Europe and the UK
European and British stocks rode Wall Street's coattails Friday after getting off to a weak start on profit taking. Investors looked at slower-than-expected second-quarter U.S. GDP growth and celebrated the possibility of a pause in the Fed's cycle of interest rate increases. But continued uncertainty over earnings and the economic outlook clouded global equity sentiment during most of the week. Investors, especially in the U.S., struggled to find direction as strong second-quarter earnings by some companies were overshadowed by disappointments from many high-profile ones. At week's end, European shares shrugged off mixed earnings results, a third profit warning in a year from Peugeot and the Ifo sentiment survey which showed a decline in German business confidence. But Volkswagen, the region's biggest car maker, and Royal Dutch Shell, Europe's second-largest oil company, were among others reporting earnings that were above estimates. In spite of the conflict raging in Lebanon and Israel, European and UK shares had their best weekly gains in more than three years. The CAC was up 4.4 percent on the week while the DAX was up 4.7 percent. The FTSE was up 4.5 percent last week and is at its highest level since May 11th.

Asia/Pacific
Asian stocks gained after companies such as Sony beat earnings estimates, NEC reported its first profit in five quarters and Canon increased its net income forecast. The Nikkei was up 3.5 percent on the week while the Topix gained 2.9 percent. However both indexes remain below their year-end levels. The Hang Seng is the high flyer of the indexes followed here, up 3 percent last week and 14 percent above year end. But in Australia, banks and real-estate developers declined as many analysts think the Reserve Bank of Australia will increase borrowing costs two more times this year from the current level of 5.75 percent. Readings for both the producer and consumer price indexes were above expectations, indicating inflationary pressures.

Currencies
Both the euro and yen along with other major currencies benefited against the U.S. dollar by the lower-than-expected 2.5 percent annualized GDP growth on Friday. The yen also benefited from the continuing positive gain in the Japanese CPI. Although there was a slight increase in unemployment, this was offset by an increase in the job-to-applicant ratio. According to analyst Derek Halpenny, the yen has advanced on the seasonal liquidation of short positions ahead of the annual August holiday season. He said that in every August over the last eight years, the yen has appreciated.

The Australian dollar was up after data revealed that consumer prices rose by a higher-than-expected 1.6 percent in the second quarter and 4 percent on the year. This is well above the RBA's inflation target range of 2 to 3 percent. A key factor was a 250 percent leap in the price of bananas after the domestic crop was devastated by Cyclone Larry in March. The data cemented expectations the Bank will increase rates by a quarter of a point to 6 percent when they meet this week.

Indicator scoreboard
EMU - M3 money supply growth for the three months ending in June was up 8.7 percent when compared with the same three months a year ago. June M3 was up 8.5 percent when compared with June of the previous year. The ECB uses the three-month moving average as their key money supply growth number.

Germany - July Ifo sentiment index dropped to 105.6 from 106.8 in June. Expectations for the next six months were down to 102.6 from 104.2 while current conditions slipped to 108.6 from 109.4. The Ifo surveys about 7,000 firms engaged in manufacturing, construction, wholesaling and retailing on their assessment of business conditions. The end of the World Cup in Germany along with expectations of a tax increase dampened expectations.

France - June producer price index edged up 0.1 percent and was up 3.9 percent when compared with last year. Excluding food and energy, the core PPI was up 0.1 percent and 2.4 percent on the year. Energy prices slipped 0.1 percent but remain up 11.2 percent on the year. Energy accounts for about 17 percent of the total index. Food and agriculture prices were up 0.5 percent and 2.4 percent on the year.

Asia
Japan - July Tokyo consumer price index was down 0.3 percent but up 0.4 percent when compared with the same month a year ago. Core CPI excluding fresh food was unchanged on the month and up 0.4 percent on the year. June national CPI was down 0.1 percent and up 1 percent on the year. Core CPI was also down 0.1 percent and was up 0.6 percent on the year.

June unemployment rate edged up to 4.2 percent from 4.1 percent in the previous month. The number of unemployed was down by 20,000 from the previous year. Employment increased by 200,000, again from a year earlier.

June retail sales were up 0.2 percent and 0.4 percent when compared with last year. This is the second month in a row that overall retail sales have increased, a sign that the Japanese consumer is beginning to spend.

Australia - Second quarter producer price index jumped 1.6 percent and was up 4.5 percent when compared with the second quarter a year ago. The domestic component was up 1.8 percent primarily due to price increases in petroleum refining, building construction and other agriculture (includes bananas). These increases were partially offset by decreases in commercial fishing. The imports component was up 0.7 percent due to price increases for consumption goods including petroleum refining and other manufacturing. Imports of capital goods showed no change due to higher prices for industrial machinery which were offset by lower prices for electronic equipment.

