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New
Up, Old Down in Roller Coaster Week
Econoday International
Perspective 3/13/00
By Anne D. Picker, International Economist |
Equities
Markets had a tough time escaping
the jitters last week. The Dow's 374 point plunge on Tuesday combined
with remarks by Security and Exchange Commission Chair Arthur Levitt
and Federal Reserve Chair Alan Greenspan thoroughly spooked overseas
markets. Despite it all, new records were set in Hong Kong, Australia,
Frankfurt and Paris. Mexico's Bolsa and the Toronto Stock Exchange Composite
300 index resisted the downward pull from the United States and also
soared to new highs last week. Singapore went in the opposite direction
and sank to a year 2000 low. It is interesting to note that virtually
all equity reports these days are divided between new and old economy
stocks. The Dow's plunge below 10,000 was attributable to an unfavorable
earnings projection by an old economy company, for example.
Selected World
Stock Market Indexes
|
|
|
|
|
|
|
Index |
March
10 |
March
3 |
Percent
Change |
Asia
|
Australia |
All Ordinaries |
3199 |
3226 |
-0.82 |
Japan |
Nikkei 225 |
19750 |
19927 |
-0.89 |
Hong Kong |
Hang Seng |
17832 |
17285 |
3.16 |
S. Korea |
Kospi |
891 |
895 |
-0.39 |
Singapore |
Sing. Strait |
2096 |
2118 |
-1.03 |
|
Europe |
Britain |
FTSE 100 |
6569 |
6488 |
1.25 |
France |
CAC |
6510 |
6514 |
-0.06 |
Germany |
DAX |
7976 |
7960 |
0.20 |
|
North
America |
United States |
Dow |
9929 |
10367 |
-4.23 |
Canada |
TSE Composite |
9487 |
9463 |
0.26 |
Mexico |
Bolsa |
8177 |
8131 |
0.57 |
Europe
and Britain
The FTSE
100 was restructured last week.
The index traded nine old economy companies for nine new economy companies.
Much has been made about the strong profitability of the companies that
were eliminated — in fact, they are more profitable than those that
were added. A new acronym has been added to the lexicon — TMT — technology,
media and telecom stocks. A pundit pointed out that this isn't too far
from TNT …
The FTSE was very much
influenced by U.S. events, including speeches by Alan Greenspan and
the SEC's Arthur Levitt as well as the Dow's plummet and the Nasdaq's
new record. Add to this mix the Bank of England Monetary Policy Committee
meeting on Wednesday and Thursday (where they left interest rates unchanged
as expected). The FTSE 100 reshuffling resulted in some sharp price
movements with many of the nine ejected stocks dropping. Despite all
the ups and downs, the FTSE 100 turned in a better performance than
the Paris CAC and Frankfurt DAX and ended the week at 6568.70, up 1.25
percent or 81.2 points.
The Frankfurt
DAX burst through the 8,000 barrier
on reports, confirmed later in the week, that Deutsche Bank and Dresdner
Bank were merging. However, the DAX was undermined by profit taking
and slipped below the magic 8,000 number. The DAX ended the week up
0.2 percent or 16 points at 7975.95.
The Paris
CAC caught a chill when the Dow
fell below 10,000. Media and technology stocks, the new Parisian stars,
were hit by profit taking. Stocks with telecom stakes were pulled down
by the news from the Britain that two companies are planning to offer
Internet access free of all fees including phone charges. On the week,
the CAC eased down 0.1 percent or 4 points to end at 6510.28.
Asia
As in Europe, Asian markets felt
the potent downdraft from Tuesday's plunge in the Dow. But they kept
the damage under control and Hong Kong blue chips even managed to rebound
from sharp early losses and climb to a record close. Tokyo and Singapore,
the region's two other main stock indexes, were able to hold their losses
to below one percent in a volatile day of trading in reaction to the
Dow's tumble and Nasdaq's drop.
However, hot technology stocks
drove the Hong Kong Hang
Seng to a new record. The Hang
Seng was the only index of the five Asian markets tracked that finished
the week on a positive note. The index jumped 3.16 percent or 546.62
points to end the week at 17831.86.
Even though the Australian
All Ordinaries managed to clinch
a fourth consecutive record closing high during the week, it slid 26.30
points or 0.82 percent to end the week below the 3,200 mark at 3199.50.
