By Anne D. Picker, International Economist,Econoday
Monday, February 26, 2001

Tech trauma continues
It was more of the same for equities markets last week as they continued to slide downward. While the currency markets paid some attention to economic data, the equities markets only paid attention to each other, and especially to the Dow and Nasdaq. Overseas markets continue to trade with one eye staring across the oceans. All markets tracked here except the Tokyo Nikkei 225 closed down on the week as bad news from technology and telecommunications firms continued to flow in what seems to be a never ending stream.

Stocks extended their declines after reports showed U.S. producer and consumer prices rose at the fastest pace in almost a year, stoking concern that the U.S. Federal Reserve may delay cutting interest rates after lowering borrowing costs twice in January. Markets changed their minds on Friday, however, when analysts decided that a Fed 50 basis point rate cut was in the offing - and could come as soon as this week!

Minutes released showed that the Bank of England's policymakers voted unanimously to cut interest rates at their monthly meeting two weeks ago. The 25 basis point cut, the first reduction since June 1999, lowered the bank's policy making interest rate 25 basis points to 5.75 percent. The committee thought that cutting more than 25 basis points wasn't necessary now, and a larger cut might alarm financial markets. Evidence is accumulating that the British economy is slowing. Gross domestic product growth slowed to a 0.3 percent quarterly rate, down from 0.7 percent growth in the third quarter.

To no one's surprise, Standard & Poor's joined Moody's and downgraded Japanese government debt. The move could put additional pressure on Japan to restructure its economy and to tackle its soaring government debt. The downgrade from a triple-A rating to double-AA-plus reflects growing international concern with Japan's mountainous debt and its deepening political paralysis. The rating imposed by the agency helps determine what interest rate the government will pay on its debt, and typically speaking, the lower the rating, the higher the interest paid.

Japan will sell $830 billion in bonds in the next three years to fund its deficit, at a time when the United States is buying back bonds for the first time in 70 years. Japan has little to show for its reliance on state spending, yet it can't afford to pull the plug for fear of tipping the economy back into recession. S&P estimates that debt will rise to 165 percent of economic output in five years, the worst among industrial nations.

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

The Bottom Line   •   Looking Ahead