14 - 20 , 2001
ECB surprises with rate cut
The European Central Bank shocked the markets with
a quarter-point interest rate cut on Thursday to counter a slowing in
euro zone growth.
The ECB lowered the interest rate to 4.5 per cent,
its first move in two years, from 4.75 per cent. Only three economists
out of 50 polled by Reuters expected a rate cut.
The surprise move came after a raft of bad economic
data from euro zone economies and was contrary to the rate policy
committee's public statements, saying its mandate was to keep
inflation under control.
Germany, the euro zone's largest economy, posted
higher unemployment as well as lower retail sales, factory orders and
manufacturing output in recent days, leading to calls for the ECB to
follow the lead of the U.S. and most other leading economies.
The rate cut — the second since the ECB was
established in 1998 — provided a fillip for the markets, with the
euro strengthening half a cent against the U.S. dollar to 89.20 U.S.
Technology and interest rate-sensitive banking
stocks pushed key markets in France and Germany to new highs for the
Ulrich Beckman, economist at Deutsche Bank, told
that he expects the ECB to cut rates again in early July, if June
inflation figures are favourable. But, Backman reckons that would be
"too little, to late" for growth in the euro zone.
The rate cut came 45 minutes after the Bank of
England also eased rates by 0.25 of a per centage point to 5.25 per
cent. The rate is at its lowest level since November 1999 but remains
the highest in the Group of Seven leading industrial countries.
The move came as annual UK economic growth slowed
to 2.5 per cent in the first quarter compared with 2.6 per cent in the
fourth quarter of 2000.
The bank is attempting to stave off the effects of
the U.S. slowdown and other negative factors such as the economic
damage caused by foot-and-mouth disease afflicting UK agriculture,
which has reduced tourism revenue.
House passes budget resolution as Democrats rail
The House of Representatives passed a House-Senate
compromise version of the fiscal 2002 budget resolution on Wednesday
amid fierce Democratic criticism that the majority Republicans are
poised to stage later raids on Medicare and Social Security to finance
The measure, which sets spending parameters for the
congressional appropriations process, squeaked by with three votes to
spare, 221-207. With 435 members in the House, 218 votes were required
Six Democrats broke ranks to support the
resolution, which may face an even tougher time in the Senate. Three
Republicans chose not to support it.
Passage came one day after House and Senate
Republicans agreed on the $1.97 trillion compromise, and the joint
conference committee followed suit by passing out the resolution to
each house. The full amount of federal spending mirrors the budget
blueprint sent to the Congress by President Bush in February, with
some spending priorities shifted.
The resolution calls for $1.35 billion in tax
relief over the next 11 years, somewhat less than Bush's proposed $1.6
trillion cut over 10 years. Bush's plan was sidetracked in April when
the Senate shaved billions off the tax cut in favour of increased
Should the resolution clear the Senate, the next
phase of the budget process will begin with congressional
appropriations subcommittees setting annual allocations for the
federal government's departments and agencies, and the Senate Finance
and House Ways and Means committees drafting tax relief bills that
conform to the budget resolution.
The 2002 fiscal year begins on October 1 of this
year. Republicans hope to have a tax-relief bill signed into law by
Memorial Day, just three weeks away.
Global slowdown in IT spending
The global slowdown in spending on information
technology could be a blessing in disguise for India's burgeoning
software service industry, according to a number of global investment
Most echo the view of Morgan Stanley, which said
technology services outsourcing companies should outperform the
broader technology sector, as more firms contract out their IT
operations to save money and focus resources on their core business.
Morgan said in a report earlier this year that
outsourcing of IT services to Asia accounted for just one per cent of
the global IT services market.
Thus a 0.25 per cent increase in the outsourcing
proportion could more than make up for a slowdown in IT spending
growth from about 10 per cent a year to negligible growth, it said.
Retreat on Wall St.
A rally on Wall Street faded by the close Thursday
as investors, continuing a pattern of questioning April's big advance,
braced for the week's most important economic data.
The Dow Jones industrial average rose for only the
first time this week, but just barely. The Nasdaq composite index
posted its third drop in four sessions.
The Dow industrials after being up more than 113
points, finished at 10,910.44, a 43.46 point, or 0.4 per cent,
advance. The Nasdaq composite index shed 27.81 points, or 1.3 per
cent, to 2,128.82 after being up as much as 41 points. The S&P 500
fell 0.35 to 1,255.16.
