25 - July 01, 2001
BOJ downgrades economy
The Bank of Japan (BOJ) downgraded its assessment of the
economy Monday because of a big drop in output, only days after its
controversial decision not to ease its monetary policy further.
In its monthly report for June, the BOJ said the slowdown in
Japan's economy is intensifying and is likely to continue in the near term. The
report comes on the heels of the central bank's decision last Friday to keep
monetary policy on hold despite data showing output shrank in the first three
months of the year and a government report saying the economy is deteriorating.
"Looking at our economy, the adjustment phase is
intensifying as output has fallen dramatically due mainly to a drop in
exports," the BOJ report said.
In its previous two monthly reports, the central bank had
merely described the economy as being in an adjustment phase; however, the
latest downgrade still falls short of the blunt term "deteriorating"
now being used by the government and which the BOJ itself used during the global
financial crisis in 1998.
The Associated Press reported that the government's frankness
is widely viewed as reflecting the policies of the new administration of Prime
Minister Junichiro Koizumi, who has promised to rein in public spending while
cracking down on banks' loose lending practices that have sent bad debts soaring
The latest report pushed the yen to its lowest level in a
month, around 123.50 yen against the dollar and around 106.60 yen against the
euro in early Monday trading in Europe.
The BOJ downgrade is likely to fuel calls for a further
monetary easing, perhaps at its next Policy Board meeting later this month, as
data continue to paint a bleak picture of the economy.
Possible easing measures could include raising the BOJ's
quantitative target of the volume of money — it now seeks to keep reserves
parked with it at five trillion yen — or increasing its outright purchases of
BoE warns interest rate cuts may stoke inflation
The Bank of England (BoE) has warned that further interest
rate cuts could stoke inflation, reinforcing market expectations that UK rates
will be on hold for a while and that the next move may be upwards.
Minutes released on Wednesday of the BoE's interest rate
policy meeting earlier this month showed the nine-member Monetary Policy
Committee (MPC) voted 8-1 in favour of leaving the benchmark repo rate at 5.25
The only dissenter, arch-dove Sushil Wadhwani who has
consistently argued for lower borrowing costs, voted for a quarter-point rate
cut. But the general view on the committee at the June 5-6 meeting was that a
further rate cut would worsen the imbalance between strong consumer demand and
weak domestic output growth. Policy action to offset these effects would,
however, tend further to stimulate consumption and so to worsen the imbalances.
These could then prove more problematic for the control of inflation in the
medium term. That was a key policy dilemma, the minutes said. Short sterling
futures took an initial dive on the minutes, reflecting higher expectations of a
rate rise before the end of the year, before recovering lost ground to remain
unchanged. The pound and government bonds, known as gilts, were unaffected.
The MPC began cutting interest rates in February in response
to a deteriorating world economic outlook and benign domestic inflation which
has been below the government-set target of 2.5 per cent for over two years. So
far, the MPC has made three quarter-point rate cuts. Economists had expected the
MPC to make at least one further rate cut this year to stimulate business and
consumer confidence. But a surprise surge in the underlying inflation rate in
May, to 2.4 per cent from 2.0 per cent the previous month, combined with robust
consumer demand figures, have led many to predict that the next rate move will
ADB unveils LIBOR-based loan product
The Asian Development Bank (ADB) on Tuesday approved a loan
product based on the London interbank offered rate (LIBOR) that it said would
offer borrowers greater flexibility in the choice of currency and interest rate
From July 1, Manila-based ADB will offer public and private
borrowers a LIBOR-based loan that will carry a floating lending rate consisting
of six-month LIBOR and a spread fixed over the life of the loan.
Japan warns of currency intervention
The Bank of Japan's latest warning on currency intervention
betrays growing concern that Japan's deteriorating economy could put the yen
under further pressure, analysts say.
Firing a shot across the bows of yen bears, Japan's central
bank chief Masaru Hayami said on Tuesday that currency intervention may be
needed if exchange rates moved too rapidly. He also warned that a weaker yen
would be detrimental to the global economy.
The yen has fallen some five per cent against the euro and
the dollar already this month on growing signs that Japan's economy is
faltering. Although Japan is unlikely to be too concerned about the current
level of the yen, given the export-boosting benefits of currency depreciation,
the timing of the central bank's latest salvo suggests it is aware that more
drastic currency moves could lie ahead.
ECB leaves rate on hold
The European Central Bank left its key interest rate on hold
at 4.5 per cent on Thursday, despite data showing an economic slowdown was
Ten economists and fund managers polled by CNN expected the
ECB to keep rates steady but all agreed that the bank, which controls interest
rates for the 12-nation euro zone, would cut rates in July.
The ECB "surprised the market on May 10 with a 25 basis
point rate cut. That came against expectations, but July seems to be a better
opportunity for a cut as better inflation news comes through," Steve
Barrow, Currency Economist at Bear Stearns, told CNN.
