Europe and the UK
The FTSE, CAC and DAX were up on the week. The FTSE, which has lagged its European neighbors in gains of late, jumped by a vigorous 2.6 percent, and in the process, reached a new five-year high. With its higher weighting of oil and mining stocks - the market capitalizations of BP and Royal Dutch Shell combined account for about 20 percent of the FTSE - the index was hard hit by the recent commodity sell off. Now investors have decided that commodity prices are stabilizing, and some are rising again. Both the CAC and DAX turned in good weeks as well, even though they were not as spectacular as that of the FTSE. Both are at multi-year highs. All three benefited from merger activity and positive earnings news notably in the banking and truck-making sectors.

Crude oil prices reversed course and were up at week's end on signs of growing U.S. energy demand and as Norway ordered two offshore platforms to shut down, affecting about 280,000 barrels a day of production.

Asia/Pacific
Asian/Pacific equity indexes tracked here were mixed during the week as investors coped with North Korea's defiant position regarding its nuclear test. On the week, the Kospi was unable to completely recover from Monday's drop and was down marginally. The Topix also lost minimal ground. The Nikkei regained May's high after the Federal Reserve Beige Book reported that U.S. consumer spending is increasing. Needless to say, exporters led the gains. But these stocks have also been helped by the weakness of the yen. A weaker yen makes Japanese exports more competitive and benefits exporters' repatriated earnings as well. But not all Japanese stocks were up last week - while the Nikkei was up for the third week, the Topix lost ground.

Hang Seng Shines
On Friday, the Hang Seng reached its highest level in more than six years as it climbed above the 18,000 level in intra-day trading. It closed just a shade below that level Friday. It was the first time since July 24, 2000 that the index has vaulted above the 18,000 level. (Its record high of 18,397.57 was set on March 28, 2000.) Investors were bolstered by a combination of things including a positive view of the U.S. economy in the Fed's Beige Book that indicated U.S. economic growth will be strong. Stocks such as HSBC that are linked to the U.S. have gained in the past month when the outlook for U.S. interest rate cooled. The Hong Kong Monetary Authority has matched each of the Fed's interest-rate increases because the local currency (Hong Kong dollar) is pegged to its U.S. counterpart.

Bank of Japan looks to the future
The Bank of Japan's Monetary Policy Committee, after a two-day meeting, left their policy interest rate unchanged at 0.25 percent. In his press conference following the meeting, BoJ governor Toshihiko Fukui unexpectedly said that he cannot rule out the possibility of another rate increase before year end. The markets had all but ruled out another rate increase in the short term after the revision of the consumer price index showed that inflation was lower than expected. He also reiterated his previous position that the Bank would adjust interest rates gradually and carefully as long as the economy and prices behave as anticipated. Fukui's comments emphasize the Bank's determination to prevent Japan's low borrowing costs from fueling an investment bubble. The bank raised interest rates for the first time in almost six years in July after ending its deflation fighting policy. Japan is in its 57th month of growth, equaling the so-called Izanagi boom that lasted from October 1965 to July 1970.

Japan's new government, formed last month by Prime Minister Shinzo Abe, will probably oppose any hasty rate increase. Abe, who faces an upper house election in July 2007, pledged to sustain growth and rely on revenue rather than tax increases to reduce the world's largest public debt. Low interest rates will be needed to shore up growth. Finance Minister Koji Omi said today he wants the central bank to support the economy with its policy.

Currencies
The yen was up in Asian and European trading Friday morning against both the euro and the dollar after Bank of Japan Governor Toshihiko Fukui said the Bank of Japan might increase interest rates again this year. But the gains did not last long as the currency retreated in U.S. trading. (Currency trading is an around the clock event. Trading in Asia begins when U.S. trading shutters for the day. Friday trading began as Thursday's ended in the U.S. European trading begins when the Asian trading day winds down. U.S. activity overlaps with London afternoon trading.)

The U.S. dollar was higher against the yen and euro as the prospect that the Federal Reserve would reduce interest rates diminished after the latest FOMC minutes were released. The minutes showed that there was still concern about the upside risks to inflation. Surprisingly, the dollar was not affected by the record merchandise trade deficit in August. Currency traders were focused on Asia at the beginning of the week after North Korea said that it had tested a nuclear bomb. (No signs of radiation from the test were subsequently found by either the U.S. or China.) However, after initial jitters, pressures eased as the risk of military action faded and as traders decided that disruptions in the region would have only limited wider impact.

