Europe and the UK
The FTSE, DAX and CAC were up on the week, month and quarter. The FTSE has now regained all but 4 points or 0.1 percent of its second quarter losses. However, both the CAC and DAX gained back all of the losses and then some. All three indexes gained on better European growth expectations and lower oil prices that promised less pressure on earnings and interest rates. The DAX was up 2.5 percent in September while the CAC gained 1.6 percent and the FTSE, 0.9 percent. But investors here continually focus on the U.S. and its impact on their local economies. Now they are more confident that softer U.S. growth will not dent the nascent European recovery.

EU increases in size to 27 members
Bulgaria and Romania will become part of the European Union on January 1, 2007. This completes the 'big bang' expansion that began in 2004 when the EU membership jumped from 15 to 25. But whether the EU will continue to grow in size is in doubt. Citizens are indifferent and only a slim majority continues to be positive about future expansion. Enlargement fatigue was obvious last year when both French and Dutch voters rejected the EU constitution citing eastward expansion as a prime reason for their dissatisfaction. Jose Manuel Barroso, the European Commission president, insists enlargement benefits both old and new member states. But he concedes Europe needs a pause before adding more members. He points in particular to the EU's 'creaking' institutions. He said ratification of parts of the EU constitution could help, but there is no sign that this will happen in the near future. Most consider the constitution dead.

Asia/Pacific
All Asian/Pacific indexes followed here were up last week with the exception of the high flying Hang Seng. The index was down 0.3 percent for the week. However this did not stop the index from turning in the best third quarter gains of the six, climbing by 7.8 percent. The Hang Seng benefited from upbeat investor sentiment now that the Federal Reserve has stopped increasing interest rates. With the Hong Kong dollar pegged to its U.S. counterpart, U.S. rate increases are immediately passed onto the island economy. Although the Japanese indexes were down for the month of September, both the Nikkei and Topix posted healthy gains in the third quarter, up 4 percent and 1.5 percent respectively. The September losses can be attributed to concerns about slowing U.S. growth and the impact on the Japanese economy. These concerns were transferred to exporters' shares which were sold off on the prospect of lower sales and profits. Commodity producers were hit as both oil and metals prices declined on worries that demand will drop as higher global borrowing costs curb global economic growth.

Japan has a new prime minister
Shinzo Abe was named Japan's prime minister on Tuesday and said he will try to narrow the government's budget deficit and reduce the world's biggest public debt. In selecting his new cabinet, he unexpectedly chose Koji Omi, a tax expert, as his finance minister. The government needs about ¥16.5 trillion ($142 billion) to balance the budget. This would be a major step in its attempts to stop the expansion of the nation's public debt, which is approaching 151 percent of GDP. Former finance minister Sadakazu Tanigaki advocated increasing the consumption tax to at least 10 percent to pay for the nation's swelling medical and welfare costs and to reduce the public debt. But this is a very contentious topic. In 1997, when the government last raised the sales tax, the economy tipped into recession. The new government wants to find most of the money it needs from spending cuts, with the rest coming from other measures such as higher taxes.

Currencies
Both the yen and euro were down against the U.S. dollar last week and for the month of September as well. The dollar was up on Friday, helped by new inflation data that was above the Fed's 'comfort zone'. The August core personal consumption expenditures deflator was up 0.2 percent. On the year, the PCE was up 2.5 percent, the most in 10 years. Fed Chairman Ben Bernanke and others have said they would be more comfortable with an increase in the 1 to 2 percent range. The dollar was also helped by the Chicago NAPM report that showed renewed strength in that area's economy.

Indicator scoreboard
EMU - August M3 money supply was up 8.2 percent when compared with last year. M3 for the three months to August was also up 8.2 percent when compared with the same three months a year earlier. Money supply growth by any measure is almost double the ECB target of 4.5 percent.

September flash harmonized index of consumer prices was up 1.8 percent when compared with last year. In August the HICP was up 2.3 percent on the year. While no detail is available for flash estimates, it is assumed that the decline in energy prices lowered the overall index. The ECB has an inflation ceiling of 2 percent. This is the first reading under that level since January 2005 when the HICP was up 1.9 percent on the year.

EU - September economic sentiment index climbed to 109.3 from 108.3 in August. Both consumer and industrial sentiment improved. Consumer sentiment inched up to minus 8 from minus 9 in the previous month while industrial sentiment reading was 4, up from 2 in August. Services sector sentiment declined to 18 from 21 in August. Both Retail and construction sentiment were up.

Germany - September Ifo index edged down to 104.9 from 105 in August. Expectations for the next six months eroded to 98.9 from 101.4 in the previous month. Current conditions however, climbed to 111.3 from 108.7. Confidence among manufacturers and construction firms was down. However retailing improved while wholesaling was virtually unchanged. The disparity between the expectations and current conditions segments is not uncommon at this stage of the business cycle.

