Monday, June 16, 2003
The important news last week was on Monday when Britain once again said not yet to the European Monetary Union. After that, it was a typical pre-earnings, almost-end-of-quarter week. Market players slewed their attention to the Federal Reserve, now that the other major central banks have had their say. Despite the historically low interest rates in the U.S. and better-than-elsewhere growth, the markets think that the Fed will cut rates when they meet on June 24th and 25th. All Asian equity indexes were up on the week, while in Europe, only the FTSE slipped. In the Americas, the Dow and Bolsa continued to climb while the Nasdaq and S&P/TSX composite were barely down on the week.
ECB president Wim Duisenberg stated the obvious in his quarterly appearance before the European Parliament - European growth is virtually non-existent. Eurozone growth forecasts were downsized to 0.4 to 1.0 percent for 2003 from the originally forecast of 2 percent. Duisenberg said that inflation is dropping due to falling energy prices and the rising value of the euro. The ECB has striven to keep inflation below 2 percent, unlike the Bank of England, which shoots for an inflation rate within a single percentage point of 2.5 percent. Underlining the policy shift unveiled in May, which stresses that inflation should be not below but "close to" the 2 percent target, Duisenberg told the European Parliament's Monetary Affairs Committee that the ECB would work just as hard to avert deflation as it does to avert excessive inflation.
Oil prices rise, then ease
OPEC decided at last week's meeting that it would keep its production quota unchanged in light of the uncertainty surrounding Iraq's output. They will meet again on July 31st to reevaluate their decision. Of primary concern is the timing of Iraq's re-entry into the international oil market. Insecurity, looting, sabotage and problems in rebuilding the country's oil ministry under an occupying power have delayed oil production. The decision by OPEC, which won't consider quota reductions until next month, caused oil prices to jump to levels not seen since the end of the Iraq War. Prices then eased after the International Energy Agency revised inventory figures upward.
Anticipating the Fed
