Monday, February 24, 2003
With terrorism and war shimmering below the surface, investors tried to maintain equilibrium and turned their attention to economic data and company news. French gross domestic product for the fourth quarter was weak and an early Bundesbank estimate of German GDP (which will be formally released this week) showed that the economy slipped into negative territory. Industrial output in the eurozone also toppled. Most data in the United States disappointed too, with the sole exception of housing starts, which surprised on the upside. There will be much more economic data released in the coming week.
On the week, equity indexes followed here rose with the exception of those in Japan and Germany. Gains ranged from 0.1 percent for the Paris CAC to 4.9 percent for the South Korean Kospi. Losses ranged from 1 percent for the Frankfurt DAX to 2.2 percent for the Japanese Nikkei. The Australian all ordinaries were virtually unchanged on the week. It should be noted that the only index above its year-end 2002 mark is the NASDAQ!
In these days of fiscal deficits as far as the eye can see it is heartening to know of one country that has had surpluses and will continue to have them for the next couple of years at least - Canada. The country reported a C$9.4 billion ($6.2 billion) budget surplus for the year to end on March 31st, the sixth consecutive annual federal budget surplus, and projected further healthy surpluses for the next two years. At least C$3 billion ($2 billion) each year of the surpluses will be used to pay down the federal debt, now at C$507 billion ($334.6 billion). Canada's federal debt-to-GDP ratio currently is 44.3 percent.
Group of Seven finance ministers meet in Paris
The G-7 finance ministers and central bankers met on Friday and Saturday to discuss world growth. The G-7 includes Britain, Germany, France, Italy, Japan, Canada and the United States. New U.S. Treasury Secretary John Snow tried to convince his colleagues of the merits of President Bush's tax cut proposals by pressing home the fact that the G-7 relies on the U.S. to stimulate growth. The proposals were not met with wholehearted support. France and Italy backed the idea while the rest disapproved. G-7 nations, already divided on whether to attack Iraq, have pursued different policies to promote economic expansion. The U.S., Japan and France are cutting taxes, while Germany (to avoid breeching the 3 percent of GDP ceiling proscribed by the stability pact) has raised taxes. Of concern overseas is the reemergence of the U.S. twin deficits - the fiscal deficit and the trade deficit. Funds to make up these shortfalls will have to come from overseas. ECB president Wim Duisenberg was particularly critical of the U.S. twin deficits.
The ministers barely discussed currencies, brushing aside complaints from European companies that the euro's 24 percent rise against the dollar in the past 12 months is hurting sales. Japan, for its part, said it would like to see the Chinese currency (yuan) rise in value (i.e., no longer peg its currency to the U.S. dollar) so that Japanese goods can be more competitive with Chinese goods. Since China pegged the yuan at 8.3 to the dollar in 1994, cheap exports have fueled a huge trade surplus and low manufacturing costs have attracted foreign investment. An 11 percent fall in the yuan against the yen last year made China's products more competitive against those from Japan.
But the final communiqué papered over differences concerning Bush's budgetary proposals and Iraq. The G-7 did not make any specific reference to the war clouds looming over Iraq but did agree to meet again rapidly in the event of any emergency. European ministers said they are committed to making labor and product markets more flexible. Japan promised to overhaul its financial services industry. The U.S. said it would boost job creation, productivity, and savings.
Investors grind on
