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

Equities markets tumbled as earnings warnings swelled. Asian markets suffered not only from market based data disappointments, but from dismal Japanese economic data as well. Similarly, Europe's latest sentiment and purchasing managers surveys left much to be desired. Weakness in the United States has spread both east and west. Optimism, which springs eternal, appeared briefly Thursday after Dell and Alcoa said that they would meet analysts' estimates for the first quarter. North American and European markets soared. In Britain, investors greeted a Bank of England rate cut. Things were not so euphoric on Friday, however, and most indexes closed down on the week. Weak earnings and a surprisingly soft U.S. employment report dominated. And underlying the unease was the ongoing tension between the United States and China over the downed spy plane.

The Reserve Bank of Australia met Tuesday and cut its policy making interest rate by 50 basis points to 5 percent to try to kick start the economy and revive slumping consumer and business confidence. It is the first time that the bank has cut rates for three consecutive monthly meetings since the rate was published in 1990. The Bank said that the country's economic prospects were still sound, but cited risks from declining confidence and the impact of a global slowdown. Since its February 7 meeting, the RBA has trimmed its key rate 1.25 percentage points, almost erasing a nine month series of rate increases that began in November 1999.

The Bank of England gave in to the inevitable on Thursday and cut its policy making interest rate by 25 basis points to 5.5 percent. This was the second time that the Bank has lowered rates in 2001. The Bank pointed to the downside risks from the global economic slowdown, the drop in equity markets, and foot and mouth disease. It said inflation is not a problem, at a level significantly lower than the 2.5 percent inflation target. Britain's economy has been holding up well despite foot and mouth disease but is showing more vulnerability. With the national election postponed from May until June, thanks to foot and mouth, the Bank had more latitude to move without the appearance of political accommodation. .

The Japanese government presented yet another stimulus plan for the economy and markets on Friday. Under the bank rescue plan, the third in three years, the government would buy some of the 43 trillion yen ($368 billion) of shares from banks to help them write off bad loans. A new fund, which will probably be financed by selling bonds, would buy stocks that banks have accumulated over decades to cement ties with their corporate clients. Investors were unimpressed and bank stocks and the yen tumbled. The financial markets dismissed the proposal because it failed to explain how banks would be prevented from propping up companies that are unprofitable or can't repay debts. Yoshiro Mori, Japan's eighth prime minister in 11 years, resigned. He said he would step down when a replacement is chosen April 24. The frontrunner to succeed him is former prime minister Ryutaro Hashimoto, who is blamed for killing off a budding economic recovery by raising sales taxes in April 1997.

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

The Bottom Line   •   Looking Ahead