By Anne D. Picker, International Economist,Econoday
Monday, September 3, 2001

Investors are breathing a sigh of relief that August is finally over. All equities markets tracked here sank under the pressures of poor earnings and less than stimulating economic news. In fact, some of the economic news was downright troublesome - especially for Japan. The U.S. data were weak but at the same time supported the hope that the worst may be over. One problem is that the markets continue to assess the data in terms of the abnormally high levels reached in the late nineties bubble and not at a more normal level. This is especially true for consumer sentiment data, which despite all the disappointment remains at historically high levels. It slipped slightly this past week and set off an equities sell off in the United States and elsewhere as investors panicked that the consumer was having second thoughts and might slow spending. On the week, all markets followed here sank. All have had a dismal third quarter so far, but the Australian all ordinaries, South Korean Kospi and Mexican Bolsa continue to be above end of 2000 levels.

The European Central Bank finally joined the Federal Reserve and the central banks of Canada, England and Japan and lowered their policymaking interest rate 25 basis points to 4.25 percent. The move is the second rate cut this year by the ECB, which last lowered rates by 25 basis points on May 10. Stalling growth has squeezed profits and spurred companies to eliminate jobs. German gross domestic product was unchanged in the second quarter while the economies of Italy and Belgium shrank. Furthermore, the U.S. economy - destination for 14 percent of Europe's exports - grew at its slowest pace in more than eight years in the second quarter. Japanese industrial production fell 2.8 percent in July and retail sales slid as Japan lurched toward recession.

The Bank of Canada reduced its key monetary policy interest rate, the target for the overnight funds, by 0.25 percent to 4.0 percent citing slower economic growth than expected. The Bank has reduced interest rates five times this year by a total of 175 basis points. The overnight rate is comparable to the U.S. federal funds rate and the two week repurchase rate in Britain. The overnight rate target is the mid-point of a 50 basis point operating band. The Bank said that Canadian economic growth has been slower than expected. This reflects reduced foreign demand for Canadian manufactured goods and primary products. That, in turn, is due primarily to the ongoing weakness in the U.S. economy, particularly in capital spending. The magnitude of the slowdown was evident in the second quarter GDP numbers released later in the week. (See indicator scoreboard below.)

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

The Bottom Line   •   Looking Ahead