By Anne D. Picker, International Economist,Econoday
Monday, September 17, 2001

It is rather difficult to focus on financial markets, especially as one who was at the World Trade Center when it was attacked. It is an indelible image forever etched in my memory.

As one would expect, overseas markets sank on the news. Asian markets were closed at the time but sank as well the following night. However, both Europe and Asia stabilized over the next couple of days. On Friday, jitters got the best of investors in Europe and the markets fell again as reprisal ramifications shook confidence. It is important to remember that overseas markets had been already on a downward course through August and into the first week of September before the terrorist attack. Comparisons to other crisis situations tell us the U.S. equities markets, when they open on Monday, will probably drop initially. But given the magnitude of the event and the feelings aroused in the United States, it remains to be seen. The investment community advises restraint.

Central banks pumped billions into the money markets and many signaled they may reduce interest rates to avert the risk of a global recession. The European Central Bank, Bank of Japan, Bank of Canada and Bank of England along with the Federal Reserve all added temporary cash to the banking system by arranging overnight repurchase agreements. Following the October 19, 1987 stock market crash, the Fed provided cash to banks and securities firms to keep financial markets functioning.

The ECB, after their Thursday meeting, announced that they left their policymaking interest rate at 4.25 percent. ECB President Wim Duisenberg said a rate reduction now would be a panic response not promoting stability or calmness. Investors' expectations for a rate reduction have risen since the attack on concern that Europe's already slowing economy will falter further. Two weeks ago the ECB pared rates for the second time this year amid evidence of deteriorating growth and slowing inflation. Indeed, second quarter EMU growth was a mere 0.1 percent when compared with the first quarter. (See indicator scoreboard.)

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

The Bottom Line   •   Looking Ahead