May 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 government.

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 persisted.

"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 disappeared."

Noyer also said that although inflation remained markedly above the ECB's ceiling of 2 per cent, there were some signs of price risks receding.

"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 pillar.

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 manufacturing sector.

"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 interest-rate policy.

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 "compelling."

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 fundamentals.

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 Thursday.

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 market.

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 1,638.

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 U.S. economy.

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.

Results

Shell: Royal Dutch/Shell Group said said first-quarter net profit, excluding items, rose to $3.855 billion from $3.13 billion a year ago.

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 earlier.

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.