Monday, April 14, 2003
Equity markets avoided their Monday slumps and roared upward as the war news of the prior weekend favored coalition forces. But investors nervously frittered away most of Monday's gains as they reluctantly turned their gaze to market fundamentals and the onslaught of earnings reports to come. Now the excuse of a long war no longer exists. On the week, gains and losses were split among the indexes followed here. On the week, seven indexes declined anywhere from a mere 0.2 percent (FTSE) to 3.2 percent (Nikkei). Five indexes were up from 0.3 percent (Bolsa) to 4.5 percent (Kospi). The CAC was virtually unchanged. The NASDAQ and Bolsa remain above their 2002 close.
Banks of Japan and England meet
Both the Bank of England and the Bank of Japan held policy meetings last week. After the BoJ meeting, governor Toshihiko Fukui said the bank would consider buying types of assets other than the usual central-bank fare. He also said the Bank would keep monthly purchases of government bonds - its main policy tool since cutting interest rates to zero in March 2001 - unchanged at ¥1.2 trillion ($10 billion). With banks reluctant to lend, Fukui is looking for new ways to pull Japan out of a 12-year slump. New purchases would support prices and encourage companies to raise cash through asset sales such as bills due from other companies. Fukui later emphasized that all traditional methods of rejuvenating the economy have been exhausted.
The move would be a departure from the policies of former governor Masaru Hayami, who resisted political pressure to buy assets such as foreign bonds and exchange-traded funds. The policy meeting was another sign that Fukui and the government of Prime Minister Junichiro Koizumi are working more closely together to halt Japan's five years of deflation, which has cut corporate profits and sapped economic growth. Unlike the Bank of Japan, the world's other major central banks still have room to cut interest rates. In the U.S., the federal funds rate is at 1.25 percent, the lowest since July 1961. The European Central Bank's key rate is 2.5 percent, the lowest in almost 3 1/2 years.
As expected, the Bank of England kept its key interest rate at a 48-year low of 3.75 percent. Inflation has been above the Bank's 2.5 percent target for the past four months, mostly because of energy costs. Like other central banks, the policy makers would like to assess the economic impact of the Iraqi war before changing its policy directive. The British economy managed to avoid the recession experienced by other Group of Seven members, but has been faltering of late. Service industries, two-thirds of gross domestic product, shrank in March for the first time in 15 months. The consumer and housing market strength have managed to keep the economy growing while manufacturing struggles to recover from its worst slump in a decade. As usual, the Bank gave no explanation for its decision. Rather, Bank of England watchers will have to wait two weeks (April 23) until the minutes of the meeting are released. The Bank last lowered interest rates in February.
Focus shifts to economy, earnings
