24 - 30, 2001
China to carry out economic reforms
China's 15-year battle to join the World Trade Organization (WTO)
appeared on the verge of success on Monday, but the negotiators who eventually
made the breakthrough have also set the stage for a potentially painful
transition in the country's history, analysts said.
An accord was due to be signed later Monday in Geneva
clearing China's membership of the global trade body, following agreement on a
series of issues in last-minute talks in the Swiss city.
Chinese membership of the WTO will inevitably force the
country to undertake a fundamental overhaul of its entire economic system, the
analysts said, but the ramifications could go even further than that.
It will encourage the Chinese government to carry out reform
— first economic reform and maybe later also political reform, said Bob Zhang,
an economist with BNP Paribas Peregrine in Beijing.
According to Zhang, a reshuffled Chinese cabinet that is
expected to assume office under a new prime minister in 2003 could have
much-delayed political changes on its agenda.
One possible measure could be to expand the use of direct
elections of officials from the current village level, he said.
After entry into the WTO, political reform will have to
change in accordance with international practices, he said. But we expect it to
be gradual and smooth.
Following the signing of the accord in Geneva, the working
group which thrashed out the agreement will then have to formally recommend
China's WTO membership at a ministerial conference scheduled for November in
Qatar, due to be attended by 142 WTO member states.
China must then ratify the accord and wait 30 days before its
membership becomes final and official, in all likelihood early next year. The
direct economic impact of Chinese membership could be undramatic in the short
term, according to many economists.
Investment bank ING Barings estimates the Chinese economy
post-WTO will expand between seven and eight per cent a year, the typical rate
of economic growth over the past few years.
Wall St. whacked again
U.S. markets logged a fourth straight losing session Thursday
as heavy selling continued across the board, precipitated by more corporate
warnings and growing concerns over what direction the United States will take
following the terrorist attacks of Sept. 11.
The sustained selling has lopped at least 10 per cent off all
three major indexes this week and pushed the Nasdaq and the Standard &
Poor's 500 index to their lowest levels in nearly three years.
"This is an extraordinary time for investors. Whenever
there is a steep drop, the knee-jerk reaction from investors is to sell. And
that often is the wrong decision. The best thing to do is to sit tight and wait
for the dust to settle," said Henry Herrmann, president and chief
investment officer of Waddell & Reed told.
"On a long-term basis, this is a great time to buy.
Stocks are on sale and investors should be adding to positions. But investors
are reacting intuitively to the emotional aspect of what has happened,"
The three major indexes closed near session lows. The Dow
Jones industrial average ended with another triple-digit loss of 382.92 points,
or 4.3 per cent, at 8376.21.
The Nasdaq lost 56.87 points, or 3.7 per cent, to close at
1.470.93. The S&P 500 fell below 1,000, losing 31.56, or 3.1 per cent, to
close at 984.54.
More stocks fell than rose on heavy volume. On the New York
Stock Exchange, declining stocks topped advancing ones by a more than 5-to-1
margin as 1.9 billion shares traded, the exchange's fourth heaviest trading day
on record. Nasdaq losers beat winners by a than 3-to-1 edge as 2 billion shares
Added to the mix was the fact that Friday is a "triple
witching," the quarterly expiration of futures, index options, and
individual stock options on same day. Many traders opt to close out of these
positions ahead of the actual expiration day.
In other markets, the dollar fell sharply against the yen and
strengthened versus the euro. U.S Treasurys moved lower, with 30-year bonds
sliding for a fourth straight session.
BOJ follows lead, cuts interest rates
The Bank of Japan cut interest rates Tuesday and said it
would pump more cash into the country's economy.
The BOJ said it would cut the discount rate to 0.10 per cent,
from 0.25 per cent. But the cut is essentially symbolic, with interest rates
already virtually at zero in Japan.
It met Tuesday under heavy pressure to help out the world's
second-largest center of business, in the wake of the U.S. attacks.
In Tokyo, the Nikkei stock index ran up almost 2 per cent
ahead of the move. It closed up 1.85 per cent at 9,679.88.
The central bank's decision was widely anticipated, mimicking
similar rate cuts around the world.
The ease of the decision was shown by the BOJ's call to scale
back its meeting, which started and finished Tuesday. It was originally slated
to run two days.
