28 June 2001, 11:16  ANALYSTS' VIEW-Europe reacts to Fed rate cut

LONDON, June 28 - Following are European analysts' reactions on Thursday to the U.S. Federal Reserve's 25 basis point cut in its key interest rates on Wednesday.
Latest comments --
JEREMY BATSTONE, HEAD OF RESEARCH AT NATWEST STOCKBROKERS
My initial suspicion was that European stocks were going to open down, as the Fed spoke of slowing economic activity globally, which sotto voce means Germany. However, the U.S. futures are showing some tentative signs of rising so that may limit declines early on.
People are now clearly prefering to see signs of an economic recovery rather than more rate cuts. In actual fact, after the durable goods and consumer confidence data 25 basis points had rather been factored in to expectations
. Bonds might not have liked it had they gone 50 basis points. The bulk of the performance for the short end has happened. We have seen clear signs of a flattening. Concerns over a revivial in inflation have led to longer dated yields rising a bit, which is counteracting what the Fed is doing at the short end.
CLAUDIO PIRON, STANDARD CHARTERED, LONODN
"Clearly the reaction by stock markets was perhaps the key one -- it was a disappointment for them. The obvious thing everyone noted was the omission of the sentence 'We are monitoring economic conditions.' They've gone away from red alert to just being on amber. We've seen two- and 10-year yields on the medium part of the curve flattening out a bit. After such a radical steepening of the curve after the Fed's aggressive cuts we're seeing it start to calm down."
Earlier comments --
PAUL MACKEL, CURRENCY STRATEGIST, DRESDNER KLEINWORT WASSERSTEIN FRANKFURT
"The reaction has been fairly muted for the euro. The market was more or less expecting a 25 basis point rate cut, but has not been clear how to interpret the decision. It is mildly bearish -- a 50 basis point cut would have been more supportive for the euro."
HANS REDEKER, CHIEF FOREIGN EXCHANGE STRATEGIST AT BNP PARIBAS IN LONDON
"The important thing following the 25 basis point move is that equities remained robust. The market does believe in the reinflation of the economy and this is positive for the dollar. There is the possibility of further easing and the Fed does recognise that the economy is still bouncing along the bottom."
MICHAEL ROTTMANN, HYPOVEREINSBANK, MUNICH
"For the euroland markets, the inputs were relatively limited as we already see with the Bund future slightly lower. What is a little bit surprising is that we see some stronger losses here in the Schatz and Bobl futures and in Euribor. This move is a little bit overdriven because the more benign 25 basis point rate cut means absolutely nothing for upcoming ECB policy.
Nevertheless there is still uncertainty at the long end of the market in the euroland as well as in the U.S. because the 25 bp cut leaves us on the razor's edge...If you expect more positive economic news in the next few weeks, market participants may argue that we will see no further rate cuts.
On the other hand, and this is my current best guess, if we get surprises on the soft side in today's U.S. help wanted (data) and the weekly jobless claims this could indicate that next week's employment report comes in on the soft side.
If we see a somewhat lower NAPM, this could translate into another round of inter-meeting rate cuts in the U.S. which should also give some better support to the longer end in euroland. My target based on a two-week outlok is still that we see a test of levels around 108 in the Bund future."

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