[Fwd: The European Rate Cut and what it means]

[swp <swp@xxxxxxxxxx>]

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Date: Thu, 03 Dec 1998 19:51:32 -0200
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Organization: Poser Global Market Strategies Inc.
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Subject: The European Rate Cut and what it means
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William -

Here is a summary of my thinking on the European rate cut.

First of all, it is important to realize that everybody expected a cut
to 3.00% (yes that is their short term official rate), but it was
foreseen after the new year when the ECB was in power, and not before.
That means that the help from this move will probably be limited.

>From another perspective, with Europe's rates far lower than ours, they
are in greater danger of pushing on that old "Made in Japan" string.
They just have less room to maneuver, so another rate cut is not seen
for a very long time, if at all there (at least that is what the markets
will expect). That is why the cut led the dollar to weaken against the
DEM after the initial shock buying.

As for whether their cutting is as significant as Alan Greenspan, the
European Central Banks probably do not have the same record as AG does
in protecting their equity markets, and so the help is not going to be
as great. And again, don't forget, unlike 15-October and in the cut two
weeks ago, which was seen as a coin flip, this one was fully expected.
Yes, cutting their rates is important, but they still look to the US
(rightly or wrongly) for monetary and market leadership, thus our cuts
and our markets are probably as important to them as is their own
monetary policy. I suspect that might eventually change if the Euro
truly works, since their economy will no longer be dwarfed by the US,
but we are not quite there yet.

One final thing: Greenspan has a record of caring about the markets and
market behavior. It is not clear that the soon to open for business
European Central Banks will. They had better or they will be fried!

Hope that helps.

Steve Poser
(no signature info to avoid be called a spammer)