Euro zone inflation rose to an eight-year high of 3.4 per
cent in May, above the ECB's target rate of 2 per cent. Economists say inflation
has been driven up by higher energy and food prices and would be expected to
decline in coming months, giving the central bank the opportunity to cut rates.
UK to be cautious on euro
Chancellor of the Exchequer Gordon Brown has moved to cool
speculation that the British Government is preparing for swift adoption of the
In his annual Mansion House address to City financiers and
business leaders he pledged a "considered and cautious" approach to
join the European monetary system, describing the government's stance as
"pro euro realism."
Many observers had predicted that PM Tony Blair's Government
would launch a campaign for euro entry immediately after its second election
victory on June 7. The uncertainty had led to volatility in the value of the
Brown said that assessment of the five economic tests he set
out in 1997 had not yet started. Technical work would have to be done to enable
the assessment to be made within two years, as Labour had promised before the
German growth target
The German government said for first time on Tuesday that it
may be tough to meet its earlier expectation of 2 per cent economic growth for
this year. Speaking to an oil industry meeting, Economy Minister Werner Mueller
said: "Second-quarter growth might even be zero. If that is the case, then
full-year growth of 2.0 per cent will be hard to attain."
The German economy is the biggest in the 12-country euro
zone. Mueller said it was important however "not to talk down the
economy." "There are many sectors, particularly the export-orientated
ones, which are coming out with good numbers. What's more, without the extensive
tax reforms, the situation would look a lot worse," Mueller argued.
Russia not to borrow from IMF
Russia announced Tuesday that its latest round of talks with
International Monetary Fund chiefs has concluded that Moscow would probably not
ask for new loans to help cover a huge debt burden that matures in 2003.
We discussed this question with IMF deputy managing director
Stanley Fischer and came to the conclusion that this situation (a request for a
loan) is unlikely, the PRIME-TASS news agency cited Finance Minister Alexei
Kudrin as saying. However the report also cited Kudrin as saying that Russia
would still turn to the IMF for help should the world's economy as a whole sour
and make it impossible for Moscow to meet the payments.
UK plans to boost productivity
The newly re-elected Labour government plans to create a
"true enterprise culture" in Britain through a drive against cartel
price-fixing and by boosting productivity, Chancellor of the Exchequer Gordon
Brown said on Monday.
The government has warned that under planned legislation,
businessmen found colluding to keep prices high could face jail. "Today we
bring forward radical measures to tackle our productivity gap and create in
Britain a true enterprise culture where the chance to succeed is genuinely open
to all," Brown said at his 11 Downing Street office.
Mergers & Acquisitions
Gallaher—Tabak: Gallaher, the UK's third biggest
tobacco company, agreed on Friday to buy Austria Tabak for about $1.8 billion.
Lucent unit: Bids for the fiber optic unit of Lucent
Technologies Inc. are coming in at $3 billion to $3.5 billion, lower than the
anticipated $5 billion the business was expected to raise, press reports said
Telekom: Deutsche Telekom said Thursday it has agreed to
sell six German cable TV companies to U.S. cable network operator Liberty Media
in a deal that could bring a reported $4.7 billion, or $400 million more than
GE—Honeywell: The European Commission confirmed
Wednesday that it sent out a draft decision recommending that the European Union
reject General Electric Co.'s proposed $41 billion purchase of Honeywell
Nasdaq rises for 3rd day
Investors returned to technology, financial and retail shares
Thursday, betting that lower interest rates can stem the declining corporate
profits that have hammered stocks this year.
The Nasdaq composite index rose 27.44 points, or 1.4 per
cent, to close at 2,058.68, while the Dow Jones industrial average added 68.10
to end the day at 10,715.43. The Standard & Poor's 500 index advanced 13.89
On the New York Stock Exchange, advancing issues beat
declining ones 1,743 to 1,356 as 1.4 billion shares changed hands. Nasdaq
winners topped losers 2,053 to 1,670 as 2.1 billion shares traded.
In other markets, the dollar rose against the yen and was a
little changed versus the euro. Treasury securities advanced.
Tokyo holds onto early gains; HK down
Tokyo stocks held onto early gains by midday on Friday,
helped by tech strength and bank reform enthusiasm.
Technology stocks helped lift the benchmark Nikkei 225
average by 75.84 points or 0.59 per cent to 13,038.27. That extended Thursday's
2.27 per cent surge.
The broader TOPIX index added 0.75 per cent or 9.61 points to
Elsewhere in the region, the Australian market also was
firmer, with the S&P/ASX200 picking up 18.1 points or 0.5 per cent to
Abbott looks to drugs
Abbott Laboratories Inc. on Thursday said its recent $6.9
billion purchase of Knoll Pharmaceuticals would help make drugs the future focus
of the firm, which in past years has been equally well known for its medical
devices and diagnostics products.
