By Anne D. Picker, International Economist,Econoday
Monday, January 21, 2002

International equity indexes reflected the confusing mixture of good and bad news last week. At times investors were convinced that market expectations for a second half recovery were correct. But at other times, investors worried that expectations had jumped the gun. When IBM and Microsoft offered reserved outlooks, the profit horizon suddenly looked more distant than six months. Economic data confirmed the continuing weakness in most economies, although there were signs that the worse may be over in the United States. On the week, all equities indexes tracked here were down with the exception of the Japanese Topix and Mexican Bolsa. Mixed economic data and company outlooks are common at turning points in the business cycle.

As expected the Bank of Japan, having already exhausted conventional means of stimulus, left monetary policy unchanged. Their policymaking interest rate has been near zero for some time now. Last month the Bank raised its monthly bond purchases and increased the amount of cash injected into money markets each day. To make sure lenders have access to as much money as they need, the BOJ last month raised its target for reserves held by commercial banks. The central bank pumps cash into the system by buying bills and bonds from banks, effectively printing money to try to prod the banks into lending. To keep banks afloat ahead of the March 31 fiscal year-end, the BoJ said it is ready to provide funds regardless of any previously set yen limit.

The Bank of Canada lowered its policymaking interest rate by 25 basis points to 2.0 percent, putting it just 25 basis points above the Fed funds rate of 1.75 percent. The reduction brings the cumulative easing in the overnight rate to 375 basis points. The 2 percent rate is the lowest since 1.95 percent in September 1960. A wave of selling hit the Canadian dollar after the announcement. Foreign exchange market players are concerned that the Bank has not cut enough given the economic weakness is the U.S. The Canadian economy shrank in the third quarter for the first time since 1992.

The European Central Bank, as expected, made no monetary policy announcement on Thursday. The Governing Council meets again on February 7 in Maastricht, the Netherlands for one of two meetings this year to be held outside of the Bank's Frankfurt headquarters. In November, the ECB announced that as a rule it would make monetary policy announcements only at the first of its two Council meetings each month. ECB President Wim Duisenberg reiterated as recently as January 14 that the current level of interest rates remains appropriate for price stability in the medium term.

Introduction   •   Global Stock Market Indexes   •   Recap of Global Markets   •   Currencies   •  Indicator Scoreboard

The Bottom Line   •   Looking Ahead