Feb 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. growth.

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 spending.

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 cards soon.

"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 months.

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 years.

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 backers.

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 last September.

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 faltering economy.

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 11,087.47.

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 U.S. demand.

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 1,970.17.

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.

Results

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 earlier.

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 period.

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 billion.

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 billion-to-$2 billion.

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 the year.

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.