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Apr 23 - 29, 2001

BoJ sees economy in 'state of adjustment'

Japan's central bank said Monday that declining exports and production have further weakened the economy.

The Bank of Japan has been gradually downgrading its monthly report since late last year. In last month's report, it said the recovery had "come to a pause."

In this month's report, the bank said the economy had entered a "state of adjustment" as production declines and exports fall.

Japan has been fighting a slowdown for more than 10 years. The Japanese government acknowledged last month that the nation was in a state of deflation for the first time since the end of World War II.

Deflation, or continuous falling prices, can set off a dangerous downward spiral of declining profits and income likely to further damage economic activity.

There is also a political hiatus following the announcement by prime minister Yoshiro Mori that he will step down this month. Several candidates, including former prime minister Ryutaro Hashimoto, are bidding to succeed him at a vote for the Liberal Democratic Party presidency on April 24.

Earlier this month, the Bank of Japan's separate "tankan" report showed that business sentiment deteriorated in the January-March quarter as companies hurt by plunging demand both at home and abroad were forced to slash spending. It was the first time in four quarters that the survey's key indicator was negative.

Last week, the government downgraded its official assessment of the economy for the third straight month, saying it is "weakening." It was the first time since September 1995 that the government used the word weakening in such a report.

Recent forecasts by the World Bank and the United Nations suggest Japan's economy will grow at about 1 per cent this year and stay flat in 2002. The central bank lowered interest rates effectively to zero last month to try to revive economic growth. The economy has been sluggish partly because of the massive bad debts remaining at Japan's banks.

Fed cuts rates again

The Federal Reserve cut short-term interest rates by an aggressive half-percentage point Wednesday in a surprise move between its regular meetings meant to avert a recession.

The central bank's policy makers cut the target for the federal funds rate, an overnight bank lending rate, by a half-percentage point to 4.5 per cent. They also lowered the rarely used discount rate, for loans by the Fed to banks, a half-percentage point to 4 per cent.

The move comes just weeks before the next regularly scheduled meeting of the Federal Open Market Committee, the policy-making arm, on May 15.

Diane Swonk, chief economist at Bank One, told The Money Gang Wednesday that the Fed waited for the markets to stabilize before going ahead with an inter-meeting cut. (WAV 222KB) (AIFF 222KB) Wednesday's rate cut is the fourth by the Fed this year, and the second in between its regular meetings. On March 20, the Fed lowered interest rates by a half-percentage point.

Almost immediately, banks began cutting their overnight lending rates as well as rates on consumer loans, making it a good time for consumers to refinance mortgages or apply for a loan.

The severe slowdown in capital spending by big corporations "threatens to keep the pace of economic activity unacceptably weak," the central bank said in its statement. "As a consequence, the (Open Market) committee agreed that an adjustment" in rates was needed before the Fed's next regular meeting in May.

The rate cut came just hours after the U.S. Commerce Department reported the trade deficit fell to its lowest level in 14 months in February, and a slew of economic reports from housing starts to export prices that indicated a bigger improvement in the economy than analysts expected.

Turkey says 'no going back' on economic reform plan

Turkey's Economy Minister Kemal Dervis said in the Turkish press on Monday there was no going back on a new package of reforms to overcome the country's economic crisis.

The programme that we have unveiled demonstrates that Turkey has entered into a new phase and that there is no question of going back, he said in the editorials of leading Turkish newspapers.

He said he was confident that Turkey would now receive billions of dollars of foreign aid it needs to overcome its economic crisis.

The main aims of the programme announced on Saturday were cutting public spending by nine per cent, decreasing the state's debt burden, restructuring its weak banking system and accelerating privatisation, including the long-delayed sale of Turkish Telekom.

As Dervis announced the programme on Saturday, thousands of people took to the streets across Turkey to protest the government's handling of the crisis that led to increasing prices and layoffs in the latest of a series of occasionally violent demonstrations.

Europe tipped to hold rates

Inflation concerns in the euro zone may delay an interest rate cut, even after the surprise reduction in U.S. rates, analysts said on Thursday.

Pressure grew on the European Central Bank to reduce borrowing costs at its next meeting on April 26 after the U.S. Federal Reserve cut rates by half a point on Wednesday to 4.5 per cent.

But a cautious rate policy on the part of Europe's central bank and the latest inflation data lead analysts to believe that the ECB will hold rates at next week's meeting, and may not cut them until next month.

The ECB kept its main rate for the 12-nation euro zone at 4.75 per cent last week and is the only major central bank not to reduce borrowing costs this year as a slowdown in U.S. economic growth feeds through to Europe.

