 16.80
points, at 1,915.64. OCBC Bank was up 2.40 per cent at S$12.80.
The S&P/ASX 200 index edged up 3.9 points to 3,189.7.
Nasdaq finally gains
The Nasdaq composite index inched higher Thursday for its first gain in
almost two weeks in a turnaround unlikely to keep the index from posting its worst year on
The Nasdaq rose 7.34 points to 2,340.12. The first gain in eight
sessions comes one day after the Nasdaq fell to a 20-month low. The Dow climbed 168.36
points, or 1.6 per cent, to 10,487.29 while the S&P 500 advanced 10.12 to 1,274.86.
Market breadth was mixed in heavy trading volume. Advancing issues on
the New York Exchange edged out declining ones 1,684 to 1,232 as 1.4 billion shares
traded. Nasdaq losers topped winners 2,241 to 1,799. More than 2.6 billion shares changed
In other markets, Treasury securities were mixed. The dollar declined
against the euro and yen.
U.S. trade gap narrows
The U.S. appetite for overseas goods waned in October, leading to a
narrowing of the nation's trade deficit from a record level the previous month, a
government report showed Tuesday.
The Department of Commerce report showed the deficit fell to $33.18
billion. That's slightly above the level forecast by analysts surveyed by Briefing.com,
which predicted a $33.0 billion gap. But other forecasts had put the deficit as high as
The narrowing of the trade gap from September's revised figure of
$33.74 billion appears to have been partly due to the slowing of the U.S. economy. Even
though exports slipped from the September level, imports were down more, as purchases of
overseas cars, industrial products and food fell in the period.
The trade deficit is a measure of the difference in the amount of money
spent on imports versus exports, including both goods and services.
Overall exports dropped to $91.2 billion from $92.7, while imports fell
to $124.4 billion from $126.4 billion in September. However, the trade gap with major
trading partners such as Canada, China, Japan and Western Europe all increased.
Mergers & Acquisitions
NorthropLitton Industries: Northrop Grumman Corp. agreed
Thursday to acquire Litton Industries Inc., the No. 1 builder of non-nuclear ships for the
U.S. Navy, for $3.8 billion in cash, a move that will solidify Northrop's place among the
world's leading defense companies.
Microsoft Corp. said Thursday it
will acquire Great Plains Software Inc., a provider of business software applications, in
a stock swap valued at $1.1 billion.
NetCreations Inc. agreed Thursday
to accept a rival $7-a-share bid from an unnamed third party and terminate what was
originally a proposed $200 million stock merger with DoubleClick Inc.
Vodafone Group PLC agreed Thursday to buy
Ireland's leading cell-phone operator Eircell for 4.5 billion ($4.1 billion) in stock,
Germany's Vaillant agreed Thursday to
buy Hepworth PLC for 285 pence per share, valuing the British maker of building products
at £692 million ($1 billion).
Johns Manville Wednesday agreed to be
acquired by Warren Buffett's Berkshire Hathaway Inc. for about $1.9 billion in cash, less
than two weeks after the building products company called off a $2.4 billion buyout by an
Regions Financial Corp., a leading
Southeast bank holding company, agreed Monday to acquire U.S. securities firm Morgan
Keegan Inc. for $789 million in cash and stock, significantly bolstering the company's
brokerage and wealth management capabilities.
Glaxo Wellcome PLC and U.K. rival
SmithKline Beecham PLC are set to complete their £46 billion ($67 billion) merger after
clearing the last regulatory hurdle Monday.
IMF bails out Argentina
Argentina has clinched nearly $40 billion in IMF-led aid over the next
three years, Economy Minister Jose Luis Machinea announced Monday, quashing fears the
country could default on its debt next year.
The $39.7 billion aid package bigger than the $20-30 billion the
markets had been expecting includes a $13.7 billion contribution from the
International Monetary Fund and $2.5 billion each from the World Bank and Inter-American
About $25.4 billion of the package will be available next year, more
than covering the $15.3 billion in both local and foreign debt coming due in 2001. The
government forecasts a budget deficit of roughly $6.5 billion in 2001.
RIM: Research In Motion's net income for the quarter ending Nov.
30 was $1.5 million, or two cents per share, beating analysts' estimates but still below
profit of $3.2 million, or five cents per share, in the year-ago third quarter.
