Monday, December 18, 2000
Earnings warnings multiply
One worry segued into others. Now that overseas markets know who the next U.S. president will be, they still don't know how policy will unfold with a split congress. There was no relief rally for stocks or for the dollar when the election was settled. Yet corporate profits are a bigger worry as high profile firms continue to issue warnings or are downgraded by rating agencies. Traders are worried about a U.S. slowdown and the resulting impact on Asian and European economies that rely on exports. Despite a promising start on Monday, none of the equities indexes followed here finished in the black last week.
The European Central Bank left its policy making interest rate unchanged at 4.75 percent as slowing economic growth has eased inflation concerns. Analysts think that interest rates have peaked. Since the ECB's last rate increase on October 5, EMU data has indicated that economic growth is slowing. Falling German and French business confidence - the region's biggest economies - suggests that a rebound is not likely in the months ahead. Yet ECB president Wim Duisenberg gave no sign that policy makers were considering a change in borrowing costs. While economic growth shows signs of ``moderating,'' inflation risks are, for now, still on the ``upside,'' he said at a press conference.
In preparation for its January 1st entry into the EMU, the Bank of Greece cut its 14 day deposit to 5.75 percent only two weeks after its last rate cut. The sole reason for the rate cut is the need for Greece's official rates to converge with those of the European Central Bank (ECB) when the nation enters the monetary union January 1, 2001. The Bank of Greece's repurchase rate is currently 100 basis points above the comparable ECB rate.
The Bank of Japan's monetary policy committee voted to keep interest rates unchanged, even though the bank's Tankan survey showed that business confidence, after rising for two years, has stalled and may slide next year (see indicator scoreboard below). The worsening outlook may spur the BOJ to issue a stronger warning about the economy in its November report due this week. The bank's target for its interbank overnight loan rate is currently 0.25 percent. The BoJ raised rates in August for the first time in a decade after a rather public squabble with the Ministry of Finance about the health of the economy. The interest rate before had been close to zero.
The domino effect