5.7% growth for Bangladesh

The Manila-based Asian Development Bank's annual Asian Development Outlook (ADO) for 2001 said Bangladesh economy is expected to grow by 5.7 per cent this year and six per cent in FY2002.

The ADO is the Asian Bank's annual publication, which was simultaneously released on Thursday in Manila and all the capitals of the member countries.

It said despite severe floods in the south western region late last year, current year's gross domestic product growth is expected to exceed 5.5 per cent figure posted in FY2000 and 4.9 per cent in the year before. Helped by favourable weather, adequate supplies and stable prices in FY2000, the country achieved self-sufficiency in food, the report said. For agriculture as a whole, value addition increased by 6.4 per cent in FY2000 compared to 4.8 per cent the year before.

Indian rupee at record low

The Indian rupee slipped to a record low against the dollar Monday. The rupee closed at 47.02 to the dollar, but Finance Minister Yashwant Sinha insisted that the trend had to be seen in a wider context where East Asian currencies had depreciated against the greenback.

Markets mixed, fail to extend gains

Asian markets were mixed by midday Friday, with some markets failing to extend their gains as investors took profits and shrugged off further advances on Wall Street.

In Tokyo, the benchmark Nikkei average ended the morning down 0.88 per cent at 13,746.15.

In Hong Kong, by midday, the Hang Seng Index was trading down 0.4 per cent at 13,496.02, while shares in China's two dominant mobile phone operators, China Mobile HK and China Unicom fell 1.29 per cent to HK$38.40 and 0.9 per cent to HK$11.05 respectively.

The Korea Composite Stock Price Index was up 0.91 per cent at 568.46, while the over-the-counter Kosdaq market was up 0.87 per cent or 0.65 points at 75.55. POSCO was up 1.03 per cent at 88,700. Top memory chipmaker Samsung Electronics was flat at 235,000 won. In Taiwan, the main TAIEX was up 0.28 per cent, at 5,623.99. In Australia, the benchmark S&P/ASX200 was down about 19 points at 3304.8.

Mergers & Acquisitions

Lucent: Four companies are in the running to buy the optical fiber unit of Lucent Technologies and could pay about $5 billion to $8 billion for the business, press reports said Thursday.

GKN—Brambles: Britain's GKN and Australia's Brambles Industries unveiled details of their long-awaited industrial services merger, to create a dual-listed group with a market value of A$19.8 billion (6.9 billion pounds).

Sony—Ericsson: Sweden's Ericsson, hoping to cut its losses in mobile handset manufacturing, will tie up with Japanese digital appliance giant Sony Corp, public broadcaster NHK said on Thursday.

Enel—Southern Water: Italy's biggest power company Enel said on Tuesday it had expressed interest in Scottish Power's Southern Water unit, but declined to put a price on the possible deal.

First Union—Wachovia: First Union Corp. said Monday it has agreed to buy Wachovia Corp. for about $13 billion in stock, a move that would combine two North Carolina-based rivals and create the nation's fourth-largest bank.

Jones—McNaughton: Clothing designer Jones Apparel Group Inc. said Monday it agreed to acquire McNaughton Apparel Group Inc. for $275 million in cash and stock in a move to increase its presence in the moderately priced retail category.


Nortel: Telecommunications equipment maker Nortel Networks reported a quarterly loss of $385 million compared to earnings of $347 million, or 12 cents per share, in the year-earlier period.

SAP: Europe's largest software company SAP said first-quarter net income more than doubled. The world's No. 1 maker of business management software said net income rose to 117 million ($104 million) from 56 million in the same period last year.

Apple: Apple Computer Inc. on Wednesday turned in a quarterly profit much higher than expected on the strength of new products including a The company whose Macintosh operating system and computer systems compete against Windows-based PCs, said it earned $40 million, or 11 cents per share, during the quarter ended March 31.

IBM: IBM Corp. said it earned $1.75 billion, or 98 cents per share, during the first quarter. That's in line with the profit analysts had expected, and is up 18 per cent from 83 cents per share during the same period a year earlier.

AMD: Semiconductor company Advanced Micro Devices Inc. on Wednesday reported net income of $124.8 million, or 37 cents pre share, with sales up 9 per cent to $1.2 billion from year-earlier levels.

Tyco: Conglomerate Tyco International Ltd. Wednesday reported a 35 per cent increase in fiscal second-quarter earnings. Tyco said earnings before extraordinary items rose to $1.16 billion, or 65 cents a diluted share, from $853.6 million, or 50 cents a share, a year earlier.

Merrill Lynch: Merrill Lynch & Co. Inc., the No. 1 U.S. full-service brokerage, reported a 21 per cent decline in first-quarter earnings. Merrill, posted net income of $874 million, or 92 cents a share, down from $1.1 billion, or $1.24 a share, in the year-ago period.

