05 - 11, 2001
ECB keeps rates on hold
The ECB left interest rates on hold at 4.75 per cent on
Thursday amid evidence the eurozone would not succumb to a slowdown in U.S.
The U.S. Federal Reserve cut interest rates by half a per
centage point on Wednesday to ward off a possible recession. The decision
heightened speculation the European Central Bank will follow suit.
ECB President Wim Duisenberg was keen to dispel fears that
European growth would slow because of the U.S. economy, saying the 12-nations
that make up the eurozone export only 17 per cent of their economic output.
"Economic activity in the euro area is determined mainly
by domestic factors," Duisenberg said. "Growth is very likely to
continue at a reasonably robust pace."
However, he acknowledged the impact of the U.S. developments
on the global economy could be bigger than earlier anticipated, but said the
inflation picture in the euro zone still showed some risks, encouraging the ECB
to keep rates steady.
"Wages, import prices, bottlenecks in shortages in the
employment market" may add to the upward pressure on inflation, Duisenberg
said. He called for more labour market reform, taxation and controls on public
The ECB raised rates seven times between Nov. 1999 and Oct.
2000 by a total of 2.25 per centage points in its fight to contain inflationary
pressures from rising oil prices and the weakening euro.
But economist were optimistic that a rate cut would be on the
"The bottom line is that euro-zone inflation is on its
way down," economists at Bear Stearns wrote in a note to investors before
the ECB decision was announced, "that means the door should be opening up
to an ECB rate cut before too long, which we still target at March 29 as the key
date for the first ease."
Belgian Finance Minister Didier Reynders said Europe was well
equipped to weather the impact of the U.S. economic slowdown.
IMF warns Korea on restructuring
The International Monetary Fund says it is concerned that
domestic and foreign sentiment about Korea's economy has deteriorated in recent
It says there is a perception that tangible results in
corporate and financial sector restructuring are lacking. Combined with this is
a worsening external environment.
In a report released Thursday, the IMF said it expected Korea
would have lower economic growth this year. Korea's gross domestic product grew
10.7 per cent in 1999 and an estimated 9.5 per cent in 2000. The IMF expects GDP
growth this year to be half the 2000 figure.
Citibank economist Suk Tae Oh forecasts growth may be just
3.8 per cent this year, pointing to some negative economic data in the last
quarter of 2000.
"It is not a result of the restructuring, it's because
of the global economic slowdown. Like any other part of the world, exports get
smaller, cash flow is tight and there's less investment," says Suk.
"On the consumer side, there's not a lot of spending.
The situation in Korea is perhaps the worst in Asia."
Analysts say that since corporate restructuring began,
substantial progress has been made in stabilizing the financial system and
addressing corporate governance and other problems. However, several structural
weaknesses remain, which have dented market confidence.
Unemployment in Korea fell from 8 per cent in 1998 to 4 per
cent in 2000. The Bank of Korea is also hoping to pay off its $5 billion debt to
the IMF by the end of this year. So far, it has repaid a total of $10 billion.
Hunsaker thinks that apart from corporate restructuring, the
key task of the government is to stabilize the economy and avoid creating panic
in society during the reform process.
California lawmakers pass power bill
The California Assembly sent Gov. Gray Davis a $10 billion
plan Thursday aimed at keeping California's lights on while lawmakers try to fix
the state's energy crisis.
The measure will allow the state to sign long-term contracts
for up to a decade to buy power and sell it to the customers of cash-strapped
Southern California Edison and Pacific Gas and Electric Co.
The Assembly's 54-25 vote — cast after legislative leaders
and Gov. Gray Davis won over a Democratic holdout and two Republicans — came
despite GOP protests that the bill will result in higher electricity rates. The
bill had failed to pass earlier Thursday.
The state power grid is in its 17th day of being under the
highest level of alert, with rolling blackouts possible on short notice.
California officials say they are spending $40 million to $50 million a day to
buy electricity on the short-term spot market.
Fed cuts interest rates
In an aggressive move to ward off recession, the Federal
Reserve slashed short-term interest rates by half of a per centage point
Wednesday and signalled further cuts may be needed.
The move brings the federal funds rate, the interest rate
banks charge each other on overnight loans, to 5.5 per cent, from 6 per cent.
The rate cut comes the same day the government reported that the U.S. economy
grew at a 1.4 per cent annual rate in the fourth quarter, the slowest quarterly
reading in more than five years.
The move marks the second time this month the Fed has reduced
rates. The central bank lowered the federal funds target rate by the same amount
in a surprise move Jan. 3.
The Fed on Wednesday also lowered the discount rate, the rate
of interest the central bank charges commercial banks to borrow money on a
short-term basis, to 5 per cent, from 5.5 per cent.
