By Anne D. Picker, International Economist,Econoday
Monday, January 22, 2001

Is the glass half full? half empty?
Equity markets bounced around last week as the earnings deluge began in earnest. After each release, investors alternately concluded that corporate health was or wasn't as bad as they feared. Economic data were pretty much as expected, leaving everybody wondering what would happen next. Currency markets were concerned about potential changes to the U.S.'s strong dollar policy under the Bush administration. But these concerns were seemingly put to rest by incoming Treasury Secretary Paul O'Neill, who emphatically confirmed the policy at his confirmation hearing.

Ministers for the Organization of Petroleum Exporting Countries (OPEC) agreed Wednesday to cut oil output by 1.5 million barrels per day despite urging from the United States and European Union to make only a modest output cut. This is equivalent to 5 percent of OPEC's total production. Some member countries such as Iran and Iraq had pushed for sharper cuts in order to boost their cash flow.

The International Energy Agency (IEC) also urged OPEC not to proceed with planned output cuts, emphasizing the need to limit price volatility and allow inventory levels to recover from their very low levels. While the agency revised down its global oil demand forecasts to take account of the U.S. economic slowdown, it was still far less than OPEC's planned 1.5 million barrel per day cut. Today's global economy is fragile, and high prices will have a greater impact on economic growth and energy demand than they had in the past. Another OPEC meeting is scheduled for March.

Bank of Japan policy makers kept interest rates unchanged Friday. The bank's nine member policy committee voted to hold the interbank overnight loan rate, its equivalent to the U.S. Federal Reserve's federal funds rate, at 0.25 percent. The decision shows that BOJ governor Masaru Hayami isn't yet ready to resume a zero interest rate policy. However, he is concerned about the effect of the stock slump on business and consumer confidence. Bank policy makers said they might expand the money supply to dampen investor concern that the country's banks will be hit with crippling losses arising from the Nikkei's nine month slide.

The value of stocks held by Japan's 133 commercial banks fell almost 16 trillion yen ($135 billion) in value last year, according to UBS Warburg LLC - enough for the BOJ to fret that some banks could be driven into insolvency and in turn starve the economy of loans. Banks will be forced to report these losses for the first time when the financial year ends March 31.

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

The Bottom Line   •   Looking Ahead