By Anne D. Picker, International Economist, Econoday
Monday, July 21, 2003

Last Week's Highlights
The Bank of Canada and the Federal Reserve garnered investors' attention last week. Fed Chairman Alan Greenspan delivered his semi-annual monetary policy report to Congress along with the Fed's forecast for the U.S. economy. As usual, market players hung on every word looking for monetary policy inflections while absorbing the Fed's cheery economic outlook. Bonds and the dollar gyrated as investors interpreted the verbal barrage. In the end, Greenspan didn't say anything new after reaffirming the Fed view that the economy is likely to improve in the second half of the year.

The Bank of Canada shocked analysts and lowered their policymaking interest rate by 25 basis points to 3 percent after raising it by that amount only a few months ago. Prior to the announcement, Canada's employment report surprised most analysts by its strength. But other economic data, such as factory shipments, have been weak while inflationary pressures have been easing - especially since energy prices began to cool down. And the Canadian dollar (loonie) had been rallying - that is until the week's interest rate cut. In its statement, the Bank cited a number of unanticipated developments that affected the inflation outlook and economic activity. The Bank said that both inflation and inflation expectations have declined more rapidly than expected. And near-term domestic economic activity has been undercut by the effects of Severe Acute Respiratory Syndrome (SARS) and an isolated case of Bovine Spongiform Encephalopathy (BSE) in Canada. Foreign demand for Canadian products has also been weaker than earlier anticipated. In addition, the rapid and sizable appreciation of the Canadian dollar against the U.S. dollar tends to have a dampening effect on demand for tradable Canadian goods and services.

Equities were mixed in the week. It was a light week for economic data but a heavy one for earnings. Equities, which did not respond to the Fed chairman's remarks, stayed focused on reports from companies such as IBM. Once again Monday was the best day of the week for equities. For the week, six indexes followed here were down while seven were up.

Last Week's Highlights   •   Global Stock Market Indexes   •   Recap of Global Markets   •   Currencies   •  Indicator Scoreboard

The Bottom Line   •   Looking Ahead