By Anne D. Picker, International Economist,Econoday
Monday, May 28, 2001

United States and British markets staggered to a close on Friday ahead of the long weekend in both countries. Traders were eager to square things before leaving town. At the same time, they were digesting Fed Chairman Alan Greenspan's Thursday night remarks in which he said that the United States was not out of the woods yet. The remarks had little impact on Asian markets. However, in Japan where disappointing economic and earnings data continued to depress investors, the market fell. Yet only the Nikkei fell on the week in Asia. In Europe, only the Frankfurt DAX rose on the week. The real action was in the foreign exchange markets where the euro was battered by disappointing economic news and frustration with the European Central Bank.

A tally of first quarter gross domestic product growth shows that both France and Germany disappointed, increasing only 0.5 percent and 0.36 percent respectively on the quarter. Both were lower than fourth quarter 2000 GDP growth. Britain surprised on the upside. GDP was revised upward to 0.4 percent from the initial 0.3 percent estimate largely because of service sector gains. German investors were hit by a triple whammy - falling business sentiment, soaring inflation and slowing growth. (See Indicator scoreboard below.) As expected, first quarter U.S. GDP was revised downward to 0.33 percent quarter on quarter growth (1.3 percent annualized rate).

The European Central Bank did the expected and left their policymaking interest rate at 4.5 percent, 50 basis points above the fed funds rate of 4 percent. The ECB is caught between weakening economic growth and rising inflation pressures throughout the European Monetary Union. The euro dropped to a six month low against the dollar prior to the ECB's announcement after France and Germany reported slower than expected first quarter growth. But the ECB, whose mandate is to control inflation, continues to give rising prices priority instead. Now the "I" word has surfaced and currency traders are talking again about possible ECB intervention to bolster the euro.

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

The Bottom Line   •   Looking Ahead