28 - Sep 02 , 2001
Fed saw slowing in June
Federal Reserve policy makers saw a slowdown in several key
components of the U.S. economy in the second quarter, leading them to cut
interest rates in June, according to minutes of the Fed's June meeting, released
The Fed cut a quarter per centage point from its target for
the federal funds rate, an overnight bank lending rate, on June 27 after a
two-day policy meeting, its sixth cut of the year in an effort to fend off a
In the minutes, the Fed said it focused on falling employment
and industrial output, slowing consumer-spending growth and business spending
before voting 9-1 to cut rates again.
"The information reviewed at this meeting suggested that
economic activity continued to grow little, if at all, in the second
quarter," the minutes said.
Fed policy makers also worried that corporate profits still
were at risk, which could lead to falling stock prices and more job cuts, both
of which could erode consumer and business spending. Consumer spending is
important to the Fed because it fuels two-thirds of the U.S. economy.
The Fed, which is charged with keeping inflation at bay, also
noticed that energy prices had flattened, though at a high level, and core price
inflation — inflation minus volatile food and energy prices — had fallen.
Fed Chairman Alan Greenspan hasn't been concerned about inflation for some time,
meaning he felt the Fed was free to cut rates again if necessary.
While William Poole, president of the Federal Reserve Bank of
St. Louis, was the only policy maker to formally oppose the rate cut, others
shared his concern that the Fed was close to pumping too much money into the
The Fed cut an additional quarter point after its Aug. 21
meeting, but the minutes of that meeting will not be available until after the
Fed's Oct. 2 meeting.
German economy stalls
Confirmation that German economic growth has stalled could
give euro-zone monetary chiefs the excuse to cut interest rates next week.
Growth in Europe's biggest economy ground to a halt in the
second quarter, official figures from Germany's Federal Statistics Office showed
on Thursday, as most economists had predicted.
The numbers reflect output and investment cutbacks by
companies suffering from excess stock amid a global economic slowdown. The
construction industry came under pressure as building work on factories and
German Finance Minister Hans Eichel refused to be downcast,
however, telling ZDF television there was "no reason for pessimism."
Referring to tax cuts that came into force in January, Eichel forecast an upturn
in demand later in 2001.
"We see that the inflation rate is going down, so that
there is a chance that tax reform with its enormous relief in the second half of
the year will begin to work," Eichel said.
But that isn't likely to deliver a revival in the economy
until the end of the year, economists warned.
"The (second-quarter) numbers are nothing to shout
about, and they could have been worse," Ken Wattret, an economist at BNP Paribas, told.
But he warned: "We can expect the third quarter to be
subdued and possibly a better fourth quarter."
The European Central Bank holds its next interest
rate-setting meeting on meeting to set on August 30. The majority of economists
now expect it to cut rates on that day.
"This will encourage the ECB to lower rates sooner
rather than later," said Wattret. "Their own growth target (for the
euro zone) is 2 1/4 to 2 1/2 per cent. They won't achieve that now."
The ECB has stubbornly decided not to cut rates since May
despite calls from economists and politicians concerned about the effects of
U.S.-led economic slowdown on the 12-nation euro zone.
S. Korea pays back last instalment of IMF loan
South Korea's central bank chief on Thursday signed the final
cheque for the International Monetary Fund (IMF) to end the country's financial
crisis nightmare. Taking a break from battling new worries over the economy ,
Finance and Economy Minister Jin Nyum said clearing the IMF rescue package was a
Bank of Korea governor Chon Chol-Hwan signed a $111.18
million transfer and sent a message to the IMF saying South Korea "has now
repaid in full" the emergency loan extended three years ago. South Korea
was forced to seek a $58 billion rescue package from the IMF in December 1997
after feeling the full blast of the Asian financial crisis, which exposed
serious structural problems in the economy.
IMF, Indonesia likely to finalize preliminary deal
An International Monetary Fund (IMF) team began talks Monday
on restarting a crucial stalled loan programme to Indonesia, with both sides
expressing optimism about the outcome. State Enterprises Minister Laksamana
Sukardi said the two sides hope to finalise by Thursday a Letter of Intent (LoI)
spelling out Jakarta's commitments for fiscal reforms in return for loans.
They (IMF) are very optimistic. The mood was positive, said
Sukardi after 30 minutes of preliminary talks at the finance ministry. It (the
LoI) is hoped to be finished by Thursday, Sukardi told reporters. They will send
the new LoI immediately to Washington. Hopefully it will be approved.
Figures point to drift for Japan
Fresh figures hint at how bad the second quarter downturn hit
Japan, the world's second-biggest economy.
Japanese economic activity to June fell 1.9 per cent over the
previous quarter, as measured by the Ministry of Economy, Trade and Industry's
It was the first quarterly decline since late 1998. That's a
7.3 per cent annualized decline, which J.P. Morgan economist Ryo Hino noted was
Though actually slightly firmer than analysts expected,
Wednesday's figures give an early indication of how bad the second quarter was
'Dire' GDP due Japan reports its second-quarter gross
domestic product figures on September 7. Those numbers are expected to be dire.
