By Anne D. Picker, International Economist,Econoday
Monday, June 18, 2001

Markets worldwide retreated as earnings warnings got the best of investors, especially those with technology holdings. Adding to earnings troubles were sour economic news and the possible end to the $41 billion merger between General Electric and Honeywell. The European Commission is reportedly is demanding divestitures of virtually all of Honeywell's aviation electronics business and its power generating systems production business. Japan's economy sank in the first quarter of 2001 while production in Germany, France and the United States continued to slide. On the week, all indexes followed here were down.

The European Central Bank lowered its growth forecast and the Japanese government said the country may be in recession, not improving prospects for global growth. The ECB forecast, which now estimates growth this year at 2.2 percent vs. 2.6 percent earlier, was prepared with data from mid-May, before the latest deluge of dismal news. Japan's economy, which has barely grown in the past decade, shrank 0.2 percent in the first three months of the year. The U.S. slowdown is reducing demand for products made in Japan and Europe, slicing factory orders and increasing jobless ranks. American customers buy about 30 percent of Japan's exports.

The ECB may find it difficult to justify another rate cut because inflation has exceeded its goal of 2 percent for nearly a year. European policy makers have been slow to match the rate reductions of other central banks. The Bank of England has lowered rates three times and the Bank of Japan reversed last summer's rate rise in March and returned to its zero interest rate policy (ZIRP). Japan's economy continues to deteriorate and may already be in recession as exports decline and consumers and companies spend less. Prime Minister Junichiro Koizumi has pledged to break from the "borrow and spend" policies of the past decade and fix the debt laden banking industry. But few details are known, frustrating investors.

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

The Bottom Line   •   Looking Ahead