07 - 13 , 2001
Japan agrees with US on need for reforms, growth
Japan's new finance minister said on Tuesday that Washington
and Tokyo agree that reforms aimed at rekindling domestic demand and reviving
the world's second largest economy are a top priority for Japan's new
Masajuro Shiokawa said US Treasury Secretary Paul O'Neill
told him during a weekend meeting in Washington that the United States wanted to
see Japan boost domestic demand, putting the focus on slack spending by Japan's
recession-worn consumers and businesses.
In a response to criticism that Japan was trying to export
its way out of its economic troubles, Shiokawa added that foreign exchange rates
should be left to financial markets, except in extreme cases of volatility.
The new finance minister was talking to reporters after
returning from meetings with finance ministers and central bankers from the
Group of Seven rich nations in Washington.
He said an economic package the government announced last
month, which included steps to resolve long-standing problems in the banking
sector deregulation needed to be swiftly implemented.
"In our conversation, O'Neill said that from the United
States' standpoint they wanted to see increased domestic demand in Japan,"
Shiokawa said, adding: "I think a lot of public spending allocation should
be directed to urban development." He said Japan did not need to compile an
extra budget for the current fiscal year which began in April and that effective
reallocation of the existing budget and early disbursement were the first steps
that needed to be taken.
Shiokawa, 79, a veteran politician appointed to his job last
week in a surprise move by new prime minister Junichiro Koizumi, said that while
fiscal consolidation was crucial, the new government's first priority was a
sustainable economic recovery.
ECB highlights risk
The European Central Bank said on Wednesday inflationary
risks have not entirely disappeared in the euro zone even as economic growth
slowed in the wake of U.S. developments.
The bank, which has refused to cut interest rates in response
to slowing euro zone growth, also said that keeping inflation low was the best
way to boost and maintain confidence in Europe's single currency, the euro.
"Anchoring confidence in the euro, in particular for the
general public, is a time-consuming task," ECB President Wim Duisenberg
said in a foreword to the bank's annual report.
"The best way in which to achieve it is to build a track
record of low inflation," he said.
Presenting the report to the European Parliament, ECB
Vice-President Christian Noyer reiterated monetary policy was not the right tool
to fend off the threat of economic slowdown at a time inflationary risks
"Since the last increase of ECB interest rates in
October 2000, risks to price stability in the euro area have become more
balanced," said Noyer. "However they have not entirely
Noyer also said that although inflation remained markedly
above the ECB's ceiling of 2 per cent, there were some signs of price risks
"Indications of lower inflationary pressures over the
medium term have also emerged from the analysis under the second pillar of the
ECB's monetary policy strategy," he said.
The so-called first pillar of the ECB policy is money supply,
while a broad range of inflation and growth indicators make up the second
The ECB has held its benchmark interest rate at 4.75 per cent
since October 2000.
In his written remarks, Duisenberg also welcomed shrinking
budget deficits in the euro zone, but urged governments to consolidate further
their fiscal positions.
Euro zone output falls
The Eurozone Purchasing Managers' Index fell below the
critical 50 level in April, signalling that the region's manufacturing economy
is shrinking for the first time in over two years as a global slowdown bites.
But analysts doubted the data would persuade the European
Central Bank to join all the other leading central banks in cutting interest
rates to stimulate the world economy.
"It will add to the political pressure on the ECB to
move rates," said Steven Pearson at Halifax bank in London. "But their
primary focus will remain inflation for the short term."
The PMI, based on a survey of more than 2,000 European
manufacturing companies, tumbled to 49.3 from 51.2 in March as national PMIs for
the euro zone's big three economies — France, Germany and Italy — all
dropped below the "no change" level.
Any global slowdown can hit Europe directly as exporters find
it harder to sell their goods overseas, and indirectly as confidence weakens.
That means businesses cancel investments and even lay off staff, and employees
cut their spending as they fear for their jobs.
Fed sees slow economy
The Federal Reserve said Wednesday it sees continuing
sluggishness in U.S. economic activity, with particular weakness in the
"Almost all districts report a slow pace of economic
activity in March and early April," the Fed said in its periodic
"beige book" report. The report, a summary of national economic
activity, will be used by U.S. central bankers when they meet to decide
The report's somber tone is likely to reinforce expectations
that the Fed will cut interest rates when it meets on May 15, especially since
it noted little or no price pressures and slacker conditions in the nation's
formerly tight labor markets.
"Industrial activity has continued to weaken, with
orders and production having fallen in many districts," the Fed said.
"Labor market tightness has eased in almost every district."
