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Global Briefing: No New Stimulus, Japanese Leaders Say

Comments from the summit could move the dollar and the Treasury market.

Holidays in Japan and the U.K. have made for uneventful overseas activity. The U.S. session promises to be more volatile, as players will use today's report from the National Association of Purchasing Managers to fine-tune their expectations for Friday's release of April's nonfarm payrolls. In addition, comments from the U.S.-Japan summit could move the dollar and Treasury markets.

Japanese Prime Minister

Keizo Obuchi

and Finance Minister

Kiichi Miyazawa

appeared to rule out a supplemental budget now. Previously, many policy wonks had indicated that Obuchi would come to Washington D.C. bearing fiscal gifts.

It has become evident recently that U.S. officials continue to press Japan to continue to take stimulative steps until the economy enters a self-sustaining growth phase. However, given Obuchi and Miyazawa'a comments, expectations have been deflated. The risk, then, is that Obuchi's rhetoric, for foreign consumption, is more sympathetic to additional stimulative measures than his rhetoric for domestic consumption.

In the current environment, signs that Japanese officials are either considering additional economic measures or prepared to take fresh steps if the economy fails to show underlying strength soon are positive for the yen. Japanese exporters are believed to have left dollar sell orders that would be triggered on a move toward the 120.50-yen area. Support for the dollar is seen initially near the 119.25-yen level, with stronger support near 118.50-yen area.

The dollar is steady to firmer against European currencies.

The euro continues to bounce along its trough after slipping to new lows before the weekend in response to the stronger-than-expected first-quarter GDP report. Although the absolute growth differentials between the eurozone economies and the U.S. economy probably peaked in either the fourth or first quarter, the divergent economic performances remain a critical negative for the euro. The market will likely be reminded of this at the end of the week, when both the U.S. and Germany report April employment figures.

Helping to explain why the flood into the euro that many economists expected at the start of the year hasn't materialized, Joseph Yam, head of the

Hong Kong Monetary Authority

, acknowledged that the euro makes up less than 15% of the group's nearly $90 billion in reserves. Yam cited the poor performance and outlook for the euro, based on macroeconomic factors for the lower-than-expected official holdings.

The immediate wild card for the euro is Kosovo.

In particular, any sign that the new efforts over the weekend to explore diplomacy are bearing fruit could produce a quick short-covering bounce in the euro. Many market participants had been looking for a euro bounce, but were forced back to the sidelines after an attempt on the upside failed in the middle of last week. Key resistance for the euro is seen in the $1.07-$1.0720 area.

European bonds are little changed and the major bourses are mixed.

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Among the features are strength among drug makers following the stronger-than-expected earnings from




, but weakness in the chemical sector following disappointing earningsfrom


. Oil and bank shares are mixed to firmer. German electric companies may be boosted by news over the weekend that German Chancellor

Gerhard Schroeder

indicated that none of the country's 19 nuclear plants will be closed during the current government, whose term runs through most of 2002.


Bank of England's

monetary policy committee meets on Wednesday and Thursday. On balance, look for the MPC to sit tight. The recent batch of economic data blunted the sense of urgency that policy makers have been feeling. Since last October the MPC has slashed key British rates by 225 basis points. The lower rates are having a desirable effect on interest rate-sensitive sectors like housing. There is also some evidence that gives hope that the worst for the manufacturing sector is behind it.

Nevertheless, the U.K. interest rate cycle is not over.

There are probably another 25-50 basis points worth of easing still in the pipeline. The June and September short-sterling futures contract -- a three-month time deposit like the Eurodollar futures -- are nearly identically priced. The September contract will likely outperform the June contract going forward. The September contract reflects only about a 1-in-3 chance that the Bank of England will cut rates once more. The odds, it seems to me, are higher. Because a rate hike can be ruled out, it means that the September contract should not sustain decline below 94.75 (100 minus current base rate of 5.25). On the upside, there is potential toward 95. The contract finished last week at 94.84.

With the release the preliminary first-quarter U.S. GDP, today's March personal income and consumption reports are unlikely to move the market. Based on the GDP report, the consensus guesstimate of a 0.4% rise in personal consumption expenditures is probably on the low side. The market is probably on the low side on construction spending as well.

The 6.7% rise in first-quarter consumption was the strongest in 11 years. Government spending, some of which is for construction, rose 4.4% in the first quarter after a 3.3% increase in the fourth quarter. Residential investment rose 15.6% after a 10% rise in the fourth quarter. Nevertheless, the market's focus will be on the information from the second quarter and today that means the National Association of Purchasing Managers report.

There has been some divergence in recent months between the performance of the Chicago survey and the NAPM.

Many economists have used as the results of the Chicago survey guide to fine-tune forecasts for the national survey. So many have not revised higher their forecasts for today's report despite that the stronger-than-expected Chicago survey reported before the weekend.

The combination of the weaker-than-expected employment cost index and the stronger-than-expected first-quarter GDP report left expectations for Fed policy little changed in the second half of April. The July fed funds futures contract has about 7 basis points of a possible 25-basis-point hike current discounted.

The September contract has about half of a 25-basis-point move priced in at last week's settlement. There is unlikely to be much from either Fed Chairman

Alan Greenspan's

public remarks this week or the

Beige Book

prepared for the FOMC meeting later this month that will sway the market very much ahead of the April jobs data at the end of the week.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the stocks, currencies or instruments discussed in this column, although holdings can change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at