The Nikkei
fell back below 20,000 last week on profit taking. Analysts said that
institutional investors were under pressure to unload shares and take
quick profits in Internet stocks ahead of their March 31st
book closings. Foreigners were net buyers of Japanese stocks in January,
buying 52.8 billion yen more than they sold according to the Ministry
of Finance. They were net buyers of Japanese equities in all but two
of nine weeks through March 3, according to the Tokyo Stock Exchange.
Currencies
The euro
foundered in the $0.96 to $0.965 range on the realization that growth
in the European Monetary Union still lagged the United States rather
substantially. The Euroland economy expanded 2.2 percent last year,
trailing the U.S. rate of 4.1 percent. At the same time, U.S. interest
rates are substantially higher than those in Europe, giving investors
in dollar based deposits and fixed income securities a higher return.
The European Central Bank
is meeting Thursday, and the markets' focus will be whether they raise
interest rates. Statements from ECB members and the Bank's monthly report
point in that direction. However, in its brief existence, the ECB has
only changed interest rates on days when a press conference follows
their meeting. None is scheduled for this Thursday at this writing.
The euro is also being
buffeted by the yen. As with the U.S. dollar, March is a volatile month
given the need and desires of Japanese companies to repatriate earnings
before the end of their fiscal year on March 31st.
The Bank of Japan surprised
the currency markets and intervened again on Wednesday to stem the rise
of the yen.
The bank's action came a day after the euro slumped to a lifetime low
against the yen. Traders will now be watching for further intervention
if the yen slips again below 102 yen to the euro. Traders also cited
yen buying in recent weeks from the traditional surge in demand by Japanese
corporations bringing money home to maximize their fiscal year profits.
Analysts expect that the
yen is likely to extend its gains against the dollar and the euro as
traders look past an expected decline in Japan's fourth quarter growth,
pointing to more recent evidence of an economic rebound. However, some
traders cautioned the currency's gains may be limited on concern that
Japan's central bank may again step into currency markets to sell yen.
The Bank of Japan sold an estimated $1 billion worth of yen Wednesday
at the behest of the Ministry of Finance to stem the currency's rapid
climb. A strong yen erodes the value of Japanese companies' assets and
profits abroad, and that's especially a problem as Japanese firms prepare
to close their books for the year.
Central
banks hold their fire
The Bank
of Japan's Monetary Policy Board
decided to leave its monetary policy unchanged after a regular meeting
Wednesday. The decision was by majority.
As expected, the Bank
of England's Monetary Policy Committee
left their primary policy making interest rate at 6 percent following
four increases in the past seven months. Britain's benchmark rate compares
with 5.75 percent in the United States and 3.25 percent in the European
Monetary Union.
The Bank
of Greece cut its 14 day deposit
rate by 50 basis points in a widely expected move to bring its key official
rate closer to that of the European Central Bank in preparation for
entry into European Monetary Union. The Bank of Greece announced it
would accept deposits from banks through a 14 day fixed rate tender
at 9.25 percent, down from the expiring fixed rate tender at 9.75 percent.
Analysts had expected the Bank of Greece to cut its deposit rate by
75 to 100 basis points after the government said the nation met all
criteria for joining monetary union and one day before Greece is to
formally submit its application for EMU membership. Greece hopes to
join EMU beginning in January 2001. The Bank of Greece is expected to
cut rates gradually through 2000 to meet the ECB's refinance rate by
the time of the nation's entry.
Monthly
Reports
The Bank
of Japan issued an upbeat monthly
report, saying that the economy is showing signs of emerging from recession.
The Bank of Japan kept its basic assessment of the economy the same,
but gave slightly higher marks to some areas, including corporate investment.
The central bank said the decline in capital investment had almost stopped.
But the report said there were no clear signs yet of a self-sustaining
recovery in private sector demand and it maintained its previous assessment
on Japan's persistently low prices. Corporate sentiment continues to
improve, as industrial output increases and corporate profits improve.
The European
Central Bank's Monthly Report underlines
many of the things that president Wim Duisenberg stated in his press
conference on March 2nd when he indicated that given inflationary concerns,
there is only one way that interest rates can go in the future and that
is up. The report clearly states that the Bank is concerned that inflation
is trending higher and that current forecasts may be underestimating
this. The same thing may hold true for economic growth estimates.
