Monday, February 3, 2003
Geopolitical events dominated the news last week and only added to investor angst. Equity indexes were spastic - climbing one minute and sinking the next. With the exception of the Frankfurt DAX and Paris CAC, indexes followed here sank on the week. Losses ranged from 1.0 percent (Mexican Bolsa) to 4.9 percent (Singapore Straits Times). For the month of January, all indexes followed here sank. The Hong Kong Hang Seng and the Toronto S&P TSX composite lost a mere 0.7 percent, but losses soared to a high of 5.7 percent for the South Korean Kospi, which was battered by ongoing North Korean problems. The London
FTSE 100 sank 9.5 percent on the month.
Equity investors seemed soothed by the Federal Reserve's decision to leave interest rates unchanged Wednesday. The fed funds rate remains at a 41-year low of 1.25 percent. In its post-FOMC meeting statement, the Fed opined that the weak U.S. economy would revive once geopolitical risks subside.
Japan's benchmark interest rate fell below zero for the first time as lenders couldn't find paying borrowers for the trillions of yen the Bank of Japan has pumped into the financial system. The rate dipped as low as minus 0.01 percent, meaning a bank that borrowed ¥1 trillion overnight would have to pay back approximately ¥274,000 less the next day. The central bank has tripled its monthly purchases of government bonds from financial institutions since 2001 to ¥1.2 trillion as it tries to encourage banks, which haven't increased lending in six years, to extend more credit to consumers and companies. Unable to find places to park the extra cash, some banks resorted to negative rates.
Rising war drums unnerve investors