White House touts tax plan
Amid more signs of a slowing economy, the White House Tuesday
trumpeted President Bush's $1.6 trillion tax-cut plan as a much-needed break to
jumpstart the economy and boost Americans' confidence.
White House spokesman Ari Fleischer said the president is
willing to work with Congress on tax cuts, and said the president is not opposed
to having his plan broken up into various pieces as long as the size of the tax
cut remains the same.
"The president's focus will be the bottom line: He wants
tax cuts," Fleischer said. "He'll work with Congress on whatever
procedure best gets that job done."
Bush has proposed $1.6 trillion in tax cuts and incentives
over 10 years, including an overhaul of the current rate structure, reductions
to the marriage penalty, and the elimination of the so-called death tax.
Microsoft pledges $100m to fight AIDS
Microsoft boss Bill Gates pledged $100 million to help
develop a vaccine for AIDS which scientists believe should be ready within 10
The Bill & Melinda Gates Foundation - the software
billionaire's charity - said it was providing the "challenge grant" to
the International AIDS Vaccine Initiative (IAVI) in a bid to encourage other
IMF lowers world growth rate forecast to 3.5pc
Top finance officials on Saturday forecast slower world
economic growth this year and expressed concern about the outlook for Japan,
which has less immediate scope than the United States to spur output.
However, Japan said it had almost completed the task of
restructuring after its "lost decade", and pledged that 'Japan would
do its part to help the world economy amid a US slowdown'.
At the annual meeting of the World Economic Forum business
summit, Stanley Fischer, first deputy managing director of the International
Monetary Fund (IMF), said the Fund could cut its forecast for global growth in
2001 to around 3.5 per cent from the 4.2 per cent expansion, it had foreseen
Dow powers ahead
The Dow Jones industrial average rose to its highest level in
more than four months Thursday as investors bet the Federal Reserve's latest
interest rate cut, coupled with more to come, will be enough to re-ignite a
The Dow rose 96.27 points, or nearly 1 per cent, to
10,983.63, its highest close since Sept. 14, when the index finished at
The Nasdaq advanced 10.06 to 2,782.79 while the S&P 500
index gained 7.46 to 1,373.47.
New York Stock Exchange beat declining ones 1,715 to 1,385 on
trading volume of nearly 1.2 billion shares. Nasdaq losers beat winners 1,972 to
1,816. More than 1.6 billion shares changed hands.
In other markets, Treasury securities rose for the third
straight day. The dollar fell against the euro and yen.
Asian markets tick lower
Asia's main markets tumbled on Friday afternoon as the
stronger yen hit exporters in Tokyo while Hong Kong fell amid concerns about
In Tokyo, the Nikkei 225 average fell 0.6 per cent to end at
13,703.63 while Hong Kong's Hang Seng index was down 0.2 per cent at 16,125.30
in afternoon trade.
Singapore's Straits Times index was 0.6 per cent lower at
In Taipei, the Taiwan Weighted index rose 2.6 per cent to end
at 6,049.26. Seoul's KOSPI index ended down 0.6 per cent at 608.48. Sydney's
S&P/ASX 200 index fell 0.3 per cent to 3,355.3. Bangkok's SET index rose 0.8
per cent, Kuala Lumpur's KLSE composite index added 0.6 per cent, Jakarta's JSX
index was 1.8 per cent higher and Manila's PHS composite ended little changed.
Big Three Jan. sales fall
Trouble continued for DaimlerChrysler, with January sales at
its U.S. Chrysler division dropping 16 per cent from the same month last year to
160,680. The rest of the Big Three also struggled, the latest sign that the U.S.
economy is slowing down.
Ford Motor Co. reported sales of new cars and trucks down 11
per cent in January, and industry leader General Motors announced a 5 per cent
drop in total vehicle sales. Chrysler truck sales dropped 14 per cent to
117,617, while total car sales fell 22 per cent to 43,063.
GE to cut 75,000 jobs?
General Electric Co. is set to cut about 75,000 jobs over the
next two years, Business Week magazine reported Thursday, citing Wall Street
sources and people close to the company.
Treasurys press ahead
U.S. Treasury bond prices rose for a third straight day
Thursday after a report showing U.S. manufacturing has sunk into recession was
seen as raising the chance of more sharp Federal Reserve interest rate cuts.
Two-year Treasury notes rose 2/32 to 100-13/32, as their
yield, which moves inversely to the price, fell to 4.53 per cent. Five-year
notes rose 6/32 to 104-11/32, yielding 4.72 per cent. Benchmark 10-year notes
were up 13/32 at 105-5/32, yielding 5.06 per cent. Thirty-year bonds gained a
full point to 111-27/32, yielding 5.44 per cent.