Indicator
Scoreboard
EMU
— February European Commission's economic
sentiment index set a new record.
The overall index stood at 106.0. Share prices pushed the index up although
both industrial and consumer confidence rose from January levels. The
share price index for the euro zone rose to 724.9 from 666.6 in January,
with "quite significant" gains seen in Germany, France, Italy and Finland.
EMU stock prices were down only in Belgium and Austria.
Fourth quarter gross
domestic product rose 0.9 percent
on the quarter and 3.1 percent on the year. The increase was mainly
due to stronger private consumption and inventory accumulation. However,
net exports as a percentage of GDP declined on the quarter, as imports
rose faster than exports. In 1999, GDP increased 2.2 percent on the
year after rising 2.8 percent in 1998. The 1999 increase was mainly
driven by faster growth during the second half of 1999.
Germany
— January industrial
output rose a seasonally adjusted
0.5 percent on the month, but manufacturing output still made a strong
1.1 percent monthly gain. December's initially reported monthly gain
of 0.5 percent was revised down to 0.3 percent. The Bundesbank revised
up its estimate of fourth quarter industrial output growth to 1.5 percent
from an initially reported -0.3 percent.
January manufacturing
orders declined 0.4 percent. The
drop was due solely to falling domestic orders, as foreign orders increased
slightly. This may also indicate that the domestic economy is still
weak and that growth is still very dependent on exports, helped by the
weaker euro. Among major categories, only demand for capital goods rose
in January.
February pan German seasonally
adjusted unemployment
rate fell to 10.0 percent in February
from 10.1 percent in January, according to Bundesbank figures. The rate
in the west declined to 8.2 percent from 8.3 percent, while that in
the east fell to 17.4 percent from 17.5 percent. Seasonally adjusted
pan-German job vacancies rose again after two consecutive monthly declines
(up 9,000 in February after a 10,000 decline in January). More interesting,
the February vacancies increased only in the east, while west German
vacancies stagnated.
December exports
were up 11.8 percent when compared to December 1998, with strong gains
coming in trade with Japan and United States. During 1999, total German
exports rose 3.0 percent. Exports in December increased in particular
to the United States, up 23.6 percent on the year and to Japan, up 28.7
percent. Exports to other EMU countries also picked up strongly, rising
10.4 percent on the year.
January's unadjusted
merchandise trade surplus was lower
than most expected, with imports rising at a faster rate than exports.
Exports were 20.5 percent above a year earlier but down 0.8 percent
on the month, while imports were up 25.1 percent on the year and 0.2
percent on the month. January exports to all countries posted a double-digit
increases compared to a year earlier. On the month, exports to other
European Union nations, also posted double digit increases while they
strongly fell to non-EU nations.
France
— February provisional unadjusted
consumer price index in February
rose 0.1 percent from January and was up 1.4 percent from a year ago.
Energy prices rose 12.9 percent from a year ago, including a 24.3 percent
rise in oil prices. Despite the fact that oil prices hit their highest
levels since during the Gulf War, February prices only rose 0.1 percent
on month as winter sales took place between January 15 and February
26 this year. Sales, which are strictly regulated in France, usually
take place in January.
Britain
— January manufacturing
output fell by 0.4 percent on the
month and was up 1.8 percent on the year. Extended shutdowns around
the turn of the millennium may have had a small downward effect on the
January data although it is difficult to quantify. This effect had also
depressed the December figures. Total January industrial production
fell by 0.1 percent and was up 2.1 percent on the year. In the three
months to January, total industrial output fell by 0.2 percent on the
quarter and by 1.9 percent on the year.
Asia
Australia
— February employment increased 59,100 from January. The unemployment
rate dropped to 6.7 percent in February from January's 6.9 percent.
February's unemployment rate is the lowest since June 1990.
Hong Kong
— Fourth quarter gross
domestic product jumped 8.7 percent
when compared with last year. For 1999 as a whole, GDP rose 2.9 percent
in real terms.
South
Korea — January current
account surplus contracted to $316.5
million from a surplus of $1.84 billion a year ago because of a sharp
deterioration in the country's trade balance, according to the Bank
of Korea. January's current account surplus was also down from a surplus
of $1.4 billion. The broadest measure of a nation's trade, the current
account measures trade in merchandise, services, tourism and investments.
