GMM 22 June 01

Please find attached the Global Markets Monitor for the week ending 22 June 2001.

Executive Summary

US: The Fed is going to act again on Thursday June 27 to lower borrowing costs, but the question is by how much. We outline the convincing arguments for both a 25 and 50 bp cut at this week's FOMC meeting. The decision on the direction of interest rates must be viewed in the context of the Fed's concern about Japan. How does the U.S. strong dollar policy fit into this picture? Although we find the arguments for a 50 bp cut compelling, we expect the Fed to trim short-term rates by 25 bp on Thursday.
Europe: Industrial production across the euro-zone falls again, pointing to a looming industrial recession in Europe. German authorities have lowered their GDP forecasts, not ruling out recession.
Japan: The Japanese government released details of its restructuring plans, but few new tricks are revealed, and opposition to sorely needed spending cuts could be fierce. Lindsay's comments lead the yen lower. The global slowdown deteriorates Japan's trade outlook. Japan's crippled banking system makes its economy especially vulnerable to the global slowdown.
Country Update - Argentina: In order to revive economic growth in the export sector, a new exchange rate system for the traded sector only was announced this week that gives advance benefit of a basket of dollars and euros to exporters. The Senate votes to make an official change to the Convertibility Plan (under parity conditions). We discuss the impact of the change on the peso in light of perceived risk of devaluation.

Thank you,
Maureen Raymond-Castaneda
and Gwyn Koepke