UK rate cut hopes rise
UK manufacturing slid further into the doldrums in April,
raising prospects of an interest rate cut when the Bank of England's policy
committee meets next week.
Manufacturing activity and orders fell to their lowest level
in more than two years, a report from the Chartered Institute of Purchasing and
Supply showed on Tuesday.
The institute said its purchasing managers' index slid to
47.8 in April from 49.8 in March with a number below 50.0 marking contraction
for the second month running.
The figure was the worst since February 1999 and below the
49.0 average expectation from economists.
Official data on economic growth last week showed the UK
economy grew a meagre 0.3 per cent in the first quarter from the fourth, with
the stagnation of industrial output largely to blame.
The Bank of England has already cut interest rates twice this
year to 5.5 per cent in the wake of the increasingly gloomy news from the world
economy and is widely expected to lop another quarter point off its key repo
rate next week.
G7: growth remains strong
The industrialized world's finance ministers and central bank
governors gathered in Washington for their regular economic summit said Saturday
although global growth has slowed in the last year, "the foundations for
economic expansion are sound."
The finance ministers and central bank governors from the
Group of Seven countries — the United States, Germany, France, Japan, Canada
and Italy — say they believe the "long term economic fundamentals ...
remain strong" in the United States.
In a joint statement, issued after a day of meetings, the
leaders also called the prospects for improving the world's standard of living
The G-7 leaders also noted the importance of lower energy
prices and stable oil markets. The statement that followed a meeting of the
world's most powerful finance leaders also said that currencies should reflect
Mergers & Acquisitions
Halifax—BoS: Halifax, the U.K.'s biggest mortgage
lender, agreed to merge with the Bank of Scotland. The mortgage lender will be
in the driving seat with a 63 per cent stake in the new bank, which has a value
of £28 billion ($40 billion) based on the closing share prices of both banks on
Sun Life—Liberty units: Sun Life Financial Services of
Canada Inc. said Thursday it agreed to buy both Keyport Life Insurance Co. and
Independent Financial Marketing Group from Liberty Financial for $1.7 billion,
boosting its U.S. presence.
Vodafone—BT: Vodafone Group agreed on Wednesday to buy
British Telecom's Spanish and Japanese assets for £4.8 billion ($6.9 billion).
Vertex—Aurora: Vertex Pharmaceuticals Inc. said on
Monday that it agreed to buy Aurora Biosciences Corp. for about $592 million in
stock, acquiring a firm known for its fast and highly automated systems for
discovering which chemical compounds might work as drugs.
EMI—BMG: EMI Group, the world's fifth-biggest music
company, and Bertelsmann's BMG music unit may call off merger talks, reports
said on Monday.
Infineon—Catamaran: Infineon Technologies, Europe's
second-largest chipmaker, agreed on Monday to buy Catamaran Communications of
the U.S. for $250 million.
Pulte—Del Webb: Pulte Homes Tuesday announced plans to
buy fellow homebuilder Del Webb Corp. for about $800 million in stock, a move it
said would give it a leading position in all major segments of the housing
Tech retreat trips Wall St.
The Nasdaq composite index fell for the first time in a week
as investors cashed in on recent gains in U.S. technology stocks Thursday, aided
by renewed concerns that the economy may be in for a bumpy ride.
The Nasdaq fell 74.40 points, or more than 3 per cent, to
2,146.20. The losses come after four straight sessions of gains for the
tech-heavy index, and the Nasdaq still is up 31 per cent from its April 4 low of
The Dow shed 80.03 points to 10,796.65, while the Standard
& Poor's 500 slipped 18.84 to 1,248.59.
In other markets, Treasury securities rose. The dollar gained
against the euro but was little changed versus the yen.
Asian markets fall on Nasdaq drop
Markets throughout the region took a beating Friday, battered
by Nasdaq's 3.35 per cent overnight tumble.
With the Tokyo market closed for the Golden Week holiday,
investor interest was focused on markets in Australia, Korea and Hong Kong.
In Australia, the benchmark S&P/ASX 200 index was down
13.7 points to 3,336.3 at noon, having wiped out most of Thursday's gains.
In Seoul, the Kospi was down 2.47 points to 581.93, while in
Hong Kong the Hang Seng index dropped sharply, losing almost 2 per cent or
256.98 points to be at 13,461.16.74 just before noon.
In Taiwan, the benchmark TAIEX was down 0.13 per cent at
5,398.46. In the Philippines, stocks were up slightly.