Morgan: Morgan Stanley's fourth-quarter earnings for the quarter
ended Nov. 30 fell to $1.2 billion, or $1.06 a share, from $1.6 billion, or $1.42 a share,
a year earlier.
Goldman: Goldman's earned $781 million for the three months
ended Nov. 24, up 3 per cent from the same quarter a year ago. For the year, Goldman
earned $3.25 billion, or $6.35 per share, compared with $2.55 billion, or $5.27 per share,
for fiscal year 1999.
Foreign funds pull $474m out of Malaysia
Foreign funds withdrew nearly half a billion dollars from Malaysia in
October, registering rising disenchantment with the slow pace of corporate restructuring.
Latest data posted by the National Economic Action Council (NEAC) on
its website (www.neac.gov.my) showed that net foreign portfolio outflow totalled $474
million between October 4, and November 1.
Foreign funds have withdrawn $1.3 billion from Malaysia since NEAC
started keeping score in February, 1999.
A good part of the exodus in October was attributed to funds
anticipating Morgan Stanley Capital International (MSCI) would re-jig its global
investment index to Malaysia's disadvantage.
Treasurys stage late rally
U.S. Treasurys motored higher on Thursday, powered by late session
weakness in the U.S. equity market.
The March Treasury bond recovered to a 105-17/32 session high, also a
new contract high. March 10-year notes hit a new contract high and matched nearby bonds'
ascent to 105-17/32. March five-years hit a 103-25.5/32 contract high.
Mortgage rates dive
Mortgage rates fell to a 17-month low this week, as fear of inflation
on Wall Street gave way to the more immediate threat of an economic recession.
The benchmark 30-year fixed-rate mortgage averaged 7.17 per cent, with
an average 1 point, for the week ending Dec. 22. The 15-year fixed-rate mortgage averaged
6.84 per cent this week, with an average 1 point. Treasury-indexed adjustable rate
mortgages, or ARMs, averaged 7.02 per cent this week, with an average 0.9 point.
U.S. jobless claims climb
The number of Americans filing new claims for unemployment benefits for
the week ended Dec. 16 rose to 354,000, from 320,000 for the week prior, the U.S. Labor
Department reported Thursday.
Economists polled by Briefing.com had forecast claims of 340,000 for
IMF readmits Yugoslavia
Yugoslavia has rejoined the International Monetary Fund after being
kicked out eight years ago.
The international lending body said on Wednesday that membership had
been approved, bringing the number of member countries to 183.
The IMF board also approved a loan of $151 million to help stabilise
Yugoslavia's economy and rebuild administrative capacities.
BoE hints at rate cut
The Bank of England hinted it may cut interest rates soon, after two
members of its rate-setting committee voted for lower borrowing costs.
According to minutes of the bank's last monthly meeting, released
Wednesday, two of the nine-member Monetary Policy Committee favoured reducing rates by a
The BoE decided to keep its key interest rate on hold at 6 per cent for
the 10th month in a row on Dec. 7, amid signs the world economy is slowing.
Britain's economy has shown some signs of cooling in recent months, and
inflation minus the cost of home loans has been below the BoE's target for 20 months.
Inflation is just 2.2 per cent, compared with a target of 2.5 per cent.
Euro tramples yen
While the euro's rise against the dollar has carried it to a
three-month high near 90 U.S. cents, Europe's common currency is likely to fare even
better against the slumping yen, analysts said.
"Buying euros and selling yen is a better way to trade the euro
recovery story," said Bob Lynch, currency strategist at BNP
Japan is unlikely to meet its growth targets, and the yen could fall to
120 to the dollar by the end of the first quarter of 2001, from around 112.75 at present,
The market's attention this week will be focused on Tuesday's meeting
of the U.S. Federal Open Market Committee, although no rate cut is expected.
"The FOMC is likely to see balanced risks in the economy, with the
threat of a sharp slowdown about equal to the threat of inflation," Lynch said.
Clinton vetoes bankruptcy bill
President Clinton vetoed legislation Tuesday that proposed the most
sweeping changes in the bankruptcy law in 20 years because he said it was unfair to
ordinary debtors and working families who fall on hard times.
Supporters of the bill, including credit card companies, have pushed
for three years to pass a bill to overhaul the nation's bankruptcy system. Clinton also
favors revamping the bankruptcy laws but thinks the current bill is not evenhanded.