Europe up on rate cut
Shares rose across the Continent on Thursday after
the European Central Bank surprised the markets with a quarter-point
interest rate cut.
London's FTSE 100 closed up 1.2 per cent at 5964.0.
A quarter-point cut in interest rates to 5.25 per cent was announced
by the Bank of England, which was, in this case, very much in line
with what the market had expected.
Frankfurt's electronically traded Xetra Dax rose
1.8 per cent to 6,175.49, powered by luxury automaker BMW (FBMW), up
5.4 per cent.
In Paris, the CAC 40 blue chip index was up 2 per
cent to 5,606.46, with European aerospace group EADS (PEADS) climbing
6.3 per cent.
In Amsterdam, the AEX index climbed 3.1 per cent,
and the SMI in Zurich was 1.6 per cent higher. Milan's MIB30 index
added 1 per cent.
The pan-European FTSE Eurotop 300, a broader index
of the region's largest stocks, was up 1.9 per cent.
Asian markets flat, rate cut lifts
Asian markets were mostly flat on Friday as
investors stayed on the sidelines, but an unexpected rate cut helped
lift Tokyo shares.
Tokyo shares ticked up by midday, bolstered by the
European Central Bank's (ECB) rate cut and a shot of fresh optimism
for Japan's major chip-equipment makers.
The benchmark Nikkei average was 0.59 per cent
higher to 14,100.24, after ending in negative turf for three straight
sessions. The capital-weighted TOPIX index rose 0.11 per cent to
In Hong Kong, the benchmark Hang Seng Index was up
0.32 per cent to 43.28 points at 13,648.04.
In Australian, the S&P/ASX 200 index was down
just 3.4 points to 3,383.1.
The Korea Composite Stock Price Index was up 0.01
per cent at 581.43. The over-the-counter Kosdaq was flat at 81.41.
Dollar edges up against yen
The dollar edged up against the yen in Tokyo
trading on Thursday as players adjusted positions amid a dearth of
fresh leads, dealers said. The dollar traded at 122.20-23 yen in Tokyo
on Thursday, against 121.63 yen in New York and 121.59-62 yen in Tokyo
U.S. jobless claims fall
Fewer Americans lined up at the unemployment office
last week as new claims for jobless benefits fell unexpectedly,
according to a government report Thursday.
New claims for state unemployment benefits fell to
384,000 last week from a revised 425,000 the prior week, the Labor
30-year bond drops
U.S. 30-year Treasury bonds extended losses to more
than a full point on Thursday, after a surprise rate cut by the
European Central Bank earlier in the session was seen relieving some
of the need for more aggressive Federal Reserve interest rate cuts.
30-year bonds fell more than a full point to
94-22/32, yielding 5.75 per cent. Benchmark 10-year notes tumbled
24/32 to 97-30/32, yielding 5.27 per cent. Two-year notes fell 5/32 to
99-23/32, yielding 4.14 per cent, while five-year notes dropped 16/32
to 99-12/32, yielding 4.76 per cent.
Mortgage rates move lower
Mortgage rates moved lower in anticipation of a
rate cut by the Federal Reserve ahead of its meeting next week and the
release of new economic data this week.
The benchmark 30-year fixed-rate mortgage (FRM)
averaged 7.10 per cent for the week ending May 11. The average this
week for a 15-year fixed-rate mortgage was 6.61 per cent.
Mergers & Acquisitions
FelCor—MeriStar: Hotel operator FelCor
Lodging Trust Inc. is buying MeriStar Hospitality Corp., another
leading hotel operator, in a cash and stock deal worth $1.1 billion
that will create a real estate investment company with the most hotel
Williams—Barrett: Williams Cos. Monday agreed
to buy natural gas producer Barrett Resources for about $2.5 billion
in cash and stock, topping a rival bid from Royal Dutch/Shell Group
and winning new huge reserves of natural gas.
U.S. Bancorp—NOVA: Midwest regional bank U.S.
Bancorp said on Monday it agreed to buy credit-card payment services
provider NOVA Corp. for $2.1 billion in cash and stock, building up
its payment-processing arm.
BNP—BancWest: France's BNP Paribas said on
Monday it plans to buy 55 per cent of BancWest of the U.S. for $2.45
billion to expands its international reach.