Mortgage rates edge up
Long-term mortgage rates moved slightly higher in the latest
week, responding to economic reports highlighting continued sluggishness in the
The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.14
per cent for the week ending May 4, gaining from last week's average of 7.12 per
cent. The average this week for a 15-year fixed-rate mortgage was 6.66 per cent,
up slightly from the previous week's average of 6.63 per cent. One-year
adjustable-rate mortgages (ARMs) averaged 6.00 per cent, up from last week's
average of 5.97 per cent.
European markets sink
Europe's major bourses were down sharply by the close on
Thursday, with telecom and technology stocks leading declines.
London's FTSE 100 fell 2.3 per cent to 5,765.8, with the
world's biggest wireless operator Vodafone (VOD) falling 4.8 per cent.
In Paris, the CAC 40 blue chip index slipped 2.1 per cent to
5,457.07 as index heavyweight France Telecom (PFTE) fell 5.6 per cent.
Frankfurt's electronically traded Xetra Dax dropped 1.8 per cent to 6,102.86,
with Europe's biggest software company SAP (FSAP), falling 4.3 per cent.
In Amsterdam the AEX index sank 2.1 per cent, and the SMI in
Zurich was down 1 per cent. Milan's MIB30 index dipped 2.5 per cent. The
pan-European FTSE Eurotop 300, a broader index of the region's largest stocks,
was down 1.9 per cent.
Jobless claims still rising
The number of new jobless claims in the United States rose
last week to its highest level in more than five years, the government reported
Thursday, a sign that the labor market continues to weaken.
The U.S. Labor Department said new claims for state
unemployment benefits rose by 9,000 to 421,000 in the week ended April 28 from a
revised 412,000 the prior week.
Shell: Royal Dutch/Shell Group said said first-quarter
net profit, excluding items, rose to $3.855 billion from $3.13 billion a year
CGNU: CGNU, the UK's biggest insurance group said pretax
operating profits in the three months ended March 31 rose to £445 million
($636.9 million), up from £393 million a year earlier.
Adidas: Adidas-Salomon, the world's No. 2 sports goods
maker, said on Thursday first-quarter profits fell 12 per cent as sales lagged
in the U.S. The German rival of Nike said first-quarter net profits fell to 46
million ($41 million) from 53 million, even as sales rose 3 per cent to 1.6
billion compared with the same period last year.
Deutsche Bank: Europe's biggest bank Deutsche Bank said
first-quarter net profits rose to 1.3 billion ($920 million) from 960 million in
the same period last year. Trading profit rose 11 per cent to 2.72 billion from
2.46 billion a year ago.
BAT: The world's No. 2 cigarette maker British American
Tobacco said pretax profit rose to £463 million ($662 million) in the quarter
from £223 million last year.
Phillips: Phillips Petroleum Co. said it earned $504
million, or $1.96 a share, up from the $271 million, or $1.06 a share, a year
Allied Domecq: Allied Domecq, the UK-based company said
on Tuesday first-half pretax profit increased 16 per cent to £236 million ($338
million) from £204 million a year ago.
Volvo: Swedish truck maker Volvo posted net losses of 801
million crowns ($78.5 million) compared with a profit of 1.26 billion crowns in
the same three months last year.
Body Shop: UK retailer Body Shop posted a 50 per cent
decline in full-year net profits to £9.3 million ($13.3 million) as new
products failed to take off.
U.S. factory orders jump
Orders received by U.S. factories rose in March, the
government said Tuesday, a larger-than-expected jump led by a big gain in orders
for transportation equipment.
Factory orders rose 1.8 per cent to a seasonally adjusted
$370.52 billion — the largest gain since June 2000 — after falling a revised
0.1 per cent in February, the Commerce Department report said.
Chip sales slip 7%
Worldwide sales of computer chips in March fell 7 per cent
from February, the Semiconductor Industry Association said Wednesday, as an
oversupply of chips and a weaker economy sent the industry further into a slump.
Worldwide sales of semiconductors were $14.40 billion in
March, off 4.5 per cent from $15.07 billion a year ago, SIA reported. February
sales were $15.48 billon.
Big Three sales tumble
Ford Motor Co., General Motors and the Chrysler unit of
Germany's DaimlerChrysler all reported double-digit sales declines in April
Tuesday, reflecting a drop in consumer spending on big-ticket items as the
economy continues to slow.
Ford said its April sales fell 14.5 per cent to 318,812
vehicles, and added that it is scaling back second-quarter production to deal
with the slowdown.
GM, the world's No. 1 automaker, reported a 16 per cent drop
in April sales to 359,499, but said that it anticipates second-quarter North
American production will increase slightly from previous estimates to 1.3
million cars and trucks.
And the Chrysler division of DaimlerChrysler said April sales
plummeted 18 per cent to 187,119 from a year earlier.