The country escaped a recession on a technicality last week,
when a regular revision moved its first-quarter GDP to a 0.1 per cent rise from
Argentina gets IMF aid
State workers in populous Buenos Aires province are being
paid partly in government bonds — another sign of an economic crisis that
prompted international lenders to loan Argentina another $8 billion.
The International Monetary Fund announced plans late Tuesday
to provide more aid, raising to $22 billion the total amount of emergency loans
to help stabilize South America's second-largest economy. President Fernando De
la Rua said the IMF decision "allows us to stop living under the negative
and end the anxiety."
On the same day, cash-strapped Buenos Aires province began
handing out government bonds to help meet the payroll for thousands of state
Japanese business sentiment
Business sentiment of Japanese firms operating in five
Southeast Asian countries has declined overall compared to a year earlier, a
survey published on Monday showed. Apart from Indonesia, business sentiment
among Japanese firms in Malaysia, Philippines, Thailand and Singapore had
declined compared to a year earlier, the survey of 1,622 firms by Japan External
Organization said. Of the 1,622 firms surveyed 1,132, or 69.8 per cent, of them
Mergers & Acquisitions
HW—Vodafone: Hutchison Whampoa has denied reports it is
seeking to sell its stake in Vodafone, the world's biggest mobile-phone company.
Lilly—Isis: Shares of Isis Pharmaceuticals Inc. soared
Wednesday after the company announced a significant investment from major
drugmaker Eli Lilly & Co. as part of an agreement to license one of Isis'
experimental cancer compounds. Under the agreement, Lilly will make a $75
million equity investment in Isis through the purchase of stock at $18 per
share, well above current market prices. That investment will give Lilly about a
9 per cent stake in Isis.
Roadway—Arnold: Trucking company Roadway Corp. agreed
Wednesday to buy Arnold Industries Inc. for $475 million cash, putting Roadway
into the short-haul trucking market.
Alcoa—BHP: Rivals Alcoa Inc. and BHP Billiton agreed
Monday to combine their metals distribution units, creating a combined firm with
over $2 billion in revenue.
Slippery day on Wall St.
U.S. stocks floundered Thursday, moving lower after the
minutes from the Federal Reserve's June meeting were released, reminding
investors that the Fed still sees a stagnant economy.
The Nasdaq composite index shed 17.04 to 1,842.97, while the
Dow Jones industrial average flip-flopped before heading lower, falling 47.75 to
10,229.15. The Standard & Poor's 500 dipped 3.22 to 1,162.09.
U.S. bonds hold gains
U.S. Treasurys rose Thursday after a government report showed
a rise in weekly jobless claims, underpinning ongoing concerns about extended
sluggish growth and cementing hopes for lower interest rates.
Two-year notes were up 1/32 at 100-10/32, yielding 3.70 per
cent, while five-year notes were 3/32 higher at 100-24/32 to yield 4.45 per
cent. Benchmark 10-year notes were up 3/32 at 100-30/32, yielding 4.88 per cent,
and 30-year bonds were up 11/32 at 99-15/32 to yield 5.41 per cent.
Major bank estimates cut
Analysts on Thursday cut their earnings estimates for five
Wall Street heavyweights, including Morgan Stanley and Goldman Sachs Group Inc.,
citing continued weakness in key operations including merger advisory and stock
and bond underwriting.
Mortgage rates retreat
Mortgage rates edged lower after this week's seventh
interest-rate cut of 2001 by the Federal Reserve.
The benchmark 30-year fixed-rate mortgage was at 6.91 per
cent for the week ending Aug. 24. The average this week for the 15-year
fixed-rate mortgage was 6.47 per cent. One-year adjustable-rate mortgages (ARMs)
averaged 5.68 per cent.
Europe closes mixed
Europe's major bourses ended mixed Thursday as investors
digested a report that growth in Germany had ground to a halt.
Frankfurt's late-trading Xetra Dax recovered slightly
following earlier falls, rising 0.6 per cent to 5,252.23, while London's FTSE
100 closed 0.2 per cent lower at 5,396.5. The CAC 40 index in Paris ended
slightly down at 4,809.5.
In Amsterdam, the AEX index climbed 1.3 per cent, while the
SMI in Zurich lost 0.6 per cent. Milan's MIB30 index rose 0.2 per cent.
U.S. surplus shrinks
U.S. budget figures released by the Bush administration
Wednesday show a 43 per cent drop in the latest projected surplus, creating what
could be the narrowest of cushions if the government is to avoid tapping the
politically sensitive Social Security trust fund to balance the budget this
The longer-term projections continue to show substantial
surpluses, with only minimal effects from the current economic slowdown and
income-tax refunds that have cut sharply into the surplus for the current fiscal
year, which ends in September.
Concorde to get OK to fly
Britain and France said Monday that Concorde supersonic
passenger jets likely will clear a final hurdle this month toward resuming
flights after a crash killed 113 people and left all the planes grounded a year
British and French aviation authorities said they will issue
airworthiness directives to Concorde operators British Airways (BAY) and Air
France (PAF), clearing them to make safety modifications to their fleet.