By Anne D. Picker, International Economist,Econoday
Monday, September 10, 2001

It was deja vu all over again when investors returned from vacation and found that it is already time for the dreaded pre-announcement season. And the indexes followed here took the brunt of investors' displeasure. The week ended with an epic swan dive thanks to the U.S. employment report, which dispelled investors' hopes that the U.S. economy had stabilized. It was a rude shock to equities, foreign exchange and bond markets alike. Investors bailed out of equities and the dollar fell. Bond traders rubbed their hands with glee. Asian markets were already closed, but equities earlier, especially in Hong Kong and Japan, had extended their downward spirals, thanks in part to Japan's gloomy second quarter GDP decline. Since August 1st the Hang Seng has dropped over 15 percent. Similarly the Nikkei is down over 11 percent, bouncing around 17 year lows in the process. Of the indexes followed here, only the South Korean Kospi managed to be positive on the week.

The Bank of England kept its benchmark interest rate at 5 percent as rising consumer spending, which accounts for two-thirds of the British economy, more than compensated for manufacturing's plunge. Interest rates have been lowered four times this year, most recently in August. The reductions were aimed at preventing slowing world growth from choking the British economy next. Manufacturing has shrunk for five of the past seven months, first pressed by the high sterling exchange rate (especially against the euro) that makes British goods more expensive and now by the global slowdown. Yet Britain is still growing faster than the rest of Europe. German economic growth ground to a halt in the second quarter and shrank in Italy, Belgium and Finland. The International Monetary Fund predicted in April that Britain would have the fastest growing among the G-7 major industrial economies this year.

The Reserve Bank of Australia lowered its policymaking interest rate by 25 basis points to 4.75 percent. Borrowing costs are now at their lowest since the Bank began announcing rate changes in 1990. The Bank said it needed to buffer the economy's good performance against weaker global growth. Australia has skirted the slowdown gripping its major trading partners - the United States and Japan. The low Australian dollar has helped exporters. Rates have been cut a total of 150 basis points this year. In explaining the move, the RBA said that Australia would be affected by the recent deterioration in the international environment, with some exports having already suffered. However, domestic demand has resumed its steady upward path and housing has rebounded as well.

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

The Bottom Line   •   Looking Ahead