By Anne D. Picker, International Economist,Econoday
Monday, February 4, 2002

One thing was certain last week - investors did not lack news whether it was economic, earnings, political or accounting. For economics, investors suffered from overload with little time to digest one set of data before another was upon them! The end result was a mixed bag with the good offset by the bad. The continuing depressing news out of Japan weighed on the Nikkei and Topix sending them to new lows, while in South Korea investors took some profits after a stretch of exuberant gains. Of the indexes followed here, the Dow, Toronto Composite 300, Mexican Bolsa and Singapore Straits were up on the week while the Australian All Ordinaries and the London FTSE 100 broke about even. All others were down.

America's Federal Open Market Committee (FOMC) did not surprise market players, giving them essentially what they expected after an avalanche of Fed speak in the weeks prior to the two-day meeting. The FOMC left the Fed funds rate at 1.75 percent and maintained an accommodative stance.

On Wednesday the EU Commission decided to propose to finance ministers that they formally censure Germany and Portugal over their budget policies. This opens the way for two weeks of political maneuvering, the results of which will have an important bearing on the credibility of EU economic policymaking. At stake is the Stability Pact that mandates government deficits should be no more than 3 percent of GDP. (Germany is currently at 2.7 percent and rising.) Worries also center on potential damage to an already weak euro exchange rate. The full meeting of finance and economic ministers (Ecofin) will decide the issue on February 12. Under the EMU Growth and Stability Pact, it is possible to sanction with financial penalties transgressors of the pact's requirements. But no officials believe it will come to that given signs that a cyclical upturn may be about to start and the fact that neither Germany nor Portugal has yet touched the 3 percent limit. The German federal government, which faces a national election in September, has repeatedly said it does not think a warning is necessary.

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