Mortgage rates take a dip
Mortgage rates slipped lower this week in reaction to the
Federal Reserve's latest interest rate cut by half a per centage point.
The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.09
per cent for the week ending Feb. 2. The average this week for a 15-year
fixed-rate mortgage was at 6.66 per cent. One-year adjustable rate mortgages (ARMs)
averaged 6.54 per cent.
Colgate: Colgate-Palmolive Co., said net income per share
rose 12 per cent in the fourth quarter. Fourth-quarter net income was $286.7
million, or 46 cents a share, up from $260.6 million, or 41 cents a year
Molson: Canadian brewer Molson Inc. said net income was
C$24.1 million ($16 million), or 40 Canadian cents a share, on revenues of
C$588.5 million for the period ended Dec. 31.
New York Times: The New York Times reported
fourth-quarter earnings of $112 million before one-time items, or 68 cents a
share, compared with $108.4 million, or 61 cents a share, in the year-earlier
Donnelley: R.R. Donnelley & Sons, reported
fourth-quarter earnings fell 28 per cent to $72 million, or 58 cents a share,
compared with $100 million, or 80 cents a share, in the year-earlier period.
Dole: Dole Food, reported a fourth-quarter loss of $7.4
million, or 13 cents a share, compared with a profit of $2.1 million, or 4 cents
a share, in the year-earlier period.
Siemens: Siemens net income for the three months ended
December 31 rose to 778 million ($724 million), compared with 591 million in the
year earlier period.
Alcatel: Alcatel posted a 26 per cent rise in
fourth-quarter profit. The cell phone and network equipment maker said profit
rose to 426 million ($395 million) from 338 million in the final quarter 1999.
TotalFina: French oil company TotalFinaElf earned net
profit of 7.6 billion ($7 billion), excluding one-off items, up from 3.35
billion a year earlier.
Union: Union Carbide Corp. reported a loss of $94
million, or 53 cents a share, compared with net income of $29 million, or 68
cents a share a year earlier.
Mergers & Acquisitions
De Beers: De Beers said on Thursday it was in talks with
a consortium, including founding Oppenheimer family and mining giant Anglo
American, that could lead to a bid for the diamond giant, valuing it at $16
CN—Wisconsin: Canadian National Railway Co. announced
plans to buy Wisconsin Central Transportation Corp. The deal, valued at $1.2
billion, including $400 million in assumed debt. Under the agreement announced
Tuesday Canadian National will pay $17.25 a share in cash for Wisconsin Central
shares, a premium of 15.5 per cent over Monday's closing price.
Unilever: Unilever PLC is in negotiations to sell its
Bestfoods baking company business, with Sara Lee and Mexico's Grupo Bimbo in
final talks to buy the unit. The baking business could fetch as much as $1.3
ABN—ING: Dutch bank ABN Amro Holdings Tuesday agreed to
buy rival ING Groep's U.S. investment banking unit for $275 million.
Selkin—Ariba: Donald Selkin, chief investment
strategist at Joseph Gunnar, said Monday that he thinks that Ariba's acquisition
of Agile in a $2.6 billion stock swap will yield solid earnings, making Ariba a
good, affordable buy.
Maxim: Maxim Integrated Products Inc., an analog
chipmaker, said Monday it agreed to buy Dallas Semiconductor Corp. for about
$2.5 billion in stock, giving it control of a specialty semiconductor maker.
Lloyds—Abbey: Lloyds TSB Group, Britain's third largest
bank, made a £19.8 billion ($28.9 billion) unsolicited bid for rival Abbey
National on Wednesday.
Airbus sells $17.2b planes
Airbus said Monday it captured 40 per cent of the market for
large commercial aircraft last year in its battle to break Boeing's dominance.
The European plane maker said it sold a record 311 planes
worth $17.2 billion in 2000, up from 294 aircraft a year earlier. The company
said it took in orders for 520 planes worth $41.3 billion, another record, in
Techs swoon hits Europe
European markets ended in the red on Thursday, with Paris's
key index stumbling more than 1 per cent, as tech and telecom stocks retreated.
London's benchmark FTSE 100 index closed down 45.7 points, or
0.8 per cent, at 6,251.8, as telecom company Cable & Wireless (CW-) topped
the list of decliners, down 5.8 per cent.
In Paris, the blue-chip CAC 40 index fell 98.77 points, or
1.7 per cent, to close at 5,899.72. Hotelier Accor (PAC) slumped 6.9 per cent.
In Frankfurt's late session, the electronically traded Xetra
Dax shed 1 per cent, or 65.82 points, to 6,729.32.
In Amsterdam, the AEX index lost 0.9 per cent, with computer
chip equipment maker ASM Lithography dropping 3.1 per cent, while Zurich's SMI
shed 1 per cent. Milan's MIB30 fell 0.9 per cent.