By Anne D. Picker, International Economist,Econoday
Monday, April 30, 2001

Two events on opposite sides of the world captivated world markets: Japan went through the ritual of selecting a new prime minister and cabinet; Europe waited to confirm that the European Central Bank would not lower rates despite increasingly louder calls to do so.

In Japan, reformer Junichiro Koizumi was selected as prime minister. But analysts are skeptical whether Koizumi can succeed in implementing a reformist agenda where others have failed. Also important was the vacancy at the finance ministry, a replacement for Kiichi Miyazawa. The markets were disappointed when Koizumi selected the elderly, financially inexperienced Masajuro Shiokawa, preferring someone with political savvy rather than financial expertise. With the July elections quickly approaching, it is possible that Koizumi preferred to hand the post to a caretaker until after the elections.

The European Central Bank did the expected and left their policy making interest rate at 4.75 percent, 25 basis points above the current Fed funds rate of 4.5 percent. The rhetoric leading up to this meeting - and the weekend's G-7 finance ministers meeting - took the suspense out of Thursday's decision. The ECB chose to leave rates unchanged because of troublesome inflation in many EMU countries that shows no sign of receding. ECB President Wim Duisenberg faces the dilemma of rising prices and slowing growth. Inflation has exceeded the ECB's 2 percent ceiling for 10 months, and could rise to 3 percent in the near term.

The data release of the week had to be advance U.S. gross domestic product, which shocked everyone by rising at an estimated 2 percent annualized rate. The operative word here is estimated. The Bureau of Economic Analysis, who calculates the number, estimates key components such as inventories and the trade balance for this release because March data are not available yet. The number is often subject to sizeable revisions. But the foreign exchange and equities markets shouted with glee. The dollar went up against the yen and the euro, and equities in Europe, Britain and the United States climbed giddily.

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

The Bottom Line   •   Looking Ahead