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Currency
markets take center stage
FTSE,
CAC and DAX climb in holiday shortened week The equity markets will face some further tests of confidence in May with both the Bank of England and U.S. Federal Reserve expected to increase interest rates.
In London, the FTSE 100 rose after a report showed that the U.K. economy expanded by only 0.4 percent in the first quarter compared with 0.8 percent in fourth quarter 1999. The surging pound and higher interest rates have hurt exporters. With interest rates foremost in the minds of traders, the weak data eased market concerns that interest rates would continue to rise - and investors seemed to hope that the interest rate peak was in sight. The Bank of England meets Wednesday and Thursday to consider interest rate policy. The data could ease pressure on the Bank of England's monetary policy committee to raise interest rates, although most economists are still expecting a quarter point increase. The FTSE climbed 86 points or 1.38 percent to end the week at 6327. European markets ended the week on a high note, rallying strongly and regaining all and more of Thursday's lost ground. The pressures of the strong U.S. economic data and the 25 basis point increase to 3.75 percent by the European Central Bank combined to push the Frankfurt DAX and Paris CAC down on Thursday. However, both indexes recouped on Friday to end the week on a positive note before yet another three day weekend. The DAX rose 257 points or 3.59 percent to end the week at 7,415. The CAC climbed 185 points or 2.97 percent to end the week at 6420. Asia
The Nikkei 225 stock average lost 279 points or 1.53 percent to end the week at 17,974, its first close below 18,000 since November 2nd. Although Friday's drop was only 45.47 points, it breached a key psychological barrier. In other Asian markets, the Australian all ordinaries jumped 44 points or 1.43 percent in their holiday shortened three day trading week. The Singapore Straits jumped 84 points or 4 percent and Hong Kong Hang Seng rose 152 points or 1 percent. As seems apparent in virtually all the major markets, the dominance of U.S. market performance continually holds sway over domestic issues for the most part. The exception is the South Korean Kospi, which lost 5.44 percent last week and is down almost 30 percent since the year began. Domestic issues such as the dismantling of Daewoo and other structural problems have roiled the market in addition to international concerns. Currencies
An increase in the benchmark interest rate to 3.75 percent from 3.50 percent would normally tend to support the euro's value. However, this did not happen. Instead, the euro dropped from 92.35 U.S. cents on Wednesday to a new low of 90.65 cents. The euro barely crawled above 91 U.S. cents at the end of Friday's trading. Traders are concerned by its inability to hold gains even in the wake of U.S. market declines. Contrary to logic, the euro did not benefit from U.S. markets' declines when funds ordinarily would not be flowing into the United States. Rather, Europeans continued to put their money into overseas assets, only intensifying the pressures on the euro. Until recently, the euro's decline was more of a political embarrassment than an economic problem. The weak currency has provided a major boost to European exporters by making their products cheap in terms of dollars and providing many with extra profits from sales in the United States. But European officials have become increasingly concerned that the currency's weakness will fuel inflation by raising prices of imported goods. And there is mounting evidence that the currency's slide has been causing disruptions elsewhere. The weak euro is causing pain for British exporters for example. And the diminished growth in the UK's preliminary gross domestic product figures bears this out. British goods in euro terms have risen in price and have cut deeply into British exports to the Continent, its primary market. The yen sank to 108.26 yen to the dollar for the first time since March 7. Traders also cited dollar buying by investors looking to secure profits on stocks, especially with the Japanese financial markets closed for three days this week. Foreigners were net sellers of Japanese shares for the sixth straight week in the week to April 21, and the period's net outflow was the biggest since September 1993. Buying of Japanese shares by foreigners was one reason the yen rose 10 percent against the dollar in 1999. The Nikkei 225 stock index has plummeted more than 11 percent in the past three weeks and has dampened demand for yen. Disappointing economic data are also working against the yen. The March unemployment rate remained at a record 4.9 percent, while a gauge of consumer spending continues to disappoint.
The
European Central Bank acts again Indicator Scoreboard Britain
and Europe
Germany - April preliminary national consumer prices index was unchanged on the month and rose 1.5 percent on the year. Seasonally adjusted consumer prices for the six months to April grew at an annualized rate of 2.1 percent, the same as in March. The six month rate had accelerated sharply since the early summer last year due largely to higher oil price effects. Seasonally adjusted prices were up 0.1 percent on the month and 1.5 percent on the year in April. The annual rate is down from 1.9 percent in March. March producer prices were unchanged on the month and rose 2.4 percent on the year. As in previous months, the annual PPI increase was largely due to the sharp rise in oil prices over the last year. PPI oil prices rose 1.2 percent compared to February and 43.4 percent compared to a year earlier. Seasonally adjusted producer prices for the six months to March grew at an annualized rate of 2.9 percent, up from the 2.6 percent rate in the six months to February. The six month rate has accelerated since spring 1999 mainly due to the effects of higher oil prices. Seasonally adjusted prices were up 0.1 percent on the month and 2.3 percent on the year in March, compared to an unadjusted flat reading on the month and an annual increase of 2.4 percent. March import prices jumped 0.8 percent on the month and 10.9 percent when compared with last year. The annual rate remained at the highest level since October 1981. Excluding crude oil and petroleum products, import prices were up 0.6 percent on the month and 5.0 percent on the year. Crude oil prices were up 2.1 percent on the month and 149.3 percent on the year, while petroleum products were up 7.2 percent and 133.9 percent, respectively. The climb in import prices in part reflects the impact of the weak euro. March seasonally adjusted import prices rose 0.9 percent and were 10.8 percent higher when compared with a year earlier. Seasonally adjusted export prices rose 0.3 percent on the month earlier and 2.8 percent on the year, after rising 0.3 percent on the month and 2.6 percent on the year in February. France - March seasonally adjusted unemployment rate dropped to 10 percent, according to the International Labor Organization definition, which excludes job seekers who did any work during the month. The latest ILO rate is the lowest since December 1991. Last March, the unemployment rate was 11.4 percent.