Second quarter consumer price index was up 1.6 percent and 4 percent when compared with the same quarter a year ago. Prices of fruit soared by 52 percent while gasoline prices jumped 11.2 percent. Bananas accounted for most of the increase in fruit prices, both in the June quarter and on the year. The crop was virtually destroyed by Cyclone Larry in March 2006. Hospital and medical services prices were up 4 percent. Prices were down for motor vehicles, audio, visual & computing equipment, women's outerwear and domestic travel.

Americas
Canada - May retail sales were down 0.6 percent but were up a healthy 7.4 percent when compared with May a year ago. Excluding car dealers and used and recreational motor vehicles and parts dealers, sales were down 0.2 percent and up 7.8 percent on the year. May's decline was only the second in eight months. Sales in the automotive sector, which make up over one-third of total retail sales, were down by 2.1 percent. This retail sector, however, has generally been experiencing steady growth since 2004 partly due to the rising price of gasoline. Food and beverage store (-0.6%) sales declined 0.6 percent. Sales were also down for clothing and accessories. These declines were offset by sales increases in furniture, home furnishings & electronics stores as well as pharmacies & personal care stores, building & outdoor home supplies stores and general merchandise stores. All three sub-components of the automotive sector declined.

June industrial product price index (IPPI) was down 0.4 percent and up 2.2 percent when compared with the same month a year ago. The monthly decline was attributed mainly due to lower primary metal products which were down 5.3 percent and lumber prices which dropped 1.5 percent. On the year, petroleum and coal product prices were up 20.1 percent. If these product prices had been excluded, the IPPI would have increased 0.3 percent. However, auto prices dropped 7 percent on the year mainly because of the stronger Canadian dollar.

June raw materials price index (RMPI) was down 2.5 percent but up a hefty 14.7 percent when compared with last year. Non-ferrous metals prices declined 10.9 percent as lower demand pushed down prices for zinc, copper, lead, gold and silver. Mineral fuels prices declined 1.2 percent on the month. Prices for crude oil were down by 1.3 percent, mainly due to higher inventories and ample supply. If mineral fuels had been excluded, the RMPI would have decreased 3.8 percent instead of 2.5 percent.

In June, the value of the Canadian dollar against the U.S. dollar was down 0.4 percent. As a result, the total IPPI excluding the effect of the exchange would have been down 0.5 percent instead of its actual decrease of 0.4 percent. On a 12-month basis, the value of the Canadian dollar is up 11.4 percent against the U.S. dollar. If the impact of the exchange rate had been excluded, producer prices would have risen 5.0 percent on the year rather than their actual increase of 2.2 percent.

Bottom line
Last week was dominated by earnings reports and geopolitical concerns. With international efforts underway to resolve the Middle East conflict, worries about supply interruptions receded. There was limited economic data available internationally. The exception was in Japan where the last week of the month produces important price, employment and retail sales data. And in the U.S., the eagerly awaited Beige Book gave analysts anecdotal evidence to pore over while preliminary GDP data provided a more up to date picture of U.S. growth. However, since markets in Asia and Europe were closed by the time the report was released, there was little or no market reaction to it.

Next week is a busy one with the Reserve Bank of Australia leading the procession of scheduled central bank meetings and announcements. The RBA will announce on Wednesday morning local time (Tuesday night in the eastern U.S.) while the Bank of England and the European Central Bank will make policy announcements Thursday morning. The pace will pick up in Europe as a plethora of data releases will surround the central bank announcements. Analysts are virtually unanimous - they think that there could be a 25 basis point increase at the outcome of the RBA's meeting. Inflation as measured both by the producer price and consumer price indexes showed sizable jumps in the second quarter. The RBA will have to decide whether the 250 percent jump in banana prices threatens their inflation goals. The current policy rate is 5.75 percent. The U.S. fed funds rate is currently 5.25 percent.

The well advertised European Central Bank rate increase should occur on Thursday. At his July press conference, ECB President Jean Claude Trichet broadcast the bank's thinking on future interest rate moves. He warned the ECB would exercise 'strong vigilance' - this was interpreted as code language for saying an increase in borrowing costs is highly likely on Thursday. This was underlined by the fact that the bank's governing council is taking the exceptional step of meeting in Frankfurt on August 3rd rather than through the usual summer holiday teleconference. The ECB's current policy rate is 2.75 percent.