By Anne D. Picker, International Economist,Econoday
Monday, June 11, 2001

Equities bumped along responding to poor economic data, intervention rhetoric and earnings worries. British stocks ignored the national election, probably because the result was no surprise. Asian and European stock indexes followed here were higher on the week. But in North America, the Toronto Stock Exchange composite 300, Dow and Nasdaq sank on concerns over technology earnings. It is interesting to note that Intel's comments on future earnings were construed positively in Asia but negatively in the United States. Trading on Friday was distorted by several hours of computer problems on the New York Stock Exchange.

As expected the European Central Bank left its policymaking interest rate unchanged at 4.5 percent. Slowing growth throughout the EMU, especially in Germany, and rising prices have put the ECB in a bind. Inflation has exceeded the ECB's 2 percent target for 11 months, not making a good environment for lower interest rates. Lower borrowing costs would help manufacturers whose exports are shrinking and could keep the German economy from slowing further. Unlike the Fed - which also has a mandate to boost employment - the ECB's single chief mandate is price stability.

Price increases can be traced to higher crude oil prices, which have increased by about a fifth this year. The foot and mouth and mad cow diseases among livestock have pushed prices of poultry, pork and fish higher. To a large extent, current inflation is due to external factors and there is little the ECB can do about it. The euro's slide has added further to inflation, by raising the cost of imported goods.

The Bank of England's Monetary Policy Committee (MPC) left its policymaking interest rate unchanged at 5.25 percent. The decision was widely forecast by economists who said there were strong political reasons for staying put. A rate cut could have given Prime Minister Tony Blair a last minute boost ahead of Thursday's general election, stirring accusations of political partiality against the Bank. In contrast to the EMU, earnings growth remains strong and consumer confidence is buoyant. Inflation is comfortably below the government's 2.5 percent target. Unemployment continues to be low despite problems in the manufacturing sector.

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