Its green but not everywhere...Mother said there would be days like these...

Stocks up despite grim news

RTGAM



There was enough bad news on Thursday to sink the stock market equivalent of a battleship, but in the end North American investors sailed through.


They dodged comments from Richard Fisher, president of the Federal Reserve Bank of Dallas, who warned that aggressive rate cutting on the part of the U.S. Federal Reserve could "juice up" inflation - the second comment in as many days that the tonic investors are counting on might not arrive. They steered clear of a dismal forecast from Cisco Systems Inc., made on Wednesday night after markets closed. And they just plain ignored the fact that European stocks fell sharply on renewed fears of a U.S. recession and a global slowdown.


North American stocks ended the day higher, despite some waffling earlier. The Dow Jones industrial average closed at 12,247, up 46.0 points or 0.4 per cent. The broader S&P 500 ended at 1336.91, up 10.5 points or 0.8 per cent. And Canada's S&P/TSX composite index ended at 12,925.37, up 58.17 points or 0.5 per cent.

In the end, investors may have ignored the near-term turbulence for what looked like a concerted effort on the part of the world's major central banks to cut rates and get the global economy humming again. The Bank of England did it on Thursday, trimming its benchmark by 25 basis points (or a quarter of a percentage point). And while the European Central Bank held rates steady on Thursday, initially causing some concern among investors who want a rate cut, it sent out the right message later in the day that it may be open to rate cuts this year.

Stefane Marion, an economist at National Bank Financial, noted that the global policy rate among the G7 developed economies, after adjusting for inflation, is negative for the first time in three years, which usually works a powerful dose of medicine for an ailing economy.

"There may still be a lot of uncertainty regarding the impact of a U.S. recession on the global economy, but the good news is that central banks are responding," he said.

Copyright 2001 The Globe and Mail

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