March seasonally and workday adjusted consumer spending on manufactured goods fell 1.7 percent after a 3.3 percent surge during the two preceding months. First quarter spending was up 2.2 percent on the quarter after a 0.3 percent rise in the fourth quarter. Fourth quarter seasonally and workday adjusted gross domestic product rose a revised 0.8 percent and 3.1 percent when compared to last year. 1999 GDP average growth was revised up to 2.9 percent from 2.7 percent. March producer price index surged 1.4 percent after a 1.0 percent rise in February. Producer prices are 11.6 percent above the level of a year earlier. Most of surge came, as expected, from energy input prices, up 4.3 percent on the month (and 50.4 percent higher on the year) after a 2.8 percent rise in February. Excluding energy and food, the core PPI rate was up 0.2 percent on the month and 1.7 percent on the year. Italy - February unadjusted retail sales rose 2.1 percent when compared with last year. The increase was mainly due to the large distribution sector, which rose 4.8 percent from February 1999, while small retail outlets only increased 1.5 percent. Retail sales data is measured in nominal value terms and not adjusted for rises in consumer prices. March producer prices surged 0.7 percent on the month and 5.4 percent when compared with last year with higher imported natural gas prices and oil, which were boosted mainly by the weak euro as the cause. The annual rise in March was the highest since February 1996. Britain -The Confederation of British Industry quarterly industrial trends survey showed that business confidence among manufacturers has fallen for the first time in a year and by the biggest margin since 1998, when optimism was pushed down by the global economic crisis. Exporters who are being hit particularly hard by the strength of the pound sterling are even gloomier. The persistent strength of sterling has stalled the recovery in the UK manufacturing sector and has pushed it, according to the survey, once more to the brink of recession. First quarter preliminary gross domestic product rose 0.4 percent and 2.9 percent on the year. This followed the fourth quarter of 1999's 0.8 percent increase and 3.0 percent on the year. Output growth in the services sector remained strong but was down from the previous quarter. Services output rose by 0.8 percent on the quarter and was up 3.2 percent on the year. In the fourth quarter, services output rose by 0.9 percent on the quarter and was up 2.8 percent on the year. The chief reason for the slowdown was a decline in production industries' output.
March trade deficit in goods with countries outside the European Union fell to Stg1.518 billion from Stg1.817 billion in the previous month. The value of exports to non-European Union countries rose 4.7 percent on the month while imports were unchanged. The export growth was concentrated in oil, chemicals, cars, precious stones and silver. If erratic items like oil, silver and precious stones were stripped out, the deficit would have widened to Stg1.5 billion from Stg1.4 billion last month. February global goods deficit narrowed to Stg2.408 billion from Stg2.752 billion in the previous month. The deficit with countries in the European Union widened to Stg591 million from Stg341 million in the previous month. Asia March retail sales sank 3.5 percent from a year earlier. Large scale retail sales fell 1.3 percent on the year. After adjustments the decline was 4.5 percent. Wholesale sales fell 2.1 percent in March compared to a year earlier, while total sales fell 2.3 percent. March industrial production rose 4.7 percent on a preliminary basis but fell a seasonally adjusted 1.0 percent on the month for the first time in three months. April Tokyo consumer prices rose 0.2 percent but were down 0.9 percent on the year while prices across Japan rose 0.2 percent in March but were down 0.5 percent on the previous year. March unemployment rate was unchanged at a seasonally adjusted 4.9 percent. The number of employed fell off 390,000 thousand, or 0.6 percent, from a year earlier.
March housing starts fell 3.6 percent when compared with a year earlier. Housing starts rose 2.4 percent in February. Public funding for housing starts was up 2.4 percent on a year earlier while private funding was down 2.8 percent. March total construction orders received by Japan's 50 largest contractors rose 3.2 percent and 7.2 percent when compared to a year earlier. Total private sector construction orders were up 17.3 percent on the year earlier while total public orders were down 17.0 percent. Americas
February gross domestic product at factor cost fell 0.4 percent. This was the first decline in 19 months and followed three months of particularly strong growth. When compared to last year, GDP was up 3.8 percent. The reason for the decline was a broad based drop in manufacturing output after three months of robust growth. Lower auto sales were chiefly responsible for sizable declines in retailing and wholesaling activity. Construction output also ebbed after six months of gains. These declines were partly offset by stock market related growth in the finance industries and by a surge in utilities' output because of cold weather. Overall, 17 of 22 major industry groups, accounting for about 70 percent of total manufacturing production, retreated in February. BOTTOM LINE Why does the euro continue
to slide? Although current economic growth in the European Monetary
Union is impressive when compared to the last 10 years, U.S. growth
has been spectacular and continues to attract European investors interested
in the higher returns to be earned here. Market participants remain
skeptical of the political will for structural reform needed, especially
in the labor markets, to sustain economic development in the major European
countries. Changing governments - a new socialist finance minister in
France and a new government in Italy - haven't convinced the markets
that the needed reforms will be carried out with sufficient haste.
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