By Anne D. Picker, International Economist,Econoday
Monday, April 2, 2001

As befitting a tumultuous first quarter, breaking corporate news continued to trigger a herd instinct in the equity markets. Economic news in Europe was light and was ignored, with ECB expectations and disappointments being played out primarily in the currency market. The euro was pummeled in reaction to the ECB's decision, once again, not to do anything. And Asian markets were roiled by the end of the Japan's fourth quarter and fiscal year. The Nikkei continued its manic depression, with euphoric leaps upward countered by plunges downward. At fiscal year end, the Nikkei barely skirted the critical 13,000 number and closed at 12999.70. The table below shows the dismal first quarter behavior of the indexes followed here. Only the South Korean Kospi and the Mexican Bolsa ended the quarter on the plus side. All others fell. (See graphs below, which show first quarter equity market performance.)

The European Central Bank (ECB) disappointed markets and left its policy making interest rate at 4.75 percent. This only fueled speculation that the ECB will cut key rates by at least 25 basis points at its next Council meeting on April 11. Inflationary pressures are receding, and several senior ECB officials conceded that EMU growth may be slowing more than previously thought. That the governing council appears to be split is understandable given that there are 18 members who must agree on any rate change.

Expectations of a near term easing had been fueled by what were perceived to be dovish comments from some officials, particularly the ECB's chief economist, Otmar Issing, and another Governing Council member, Bank of France Governor Jean-Claude Trichet. But the market impact of the remarks waned after Issing tried to play down his comments and other ECB officials, including Bundesbank President Ernst Welteke, argued that it was still too soon for the ECB to consider a rate cut. The decision, which leaves the ECB as the only major reserve bank to resist easing credit this year, highlights the difficulty of managing disparate economies under a single set of rules.

ECB President Wim Duisenberg issued an unusual statement on Friday confirming the central bank's wait and see attitude. The statement, which emphasized that inflationary dangers still persist, suggests that the ECB wants to dampen speculation of a near-term rate cut. Right now, the bank is inclined to weigh any rate cut very carefully because it is obliged by treaty to fight inflation first and foremost - with cyclical growth considerations taking a backseat. The bank's benchmark of "tolerable" inflation is 2 percent. Though inflation rates vary widely throughout the region, the inflation rate stood for the EMU as a whole stood at an average of 2.6 percent in February.

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

The Bottom Line   •   Looking Ahead