But experts are skeptical about how much the BOJ action will
UK cuts key interest rate
The Bank of England has cut its key repurchase rate by
one-quarter per centage point to 4.75 per cent.
The move came Tuesday after the European Central Bank, U.S.
Federal Reserve and other banks around the world reduced their rates in a bid to
bolster the world economy following last week's terrorist attacks on the U.S.
Ryan Shea, of Bank One, told Reuters: "I'm pleased to
see they've decided to move in line with everyone else.
"Twenty five basis points is a little bit disappointing
and that could highlight the fact that they are still a little bit concerned
about domestic growth with consumer spending remaining so strong."
The BoE said it had called a special meeting of its Monetary
Policy Committee to vote on the reduction after considering the reaction of
financial markets and other central banks to the tragic events in the U.S.
Fed cuts rates again
The Federal Reserve cut interest rates half a per centage
point Monday to bolster the economy and U.S. markets after the worst terrorist
attacks ever against the United States.
The cuts, the eighth by the Fed this year, came six days
after the attacks that destroyed the World Trade Center in New York and damaged
the Pentagon last Tuesday. They were widely expected as the central bank seeks
to keep funds flowing through the economy -- and boost consumer confidence
-after the attacks.
The central bank cut its target for short-term rates to 3.0
per cent from 3.5 per cent, the lowest level since September 1992, in a bid to
make money more accessible to consumers and help avoid a recession. The Fed also
cut the seldom-used discount rate to 2.5 per cent from 3.0 per cent.
ECB joins Fed with rate cut
The European Central Bank joined the U.S. Federal Reserve
with a surprise half a per centage interest rate cut Monday, aimed at boosting
confidence following last week's attacks on U.S. cities.
The bank said its key minimum bid rate was lowered to 3.75
per cent from 4.25 per cent. Earlier in the day the Fed lowered its key lending
rate also by 50 basis points to 3.00 per cent.
"In the view of the Governing Council, the recent events
in the U.S. are likely to weigh adversely on confidence in the euro area,
reducing short-term outlook for domestic growth," the bank said in a
statement following an ad hoc meeting of its governing council carried out via a
S&P cuts rating of nine US airlines
Standard & Poor's on Thursday cut its credit and debt
ratings for nine US airlines, including five of the six largest — American
Airlines Inc., Continental Airlines Inc., Delta Air Lines Inc., United Airlines
Inc. and US Airways Inc.
The rating agency said last week's air attacks caused
"sharply reduced air traffic," leading to expectations for only a
"slow recovery" for the airline industry in coming months, and
"worsens significantly an already grim airline industry outlook."
S&P's cuts follow similar cuts this week by Moody's Investors Service of
most US airlines.
Asian markets continue to tumble
Asian markets led by Japan tumbled Friday as they took the
impact of a fourth straight day of declines on Wall Street Thursday.
By midday, Tokyo's benchmark Nikkei average had fallen 2.8
per cent or 271 points to 9513.92. At one point in the morning it touched a
17-year record low of 9382.95.
The broader capital-weighted TOPIX index was off 3 per cent
or 30.1 points at 994.51.
Hong Kong and Singapore took the hardest hits, down 3.7 per
cent and 4.8 per cent in early trade Friday.
In Australia, the benchmark S&P/ASX200 was down 61.8
points or 2.1 per cent to 2921.5, while the NZSE Top 40 was down 29.05 points or
1.6 per cent to 1789.14.
In Seoul, the Kospi slid 2.45 per cent or 11.78 points to
468.49, as the market weighed the signing Friday morning of a landmark deal
between bankrupt Korean automaker Daewoo and its U.S. suitor, GM.
Mergers & Acquisitions
Duke—Westcoast: Duke Energy agreed Thursday to acquire
Westcoast Energy for about $4.5 billion in cash and stock, in a bid to expand
its footprint in the North American natural gas market.
GM—Daewoo: General Motors finally put pen to paper
Friday to buy much of bankrupt Daewoo Motor for $400 million.
Vodafone—J-Phone: Vodafone, the world's biggest
wireless operator, has agreed to pay 1.8 billion pounds ($2.7 billion) in cash
to take control of Japan Telecom.
Bristol—ImClone: Bristol-Myers Squibb Co. agreed
Wednesday to purchase a 20 per cent stake in biotech developer ImClone Systems
Inc. for $1 billion cash, signaling a move by Bristol to strengthen its position
in the cancer treatment market.
