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A symbiotic
relationship or a catalyst for uncertainty When the U.S. equity markets went down, so did overseas markets. When U.S. markets went up, overseas markets did likewise. Unfortunately the downs won and all but the London FTSE 100 ended the week lower. The Japanese Nikkei 225, Hong Kong Hang Seng, South Korea Kospi, Singapore Straits, Mexican Bolsa and Nasdaq all closed at their lowest level of the year. By the end of the week, both New York and London were looking forward to their long holiday weekends, and trading reflected investors' waning interest.
Europe and Britain
Volumes were thin because investors were afraid to test the water. The technology sector shake out in Europe started when a high profile sports e-tailer collapsed leading investors to think again about technology valuations. Later in the week, sentiment in London began to improve as turnover improved. The FTSE 100 was the only gainer on the week, rising 2.84 percent or 171.5 points to close well above the critical 6000 level at 6216.9. The Frankfurt DAX and Paris CAC lost ground as investors continued to flee from technology stocks which tracked the Nasdaq's weakness. There clearly was rotation from new economy to old economy shares. Financial stocks were an exception, falling in nervous trading ahead of Thursday's European Central Bank meeting. The DAX shed 50.7 points or 0.73 percent to end the week at 6938.33. The DAX has now lost all of its 2000 gains. The CAC lost 66.9 points or 1.08 percent to end the week at 6129.15. Asia The Nikkei 225 is now more vulnerable to declines in the Nasdaq after it changed its member composition on April 24th to reflect the growth and influence of information technology. Foreigners, particularly from the United States and Europe, who had bought technology and Internet stocks are now selling them and moving their portfolios from new to old economy stocks. The Nikkei fell to a 12 month low with the index dipping below 16,000 for the first time in more than a year. The benchmark index finished the week 5.04 percent or 850 points lower at 16,008.15 after trading as low as 15,876.34. Foreign investors sold 173 billion yen more in shares than they bought between May 15 and May 19, according to Tokyo Stock Exchange. They were net sellers of 846 billion yen worth of shares in April and were net sellers again in the past two weeks. Hong Kong's Hang Seng Index fell to a six month low, down 5.22 percent or 755.56 points as investors worried that rising interest rates will slow demand for loans and home purchases. Investors are concerned that earnings growth will slump as rising rates slow the economy. Currencies
The British pound sterling hovered near a six year low against the dollar after reports suggested the U.K. economy is cooling and interest rates won't rise as high as in the United States. The U.K. currency dropped to $1.4684, the lowest since April 18, 1994, when it also touched $1.4684. Sterling ended the week at $1.4899 in thin pre-holiday trading. The currency has shed 9 percent against the dollar this year. Like the U.S. dollar, the pound sterling is a very strong currency. This has led to weakness in the export manufacturing sector. Exports from a strong currency nation such as the United States and Britain are very expensive while imports are relatively cheap. Not surprisingly, both the United States and Britain have very large trade deficits.
British markets are wondering if the Bank of England will continue to raise interest rates. Their benchmark policy setting interest rate has been 6 percent since March compared with 6.5 percent in the United States. Higher interest rates attract investors by offering better returns on deposits. U.K. exporters doing business in Europe want to see the pound fall against the euro because of the large negative effect strong sterling has had on their revenues. The yen was buffeted by sinking equity markets and uncertainty about the accuracy of Japanese statistics that measure economic performance. As investors reduce risk exposure in response to global equity market declines, the world's largest exporters of capital, i.e. Japanese investors, are also reducing their exposure to overseas markets and repatriating yen. Japanese exporters continue to repatriate profits when the yen declines in value, which only pressures the yen to once again rise in value.
Indicator
scoreboard
Germany - April producer prices jumped 0.4 percent on the month and 2.1 percent when compared with last year, despite a drop in oil prices. Excluding mineral oil products, producer prices rose 0.7 percent on the month and 1.3 percent on the year, up sharply from an unchanged monthly reading and 0.8 percent annual gain posted in March. The rise in core PPI suggests that higher raw material prices and the effect of the weak euro are starting to filter through into production input prices. Yet seasonally adjusted producer prices for the six months to April slowed to an annualized rate of 2.8 percent, down from the 2.9 percent rate recorded in the six months to March. The six month rate had, until now, accelerated mainly due to the effects of higher oil prices. April import prices declined 0.3 percent mostly because of the oil price decline. When compared with last year, import prices rose 9.8 percent. However, April import prices excluding oil products posted a strong 0.7 percent increase on the month and a 5.8 percent increase when compared with last year, showing, in part, the impact of the weak euro on prices. Crude oil prices were down 11.9 percent on the month, but were up 81.9 percent on the year. April seasonally adjusted import prices fell 0.2 percent in April and were 9.8 percent above the year-earlier level. April seasonally adjusted export prices rose 0.4 percent and 3.2 percent when compared with last year, after rising 0.3 percent on the month and 2.8 percent on the year in March. Consumer prices for the six months to May grew at an annualized rate of 1.3 percent, down sharply from the 2.1 percent rate seen in both April and May and the lowest since October last year. France - April seasonally and workday adjusted consumer spending on manufactured goods inched up 0.1 percent but were up 3.8 percent when compared with last year. First quarter preliminary seasonally and workday adjusted gross domestic product slowed to 0.7 percent in the first quarter of 2000 after climbing 0.8 percent in the fourth quarter of 1999.