The central bank's trade data differed sharply from that of the Ministry
of Commerce, Industry and Energy. A Bank of Korea official said the
large discrepancy in the trade balance data compiled by the central
bank and the commerce ministry was due to different accounting methods.
Japan
— February wholesale
prices rose 0.1 percent on the
month but were down 0.1 percent from the previous year. The country's
export prices, in terms of contract currencies, increased 0.1 percent
from the previous month. In yen terms, the index increased 2.9 percent
from the previous month but was down 3.7 percent from a year earlier.
February bank
lending fell 6.3 percent from a
year earlier after declining 6.0 percent in January with the share of
foreign banks' lending in the country again increasing.
January core machinery
orders from the private sector
rose a seasonally adjusted 0.8 percent from the previous month following
a 16.1 percent rise in December. Core machinery orders, which exclude
volatile orders for ships and from power companies, are regarded as
an indicator for private sector capital investments six to nine months
ahead and accounts for about 15 percent of Japan's gross domestic product.
Growth tends to be good news for a currency as it attracts investors
to a region's financial assets. Manufacturing orders fell 3.0 percent
on the month and non-manufacturing orders (excluding volatile orders)
were up 8.8 percent. In the manufacturing sector, orders increased in
the motor vehicle and ceramics industries, while they declined for steel
makers, electric machinery and precision machinery builders.
January's current
account surplus declined 22.8 percent
from a year earlier. The surplus in goods and services trade was down
41.5 percent while the surplus in merchandise trade dropped 27.9 percent.
Exports were up 0.9 percent and imports rose 11.9 percent.
Americas
Canada
— Fourth quarter capacity
utilization soared to 86.8 percent
matching the peak reached during the 1987-88 economic expansion. Industries
raised their rate of capacity use for a fifth straight quarter, propelled
by strong business investment, sustained export demand from the United
States and robust consumer demand, Manufacturers operated at 87.8 percent
of capacity, their highest level in over 25 years. Of the 22 industry
groups in manufacturing, 15 raised their operating rates in the fourth
quarter. For the first time since the third quarter of 1990, the rate
of capacity use in construction industries surpassed the 90 percent
mark. The rate rose 2.4 percentage points from the third quarter of
1999, bringing the level to 90.5 percent.
February employment
grew by an estimated 36,000. However, February's job growth was matched
by a similar increase in the size of the labor force, leaving the unemployment
rate steady at 6.8 percent. All
of February's job growth was in full time employment while part time
changed little. Recent strength in full-time employment is also reflected
in the number of hours worked, which rose by 0.7 percent from January,
and 4.3 percent from a year ago.
BOTTOM LINE
Later this week, the markets'
attention will be riveted on the European Central Bank as the euro continues
to languish. The ECB has failed miserably in trying to talk up the euro
and many analysts feel that an interest rate increase might help. It
would narrow the spread between Euroland interest rates and those in
Britain and the United States. The ECB does not want to be seen as following
Federal Reserve policy decisions by acting on rates after the expected
ratchet up of U.S. rates at the March FOMC meeting.
Looking Ahead:
Week of March 13 to 17, 2000
Central
Bank Activities |
March 13 |
Japan |
Bank of Japan Monetary
Policy Committee Minutes of February
10, 2000 meeting |
March 16 |
EMU |
European Central Bank
Monetary Policy Meeting |
|
The following indicators
will be released this week… |
|
Europe |
|
|
March 13 |
UK |
Producer Price Index (February)
|
March 14 |
EMU |
Industrial Producer Price
Index (January) |
March 15 |
UK |
Labor Market (February)
|
|
Italy |
Industrial Production
(January) |
March 16 |
UK |
Retail Sales (February)
|
|
EMU |
Gross Domestic Product
(Q4, 1999) |
|
Germany |
Wholesale Price Index
(February) |
March 17 |
France |
Trade Balance (January)
|
|
Germany |
Retail Sales (January)
|
|
Asia |
March 13 |
Japan |
Gross Domestic Product
(Q4, 1999) |
|
|
Trade Balance (February)
|
March 15 |
Australia |
Gross Domestic Product
(December) |
March 16 |
Japan |
Industrial Production
(January) |
|
Americas |
March 15 |
Canada |
Consumer Price Index (February)
|
Release dates are subject
to change.
For U.S. data releases, see this
week's Simply Economics.
|