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
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
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
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
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
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
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
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
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.
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
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.