Belgium - In April, the Belgian National Bank's seasonally adjusted composite industry leading indicator fell back 2.6 points. This was the second monthly decline from the historical peak reached in February, reflecting less optimism in each of the three main industrial branches. The Belgian manufacturing sector is widely seen as one of the best leading cyclical indicators for the EMU as a whole, given its concentration on semi-finished goods and the large share of exports to major EMU economies, particularly Germany and France. Italy - April non-EU trade surplus fell to L644 billion compared with L1.740 trillion in March and a L1.642 trillion surplus in April 1999. Non-EU imports were up 29.2 percent when compared to last year. Oil products and euro weakness continue to affect the trade balance with non-EU countries. However, Italy posted a March trade deficit with its EU trading partners of L332 billion. Exports to the EU rose 6.1 percent from March 1999 and imports were up 8.9 percent. Britain - First quarter gross domestic product was revised up to 0.5 percent on the quarter and 3.1 percent when compared with last year. The upward revision was on the basis of higher estimates of production industries' output. Despite the higher estimate for production output, it still fell by 0.8 percent on the quarter - the largest decline since the third quarter of 1991.
April merchandise trade deficit with countries outside the European Union widened to Stg2.327 billion from Stg1.768 billion in March. The worsening was mainly due to lower exports of oil, chemicals and aircraft as well as higher imports of oil and aircraft. The value of exports to non-EU countries fell 3.4 percent while imports increased by 4.0 percent. The March whole world deficit was much lower than expected at Stg1.878 billion from Stg2.201 billion in February. The deficit with European Union trading partners narrowed sharply to Stg110 million from Stg374 million last month. Asia First quarter gross domestic product soared 14.3 percent when compared with last year, its fastest pace since the third quarter of 1987, as the economy drew strength from strong foreign trade and robust domestic activity. Fourth quarter 1999 GDP was revised to 9.2 percent from 8.7 percent originally reported. Exports of goods and services in the first quarter rose 20.7 percent and 16.4 percent, respectively. Consumer spending was up 8.3 percent. When compared with the previous quarter on a seasonally adjusted basis, GDP jumped by 5.4 percent in real terms in the first quarter, also up from the 3.8 percent rise in fourth quarter 1999. Japan - First quarter all-industry activity index jumped 3.2 percent from the same period a year earlier and rose 0.3 percent from the previous quarter. The data mark the fifth straight quarter of increases. For March alone, activity jumped by 2 percent from the previous month, with practically all major components of the activity index posting gains. The all-industries index is a broad supply side measure of activity in the economy and is closely watched by analysts as a proxy for gross domestic product data, which tend to be volatile. April merchandise trade surplus expanded 10.3 percent when compared with last year. Exports were up 8.8 percent while imports were up 8.2 percent. The trade surplus with the United States leaped 26.2 percent when compared with last year. However, the surplus with the EU was down 2.6 percent. April retail sales fell 3.4 percent when compared with last year while wholesale sales fell 2.5 percent over the same period. The fall in overall retail sales extended the streak of declines to a record 37 months, highlighting the ongoing slump in consumer spending. Sales at large scale retailers fell 4.6 percent on the year after adjustment for the change in the number of stores, marking the 24th straight month of declines. May Tokyo consumer prices were flat but fell 0.9 percent on the year while all Japan consumer April prices rose 0.2 percent and were down 0.8 percent when compared with last year. South Korea - First quarter gross domestic product jumped 12.8 percent when compared with last year due to a sharp rise in capital investment and a surge in exports. Compared with the previous quarter, GDP rose 1.8 percent. In the fourth quarter of 1999, GDP posted a 2.8 percent increase over the third quarter. April unadjusted unemployment rate fell to 4.1 percent from 4.7 percent in March. The seasonally adjusted jobless rate also declined in April, falling to 4.0 percent from 4.1 percent in March. As a result, the number of jobless fell to 900,000 in April from 1.03 million in March. Americas
April raw material price index fell 6.0 percent, largely the result of a substantial decline in the cost of crude oil. When compared with last year, manufacturers paid 19.7 percent more for raw materials than they did in April 1999, a significant deceleration from the 12 month increase of 33.0 percent in March. Again, crude oil prices were behind the slowdown. BOTTOM LINE
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