Dim view on central banks

Dim view on central banks, Cisco

RTGAM


Investors will have one eye on Europe and another on North America on Thursday morning, with both markets likely to make big moves on the downside.


In widely expected decisions, the Bank of England hiked its key interest rate by 25 basis points (or a quarter of a percentage point) on Thursday, to 5.25 per cent, warning about the risks of inflation but also stating that it had to balance those risks against the threat of a sharp downturn in economic activity. At the same time, the European Central Bank held its key rate steady this morning, at a six-year high.


Despite the decision to say put, ECB President Jean-Claude Trichet told a press conference that his views on the economy were far from sunny: "As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy," he said.
Clearly, investors did not take kindly to the moves by the two central banks, driving down European shares sharply. The U.K.'s FTSE 100 fell 2.8 per cent in early afternoon trading and Germany DAX index fell 2.7 per cent.

North American stocks are likely to take a similar thumping when markets open. Stock index futures for the S&P 500 pointed to a 1.1 per cent downturn and Nasdaq 100 futures pointed to a 1.9 per cent downturn. Part of the problem here is the fact that John Chambers, CEO of Cisco Systems Inc. - considered a bellwether stock for the technology sector - warned late on Wednesday that the company's results will be under pressure for some time.

"It's the most cautious I've seen CEOs in the U.S. and Europe in many years," Mr. Chambers said on a conference call on Wednesday. In pre-market trading, Cisco's stock is down 8.3 per cent, to $21.17 (U.S.).


In Canada, investors will weigh key earnings news that was released in the morning. On the upside, Air Canada blew away expectations with net income rising to $35-million in the fourth quarter, up from a $144-million loss last year. Revenue rose 4 per cent. On the downside, struggling food retailer Loblaw Cos. disappointed expectations. Fourth quarter earnings rose to $40-million, up from a loss of $756-million last year - but the results were lower than analysts had expected.


Copyright 2001 The Globe and Mail