Pfizer: Pfizer Inc. Wednesday said first-quarter earnings excluding one-time items jumped 35 per cent. The biggest U.S. drugmaker, said it earned $2.13 billion, or 33 cents a share, in the quarter excluding one-time items and merger-related costs, up from $1.58 billion, or 25 cents a share, a year earlier.

Duke Energy: Duke Energy Corp., said Tuesday that first-quarter earnings rose sharply. Duke reported first-quarter net income of $458 million, up from $393 million in the same period a year ago.

U.S. Treasurys slide

Most U.S. Treasury issues fell on Thursday, with longer-dated bonds sliding more than a full point as the market consolidated powerful gains racked up after Wednesday's surprise half-percentage point interest rate cut from the Federal Reserve.

Two-year notes were unchanged at 100, yielding 4.25 per cent. Five-year notes were down 10/32 at 103-29/32, yielding 4.78 per cent. Benchmark 10-year notes were down 25/32 at 98-3/32, yielding 5.25 per cent. 30-year notes were down 1-16/32 to 94-14/32, yielding 5.77 per cent.

Mortgage rates climb

Long-term mortgage rates rose for the fourth consecutive week, but the one-year adjustable rates dipped to an almost two-year low following the Federal Reserve's surprise interest rate cut Wednesday by half a per centage point.

The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.14 per cent for the week ending April 20, slightly higher from last week's average of 6.55 per cent. The average this week for a 15-year fixed-rate mortgage was at 6.66 per cent, up from the previous week's average of 6.55 per cent. One-year adjustable rate mortgages (ARMs) hit an almost two-year low since July 30, 1999, averaging 6.08 per cent, down from last week's average of 6.15 per cent.

Drugs, tobacco hit Europe

Europe's main markets finished lower on Thursday, as tobacco and drug stocks slumped while profit warnings rattled tech shares.

London's benchmark FTSE 100 index fell 0.3 per cent, or 18.6 points, to close at 5,871.6, as information technology consultant CMG (CMG) plunged followed by fund manager Amvescap (AVZ).

In Paris, the blue-chip CAC 40 ended down 0.5 per cent, or 25.03 points, at 5,480.05, led lower by defense firm Thales (PTHO) and cosmetics maker L'oreal (POR).

Frankfurt's electronically traded Xetra Dax slipped 0.1 per cent, or 2.92 points, to touch 6,161.96 in late trade, as tour operator Preussag (FPRS) and chipmaker Infineon Technologies (FIFX) dropped.

Amsterdam's AEX index ended down 0.9 per cent and Zurich's SMI dropped 0.7 per cent. The MIB 30 slipped 0.6 per cent.

The broader FTSE Eurotop 300 index, a basket of Europe's largest companies, declined 0.3 per cent, with the tobacco sub-index down 4.6 per cent. The pharmaceutical component lost 2.8 per cent.

Jobless claims retreat

The number of new jobless claims in the United States fell slightly after hitting a five-year high the previous week, the government reported Thursday.

The U.S. Labor Department said 385,000 new claims for state unemployment benefits were filed in the week ended April 14, down from a revised 395,000 in the prior week.

Industrial production up

The manufacturing front got a big surprise, suggesting the worst could be over for that hard-hit sector of the economy.

Industrial production jumped 0.4 per cent in March, the first increase in six months. Leading the manufacturing rebound, auto and auto parts makers' output surged 7 per cent.

U.S. trade gap shrinks

The U.S. trade deficit fell to the lowest level in 14 months in February as the slowing economy reduced demand for imports of everything from oil to clothing.

The nation's trade deficit shrank to $27 billion in February from $33.3 billion in January, the Commerce Department said, marking a bigger improvement than economists had been forecasting.

Gas prices heading higher

U.S. consumers paid an average of 15 cents a gallon more for gasoline in the past month, and could be in for another summer of even higher prices, a report from motorist group AAA said Tuesday.

The average price of gasoline in the United States rose 15 cents to $1.587 a gallon from mid-March to mid-April, 7 cents higher than a year ago when prices were heading toward record highs in the summer.

Manufacturing jumps

U.S. industrial production posted surprising gains in March, while inflation rose only slightly and housing starts slowed, according to government reports released Tuesday.

The data presented conflicting views of the U.S. economy's health and dimmed hopes the Federal Reserve will act quickly to cut interest rates.

U.S. industrial output rose 0.4 per cent in March, according to a Federal Reserve report, compared with a 0.4-percent dip in February. Analysts surveyed by Briefing.com expected output to fall by 0.6 per cent.