September seasonally adjusted unemployment rate remained unchanged at 10.6 percent for the second month. The unemployment rate in the West edged down to 8.9 percent from 9 percent while the rate in the East remained at 17.2 percent. The number of unemployed was down by 17,000. Unemployment in the West declined by 23,000 while it increased 6,000 in the East. August payroll jobs increased by 29,000.

August total retail sales were up 0.8 percent and 1.6 percent when compared with last year. All of the increase was in the auto/gasoline sector. Excluding autos and gasoline, retail sales were unchanged on the month and up 0.2 percent on the year. Only overall sales are available at this time. The data are subject to substantial revisions.

France - Second quarter gross domestic product increased a revised 1.2 percent and 2.6 percent when compared with last year. The quarterly change, which was revised upward from 1.1 percent, is the result of stronger business investment than originally estimated. Total investment was up 1.7 percent on the quarter. Business fixed capital outlays were up 2.3 percent while household investment was up 0.6 percent and the public sector by 1.2 percent. Private consumption was up 0.8 percent.

August unemployment rate inched upward to 9 percent from 8.9 percent in July after declining for five straight months. The number of unemployed increased by 9,000 according to the International Labour Organisation definition which excludes jobseekers who did any work during the month.

Britain - Second quarter gross domestic product was revised down slightly to 0.7 percent growth on the quarter from the previously estimated 0.8 percent. GDP was up 2.6 percent on the year, unchanged from the previous estimate. Service sector output was revised downward to 0.9 percent from an increase of 1 percent previously. Household expenditures were revised to an increase of 0.9 percent and 2.3 percent on the year from the previous 1 percent and 2.4 percent on the year. The GDP deflator was revised to an increase of 2.2 percent on the year from the previous estimate of 3.4 percent.

Asia
Japan - August unemployment rate was 4.1 percent, unchanged from July. Employment was up 100,000 when compared with the same month a year ago. The participation rate remained at 60.8 percent.

September Tokyo consumer price index was down 0.1 percent but up 0.4 percent when compared with last year. Core CPI excluding fresh food only was up 0.1 percent but unchanged on the year. The new core measure, which also excludes energy, was up 0.1 percent but down 0.3 percent on the year. August nationwide CPI was up 0.7 percent and 0.9 percent on the year. Core excluding only fresh food was up 0.2 percent and up 0.3 percent on the year. However, the core measure excluding energy also was unchanged on the month and down 0.4 percent on the year.

August industrial production jumped by 1.9 percent and was up 6 percent when compared with the same month last year. Production of transport equipment, electronic parts & devices and electrical machinery was up on the month.

Americas
Canada - August industrial product price index (IPPI) dropped 0.5 percent but was up 3.6 percent when compared with last year. Lower prices for primary metal products and petroleum products were the major contributors to this monthly decrease. Primary metal product prices were down 1.6 percent after increasing 7.4 percent in the previous month. Petroleum and coal prices were also down by 1.2 percent after jumping 5.4 percent in July. Excluding petroleum and coal, the IPPI was down 0.4 percent. Auto prices were down primarily due to the strength of the Canadian dollar.

August raw materials price index (RMPI) was down 3.5 percent but was up 9.7 percent when compared with last year. The monthly decrease was due primarily to lower prices for crude oil and non-ferrous metals. Mineral fuels prices dropped 5.2 percent on the month. If they were excluded, the RMPI would have been down 1.7 percent instead of 3.5 percent.

The value of the Canadian dollar against the U.S. dollar was up 1.0 percent in August. As a result, the total IPPI excluding the effect of the exchange would have fallen 0.2 percent instead of its actual decrease of 0.5 percent. On the year, the value of the Canadian dollar increased 7.7 percent against the U.S. dollar. If the impact of the exchange rate had been excluded, producer prices would have risen 5.6 percent on the year rather than their actual increase of 3.6 percent.

July monthly gross domestic product was up 0.2 percent and 2.5 percent when compared with the same month a year ago. Services were also up 0.2 percent on the month, but were 3.2 percent higher than a year ago. Manufacturing, however, was virtually unchanged on the month and up 0.6 percent on the year. The energy, wholesale trade, retail trade and financial services sectors were especially robust. The construction and forestry sectors declined for a third consecutive month. In the 21 major manufacturing groups, 10 accounting for 44 percent of total manufacturing output were up on the month. The gains were mainly registered in the production of durables, led by machinery, wood and primary metal products manufacturing. The largest declines were recorded in the manufacturing of motor vehicles and parts as well as in plastics and rubber products. Industrial production (the output of mines, utilities and factories) grew 0.5 percent led by the strong advance of the mining and oil and gas extraction sector, which was up 1.8 percent.

Bottom line
This past week featured a new government in Japan along with a plethora of indicators that showed they had inherited an economy that for the most part is alive and well. Consumer prices were up confirming that deflation is a thing of the past and sending analysts to their crystal balls to determine when the Bank of Japan might increase interest rates for a second time. The new Prime Minister, Shinzo Abe, has pledged to lower Japan's enormous public debt and to continue former Prime Minister Junichiro Koizumi's reforms.