Bonds rise in late trade
U.S. Treasurys shaved some gains at midday Thursday when a
regional manufacturing index turned out not as weak as economists had expected
and thus seemed to favor a quarter-percentage-point Federal Reserve rate cut
next week instead of a half-percentage-point reduction. Benchmark 10-year notes
were up 4/32 to 98-19/32, yielding 5.19 per cent, while 30-year bonds were up
13/32 to 96-8/32, yielding 5.64 per cent. Two-year notes were down 1/32 to
100-16/32, yielding 3.96 per cent. Five-year notes were up 1/32 to 99-25/32,
yielding 4.67 per cent.
Mortgage rates inch lower
Mortgage rates inched lower for the third consecutive week as
the pace of home building in the United States dipped in May.
The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.11
per cent for the week ending June 22. The average this week for a 15-year
fixed-rate mortgage was 6.65 per cent. One-year adjustable-rate mortgages (ARMs)
averaged 5.74 per cent.
U.S. trade gap shrinks
The U.S. trade deficit fell in April, the government said
Thursday, but the drop followed a record-setting gain in March and still was
higher than forecasts by Wall Street economists.
The nation's trade deficit shrank to $32.2 billion in April
from a revised $33.1 billion in March, the Commerce Department reported.
Economists polled by Briefing.com had expected a deficit of $30.9 billion.
Separately, new jobless claims fell to 400,000 last week from
a revised 434,000 the prior week, the Labor Department said, versus Wall Street
forecasts for 425,000.
U.S. exports fell to $86.9 billion from $88.7 billion in
Exported goods fell to $62.1 billion from $63.9 billion in
March, while exported services were little changed. Meanwhile, imports also
fell, to $119.1 billion from $121.8 billion in March.
Europe sinks on Infineon
Europe's major bourses closed loweron Wednesday after German
chipmaker Infineon Technologies issued a profit warning.
Frankfurt's electronically traded Xetra Dax fell 43.20
points, or 0.8 per cent, to 5,695.3. Communications firm Siemens (FSIE), which
owns 71 per cent of Infineon, fell 5.3 per cent. Its Epcos (FEPC)
electronics components unit lost 4.3 per cent.
London's FTSE 100 ended up 0.26 per cent at 5,695.3, as
telecom equipment maker Marconi (MONI) fell 6.7 per cent after U.S. rival
Tellabs slashed its second-quarter outlook.
In Paris, the CAC 40 blue chip index shed 0.55 per cent to
5,170.8. Alcatel (PCGE), Europe's fourth-largest telecom equipment maker, lost
3.05 per cent, France Telecom (PFTE) slipped 1.9 per cent, and its mobile phone
unit Orange (PORA) lost 1.38 per cent.
In Amsterdam, the AEX index fell 0.8 per cent and the SMI in
Zurich was 0.7 per cent lower. The MIB30 in Milan dropped 0.9 per cent.
U.S. leading indicators up
A key gauge meant to predict the U.S. economy's performance
rose in May, a report said Wednesday, hinting that the slowdown in the world's
largest economy could nearly be over.
The Conference Board, a New York-based business research
group, said its Index of Leading Indicators rose 0.5 per cent in May, its
biggest gain since December 1999, after rising 0.1 per cent in April. Analysts
surveyed by Briefing.com expected indicators to rise only 0.2 per cent.
Japan takes another trade hit
There is fresh evidence that one of the engines of Japan's
economy — exports — is losing steam.
Japan's trade surplus with the rest of the world plunged 86.1
per cent in May from a year earlier.
Economists point to slowing demand in the United States, and
competition from other Asian exporters, whose currencies are weaker.
Japan's trade surplus was the lowest since January 1996, a
finance ministry official told Reuters.
It hit 80.1 billion yen ($652 million), down from 575.0
Japan's trade surplus has been slumping in recent years and
the trade balance swung into a deficit in January for the first time in four
Falling exports in recent months have added to worries about
Japan's fragile economy as it struggles to reverse a prolonged slump.
Recent data suggests the world's second-biggest economy is
sinking into its fourth recession in a decade.
China slaps Japan on trade
China has announced that it will impose special duties on
some of Japan's most popular exports.
The trade war threatens Asia's biggest trading relationship,
worth almost half a trillion dollars last year.
China will impose tariffs on cars, mobile phones and air
conditioners from Japan, the Ministry of Foreign Trade and Economic Cooperation
in Beijing said late Monday.
The higher tariffs are a response to Japan's import
restrictions on spring onions, shiitake mushrooms and the grass used to make
tatami mats. Japan imposed higher taxes on those goods from China in April.
China has not yet released the amount of its tariffs. But
they could crimp the most important Asian trade relationship.
JetBlue to buy 48 planes
JetBlue Airways, a U.S. low-fare carrier, said on Monday it
has ordered up to 48 Airbus Industrie aircraft worth $2.5 billion.
Air show opens
The world's largest air show has opened with United Airlines' parent company,
UAL Corp., saying it intends to buy 100 jets worth $2.5 billion from France's