By Anne D. Picker, International Economist,Econoday
Monday, July 9, 2001

Equities markets continued to be battered by a crescendo of poor earnings warnings as more domestic (as well as U.S.) companies reported disappointing results. This was especially true in the telecommunications and technology sectors where high profile companies' woes mushroomed. In a week split by the U.S. holiday on Wednesday, all indexes tracked here fell except the Mexican Bolsa. And poor economic data abroad exacerbated the poor earnings reports. Gloom pervaded sentiment survey data in both Japan and Europe. The Bank of Japan's Tankan survey fell sharply as expected, meaning that the economy has fallen into recession again. In Europe, both the Purchasing Managers and European Union sentiment surveys continued their declines. Although expected, investors were disappointed that the major central banks chose to leave interest rates alone. The euro and yen fell against the dollar.

The Bank of England maintained their policymaking interest rate at 5.25 percent. The Monetary Policy Committee had lowered rates in February, April and May. The British economy has remained remarkably resilient despite the slowdown in worldwide growth, although manufacturing continues to weaken (see indicator scoreboard below) while the service sector thrives.

The European Central Bank left its policymaking interest rate at 4.5 percent. The ECB maintains that they are comfortable with the current interest rate level - and there hasn't been any data to change their minds. Inflation, currently 3.4 percent, is far above the ECB's 2 percent ceiling. The ECB's defense is that they are legally obliged to focus on price stability. It is not, unlike the Federal Reserve, charged with maintaining the proper conditions for economic growth. However, while an interest rate cut could help Germany, it might provide too much stimulus for others such as Ireland, which continues to enjoy buoyant growth.

The Reserve Bank of Australia decided to leave their policy making interest rate unchanged at 5 percent for a third month as reports show the economy rebounding enough to suggest rate cuts are probably finished this year. The Bank previously had cut rates a total of 125 basis points in February, March and April. Most economic reports have shown the economy rebounding from a contraction in the fourth quarter. While the domestic economy improved, the global outlook has deteriorated, threatening Australia's exports, which make up 30 percent of economic production.

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

The Bottom Line   •   Looking Ahead