Indicator scoreboard
EMU - Revised second quarter gross domestic product was up 0.9 percent and 2.7 percent when compared with the same quarter a year ago. Gross capital formation was up 2.1 percent and 4.8 percent on the year while private consumption was up 0.3 percent and 1.7 percent.

Germany - August seasonally adjusted merchandise trade surplus inched up to €12.1 billion from €12 billion in July. Imports were down 0.3 percent while exports were down 0.1 percent. When compared with the previous year, imports expanded by 12.5 percent while exports were up 9.6 percent.

August industrial production excluding construction jumped 2 percent and was up 7.3 percent when compared with the same month a year ago. All categories were up on the month with the exception of energy. Manufacturing was up 2.3 percent with consumer durables output jumping 6.2 percent and nondurables, up 0.9 percent. The pickup may reflect the increase in VAT from 16 percent to 19 percent on January 1, 2007. Investment output was up 0.4 percent while basic goods output increased by 4.6 percent.

France - August seasonally adjusted industrial production excluding construction was up 0.8 percent and 1 percent when compared with last year. Manufacturing output was up a stronger 0.9 percent and 1.6 percent on the year. Both continue to be volatile from month to month. Auto output jumped 3.6 percent and recouped about half of the declines of June and July. Energy output was up 1.2 percent while agriculture gained 0.9 percent.

August merchandise trade deficit widened slightly to €3.5 billion from €3.4 billion in July. Exports were up 2.2 percent after sinking 3 percent in July. Imports were up more - 2.4 percent after climbing 0.3 percent in July. The French trade balance is affected in part by the number of airbus planes that are sold. For example, 15 planes were sold in August, down from 19 in July.

Britain - September producer output prices were down 0.3 percent but up 1.8 percent when compared with last year. Core output prices were up 0.1 percent and 2 percent on the year. The decline was due to the sharp drop in gasoline prices. Input prices sank 1.8 percent on the month but were up 5.1 percent on the year. Crude oil prices plummeted 14.1 percent on the month.

August merchandise trade deficit was virtually unchanged at £6.7 billion. The value of exports was up 0.2 percent while imports were down 0.1 percent. The deficit with other EU countries was also virtually unchanged at £2.5 billion. The recent trade balance has been affected by Missing Trader Intra-Community (MTIC) fraud. If the impact from MTIC were excluded according to the Office for National Statistics, exports would have been up 3 percent while imports would have been up 1.5 percent. Excluding oil and erratic items the trade in goods deficit was £5.7 billion.

Asia
Australia - September employment increased 31,400 after gaining 23,100 in August. The unemployment rate remained at 4.8 percent, a 35-year low. Full time jobs were up by 36,000 while part time jobs were down by 4,600. The participation rate, which measures the labor force as a percentage of the population aged over 15, edged up to 65.1 percent from 65 percent in August.

Japan - September corporate goods price index was up 0.3 percent and 3.6 percent. The CGPI has posted positive gains virtually every month since July 2005.

Americas
Canada - August merchandise trade surplus climbed to C$4.2 billion from C$3.9 billion in July. Exports were up 0.3 percent but imports dropped 0.6 percent. The bilateral trade surplus with the U.S. was C$8.2 billion, slightly higher than the revised C$8.1 billion in July. Imports from the U.S. dropped 1.5 percent while exports were down 0.8 percent. August merchandise trade deficit with the rest of the world was C$4 billion. Industrial goods and material exports were up 2.8 percent while energy exports were down 2.2 percent while exports of machinery and equipment were down 1.2 percent. The bulk of the decline was in aircraft and other transportation equipment sales. Imports were up in most sectors, the exception being in the automotive products where imports were down.

Bottom line
Last week, economic data revolved around various merchandise trade balances and the industrial output picture. And two important releases from Federal Reserve - the minutes from the FOMC's last meeting and the Beige Book for the next - were read closely on Wednesday and Thursday respectively. Fed watchers revised their outlook for a prospective rate cut and pushed it out further into the future.