BMW: German luxury car maker BMW said net
income rose to 409 million ($362 million) from 87 million. Its pretax
profit rose 333 per cent to 853 million and revenue rose to 9.37
BNP Paribas: France's biggest bank BNP Paribas
posted first-quarter net income of 1.25 billion ($1.1 billion)
compared with 1.34 billion in the same quarter of 2000, slightly more
than expected. Pretax profit edged down to 1.97 billion from 1.91
BP: The world's No. 3 oil company, BP PLC,
announced a first-quarter earnings of $4.1 billion, or $1.10 per
American depository shares, on Tuesday, up 52 per cent from the $2.7
billion, or 84 cents per ADS, it reported a year earlier.
MetLife: MetLife Inc., earned $384 million, or
49 cents a share, excluding one-time items, compared with $379
million, or 48 cents a share, in the year-earlier period.
News Corp.: Media conglomerate News Corp.
reported net income of $127 million, or 12 cents per U.S. share, for
the quarter ended in March, down from $193 million, or 18 cents a
share, a year earlier.
Aventis: Franco-German firm Aventis said net
profit at the Life Sciences business climbed to 306 million ($207
million), or 0.39 a share, from 186 million, or 0.24 a share, in the
year earlier period.
Pfizer trumpets new drug
Pfizer Inc. said Tuesday the effectiveness of its
new schizophrenia drug Geodon was comparable to Eli Lilly and Co.'s
best-selling Zyprexa in a clinical trial of the two medicines, but
Geodon showed safety advantages over the Lilly treatment.
U.S. productivity shrinks
U.S. workers were less productive in the first
quarter for the first time in six years, the government said Tuesday,
a much weaker performance than Wall Street economists had expected.
Productivity, a measure of worker output per hour,
fell at a 0.1 per cent annual rate in the quarter, the Labor
Department said, well below Wall Street forecasts for a 1.1-per cent
growth rate and the fourth quarter's revised 2 per cent rate of
It was the first time productivity shrank since a
negative 0.8 per cent reading in the first quarter of 1995.
Apple to open first store
Apple Computer Inc. will open its first retail
store next week in Virginia — the first of what is expected to
become a chain of Apple outlets.
Merrill, HSBC launch UK net
HSBC and Merrill Lynch have launched their delayed
online banking and investment joint venture in the UK.
MLHSBC.com has been held up by its technical
complexity while changing market conditions have forced it to lower
its sights, from individuals with at least £60,000 ($86,300) to
invest, to ones with £10,000 ($14,400).
German gloom hits euro
The euro fell more than a quarter per cent against
the dollar and the yen on Tuesday as traders took in gloomy German
manufacturing and jobs data.
The dollar rose to a one-week high against the euro
as data released on Tuesday showed German unemployment rose in April
for the fourth month in a row. The seasonally adjusted total rose by a
Figures released on Monday had German manufacturing
orders falling at their fastest pace in March for almost 10 years.
"The euro was already reeling as traders
reacted to the German manufacturing numbers, and the jobless data
compounded the gloom," said Francesca Fornasari, currency
strategist at Lehman Brothers.
The euro weakened to one-week lows of around
$0.8860 and day's lows of around 107.60 yen as traders responded to
the data from Germany, the euro zone's largest economy.
Allianz-E.ON power cut
Europe's biggest insurance company, Allianz AG, has
confirmed it is in talks with the German power company E.ON AG to
reduce its stake.
Allianz holds 10.2 per cent of E.ON's stock and
says it wants to reduce this to help Germany's largest power utility
win U.S. regulatory approval for its 8.2 billion ($7.32 million)
acquisition of Britain's Powergen.
Bush seeks trade powers
President Bush planned Monday to outline a set of
principles for free trade as he renewed a quest to persuade Congress
to give him trade negotiating authority.
The White House said Bush would offer "fresh
new thinking" on free trade and the importance of trade promotion
authority — also known as "fast track" — during a speech
to the Council of the Americas, an influential business group.
Under the negotiating authority, Congress can vote
up or down, but not amend, trade deals negotiated by Bush, who wants
it to work out a free trade agreement for North and South America.
Bush is to make his formal request to Congress to
give him the authority later this week. It faces an uncertain future
on Capitol Hill.