RWE—American Water: German utility RWE AG agreed Monday
to buy U.S. water utility American Water Works for $4.6 billion plus $3 billion
in debt, giving it a major foothold in the world's biggest water market.
Bush, House agree on airline bailout
The White House and the bipartisan House leadership have
agreed on a $15 billion bailout for the airline industry that includes $5
billion in direct aid, $10 billion in loan guarantees, and much of the liability
and insurance protection the industry sought, according to senior administration
and congressional sources.
Mortgage rates fall again
Long-term mortgages rates dropped again in the week ending
Sept. 21, falling to a level not seen since February 1999 and reflecting the
impact on the economy of last week's terrorist attacks.
The 30-year fixed-rate mortgage averaged 6.80 per cent, with
an average 0.9 point, for the week. The 15-year fixed rate mortgage this week
averaged 6.30 per cent, with an average 0.9 point. One-year adjustable-rate
mortgages (ARMs) indexed to the Treasury averaged 5.58 per cent this week.
zreasury prices fall
U.S. Treasury bond prices fell Thursday as investors booked
profits after a powerful two-day rally that pushed yields on short-term notes to
10-year notes fell 12/32 to 102, yielding 4.74 per cent, and
30-year bonds were down a full point at 96-12/32 to yield 5.63 per cent.
Two-year notes were down 4/32 at 101-12/32, yielding 2.89 per cent, down from
3.19 per cent just after last week's terrorist attacks. Five-year notes fell
5/32 to 103-9/32, yielding 3.85 per cent, just above their lowest levels since
European stocks plunge
European bourses plunged on Thursday, closing near three-year
lows as the financial fallout from last week's terrorist attacks in the U.S.
London's FTSE 100 closed 3.5 per cent lower at 4,556.9 and
the CAC 40 blue chip index in Paris ended down by 3.9 per cent at 3,738.18,
while the Xetra Dax in Frankfurt dived 5.1 per cent to 3,835.30.
In Amsterdam the AEX index tumbled 5.1 per cent and the SMI
in Zurich was 4.5 per cent lower, while Milan's MIB30 index lost 4.9 per cent.
The pan-European FTSE Eurotop 300, a broader index of the
region's largest stocks, was down nearly 4 per cent, with the insurance and
transportation sectors in negative territory.
Jobless claims drop
New jobless claims fell in the United States last week, but
the government said the latest figures do not account for the massive layoffs in
the airline and aerospace industry after last week's attacks.
Initial claims for state unemployment benefits fell to
387,000 last week from a revised 436,000 the prior week, the Labor Department
reported. According to Briefing.com, private economists had forecast a small
decline to 420,000 new claims.
Fed saw more weakness
The Federal Reserve said the U.S. economy was slowing even
before the worst terrorist attacks in U.S. history, according to its periodic
"beige book" report, released Wednesday.
"Reports from Federal Reserve districts generally
indicated that overall economic activity remained sluggish in August and early
September, with several suggesting that activity slowed further," the Fed
The Fed saw "broad-based" manufacturing weakness,
sluggish consumer spending and a "soft" labor market in August and
early September, according to the report, named for the color of its cover.
U.S. oil, gold prices drop
Crude oil headed lower in a shortened trading session Tuesday
following a bomb scare at the New York Mercantile Exchange.
NYMEX October crude last traded at $27.70, down $1.11, or
nearly 4 per cent, on the day and ending slightly below the $27.77 level traded
before last Tuesday's terrorist attacks on the United States.
The day's abbreviated session opened an hour late as traders
were evacuated from the NYMEX trading floor .
NYMEX November Brent crude last traded at $27.60, down $1.02.
December gold moved lower after a delayed start on the
NYMEX's Commodities Exchange division, falling $1.80 to close at $289.70 an
IMF-World Bank parley off
The International Monetary Fund and World Bank, as expected,
canceled their joint meeting that had been scheduled for Washington, D.C., at
the end of this month, due to security concerns arising from last week's
"This decision was taken out of deepest respect and
sympathy for the families of all those touched by the horrific events of last
Tuesday, and in order to dedicate law enforcement personnel fully to the
extraordinary and immediate priorities at hand," the two organizations said
jointly in a release Monday morning.