Britain and Europe
Desultory earnings for telecommunications and oil companies combined with disappointing economic data to hammer the FTSE, CAC and DAX for the third week in four. European stocks fell as investors worried about the strength of the U.S. economic rebound and weak earnings reports. The questions puzzling everyone are where U.S. growth is coming from and how sustainable will it be. Worries center on U.S. consumers who kept their pockets open throughout the recession. Normally a recovery would benefit from pent up demand, but not this time. U.S. gross domestic product rose at a 5.8 percent annual rate in the first quarter. Higher consumer spending (but not as high as the fourth quarter of 2001) and inventory reductions accounted for almost all of the growth. Analysts are waiting for a revival in capital expenditures to provide the basis for longer term growth. But this hasn't been your normal recession. It followed on a wildly exuberant capital spending spree prior to the millennium from which many companies have not recovered yet. Distortions were compounded by the September terrorist attacks.

Asia
Only the Nikkei and Hang Seng managed to gain last week although they did taper off at week's end. All other Asian indexes followed here dropped. Japanese markets will be closed on Monday and Friday for the golden week holidays, a factor that could have contributed to "position squaring" at weeks end. Computer-related companies, which account for almost a quarter of Japan's exports, have gained as a group in the past six months based on U.S. recovery hopes. But reports this week showed unexpected declines in U.S. durable goods orders and new home sales dampening overseas enthusiasm about the U.S. recovery. The second quarter is traditionally the weak season for the computer industry and this year is probably no exception. The yen's rally to its highest level in six weeks against the dollar sparked concern for Japanese car makers, which generate as much as 90 percent of their operating profit in North America. A more expensive yen squeezes profits repatriated back home.

Hong Kong Hang Seng has been rising on better economic data and the belief that the economy is improving. Much in Hong Kong relies upon the United States and its economic health: monetary policy relies on its currency peg to the U.S. dollar and exports are dependent on the strength of the U.S. economy. Lately, better-than-expected trade data (more exports to countries besides the United States) and signs of stabilization in the Hong Kong property market have underpinned equity gains and given investors some confidence.

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