Monday, February 17, 2003
The prospect of a war with Iraq remains the overriding concern in the financial markets. Economic news along with a continuing stream of earnings reports continued to be shunted aside. The run up to Friday's UN report by Hans Blix shook investors as they waited for the next shoe to drop. The heightened terrorist warnings sparked a run on recommended protective goods, including canned tuna, plastic sheeting and duct tape. Investors, now preferring safe-haven assets such as government bonds, are reluctant to invest internationally in times like these and prefer to keep their money at home - wherever that might be.
Despite these concerns, only four of the 13 indexes followed here lost ground last week. U.S. indexes, after spending an indecisive day on Friday, rallied in the afternoon, taking those indexes into positive territory for the week. Gains ranged from 0.1 percent (Toronto S&P TSX composite) to 4.1 percent (Frankfurt DAX). Losses ranged from 0.4 percent (South Korean Kospi) to 2.8 percent (Australian all ordinaries).
Central bank watch - succession worries
The Bank of Japan as expected left monetary policy unchanged after its two-day meeting last week. But of over-riding importance to the Japanese and others is the appointment of a chief for the Bank of Japan. Time is growing short. The term for the outgoing chief, Governor Masaru Hayami expires on March 19th and Prime Minister Junichiro Koizumi has promised to appoint the new governor by February 20th. But the appointment of a new Bank of Japan governor may not come until after the Group of Seven meeting on February 21st and 22nd in Paris. The central bank's next meeting on March 4th and 5th will be Hayami's last. Government officials continue to put more pressure on the central bank to inject extra cash into the economy. Finance Minister Masajuro Shiokawa this week said the ministry will keep asking the bank to inject more money into the banking system.
European Central Bank President Wim Duisenberg was urged to delay his retirement since the European Parliament will not be able to confirm his successor before September. The fate of Duisenberg's designated successor, Bank of France Governor Jean-Paul Trichet, won't be clear until June 18, when a Paris court is expected to rule on charges he helped Credit Lyonnais SA falsify its accounts a decade ago. Duisenberg is scheduled to retire on July 9th, his 68th birthday. Trichet was nominated in 1998 by French President Jacques Chirac for the ECB job after European Union leaders agreed to cut short the founding president's term to make way for a Frenchman. A new ECB president must be appointed unanimously by EU heads of government, respond to written questions, and testify to the economic and monetary committee before being voted on by the union's parliament. The parliament's vote is non-binding.
Waiting for the second shoe
