Europe and the UK
After a volatile week, the FTSE, CAC and DAX managed to conclude the week on the plus side, thanks to Wednesday's huge gains that more than offset Friday's declines. Because the FTSE has a large mining stock component, the index has been particularly sensitive to commodity prices, especially crude oil. When crude and other commodities decline in price, it has a negative impact on the FTSE. (It isn't the only index to be affected - the S&P/TSX composite in Canada and the all ordinaries in Australia also tend to fluctuate around commodity prices.) And in Europe, the indexes there were buffeted by disappointing returns from technology companies in the U.S. such as Dell.

The UK is usually the first of the major industrial countries to release the new quarter's preliminary GDP data and Friday was no exception. GDP was up more than expected in the second quarter but equities did not celebrate because with it came concerns that the Bank of England would look to increase their key interest rate from 4.5 percent. Earlier in the week, inflation concerns were revived as the consumer price index jumped 2.5 percent on the year, which was higher than expected. The main culprit there was rising utility bills as abnormally high temperatures plague the UK as well as the U.S. Other gains came in higher-than-expected retail sales and housing data. At the beginning of the year, few analysts saw UK interest rates above their current 4.5 percent level before the end of 2007. As of Friday, the futures market was pricing in the view that rates would be at 5.25 percent by then.

Asia/Pacific
Thursday's post-Bernanke equities rally was quite impressive. Japanese stocks jumped by the most since March 4, 2002 after Fed Chairman Bernanke hinted the central bank has almost finished raising U.S. interest rates. Exporters such as Toyota Motor Corp. and Canon Inc. led gains. The Nikkei advanced 446.58 points, or 3.1 percent, while the broader Topix index jumped 53.17, or 3.6 percent, with all 33 industry groups included in the measure climbing. Shares also advanced after crude oil fell to a three-week low. Prices had surged to a record in the previous week on concern that the conflict between Israel and Hezbollah would spread through the Middle East, source of a third of the world's oil. When the volatile week ended, the Nikkei and Topix - despite Thursday's huge rally - were down on the week as was the all ordinaries.

The Chinese economy roared ahead in the second quarter. Official data said the economy grew by 11.3 percent compared with a year earlier - the fastest expansion in more than a decade.

The Organisation for Economic Co-operation and Development (OECD) in its latest Economic Survey on Japan expressed concern that the Bank of Japan could be moving too quickly to raise interest rates. While the BoJ believes the risk of Japan falling back into deflation is almost non-existent, the OECD warned that deflation could return, particularly if growth in Japan's trading partners was negatively affected by higher oil prices. OECD pointed out that inflation as measured by the core CPI (excluding food and energy) was up only 0.2 percent in the first quarter of 2006 and other price measures such as the GDP deflator continue to decline. BoJ was not the only target for OECD. They urged the government to make more aggressive efforts to cut the public debt, which is now 170 percent of GDP, and to accelerate fiscal consolidation.

Currencies
Currency trading was volatile last week as market players tried to balance the likelihood that U.S. interest rates might not keep climbing and the vicissitudes of fluctuating commodity prices and the political ramifications of continued Middle East upheavals. After intra-week fluctuations that saw the dollar drop on the interpretation of Bernanke's testimony, the yen ended the week virtually unchanged while the euro was up. The yen got a boost on Friday when the People's Bank of China announced it was raising its bank reserve requirements in a bid to cool its torrid economy. The yen is often traded as a proxy for the renminbi. On Friday the Chinese currency recorded its highest close against the dollar since it was revalued a year ago.

Whither the Australian dollar
The Australian dollar increased in value against the U.S. dollar the most in almost two weeks on speculation the nation's bond-yield advantage over the U.S. would be maintained. The premium earned for holding 2-year Australian bonds over their U.S. counterparts reached a six-month high after Federal chairman Bernanke signaled U.S. policy makers were almost finished increasing interest rates. The Australian dollar was also supported by speculation the Reserve Bank of Australia is preparing to increase borrowing costs as soon as their meeting on August 2nd. Recent economic reports showed the biggest gain in employment in two years, a rebound in consumer confidence and record home lending The RBA's overnight cash rate target of 5.75 percent is 50 basis points higher than the Fed's comparable lending rate.

Australia's dollar also benefited from an improved outlook for the nation's exporters such as BHP Billiton, the world's biggest miner. The currency received a boost after China, the nation's second-largest export market, reported its fastest growth in a decade. Australian exports of minerals and fuels to China more than doubled in 2005 to A$8.4 billion ($6.3 billion) from the previous year. Raw materials account for about 60 percent of Australia's overseas earnings.

Indicator scoreboard
EMU - May unadjusted merchandise trade deficit worsened to €3.2 billion from €1.9 billion in April. On a seasonally adjusted basis, the deficit was €0.9 billion. Seasonally adjusted exports were up 1.2 percent while imports were up 1.4 percent.

May industrial output was up 1.6 percent and 4.9 percent when compared with last year. Output was up in all EMU countries except in Luxembourg and the Netherlands. Consumer durables output was up 4.2 percent while capital goods output was up 2.5 percent after declining 1 percent in April. Nondurable output was up 1.1 percent.

June harmonized index of consumer prices was up 0.1 percent and 2.4 percent when compared with last year. Core HICP, which excludes food and energy, was up 0.1 percent and 1.6 percent on the year. Monthly increases could have been affected by the World Cup in Germany. Accommodation services were up 1.8 percent while air transport was up 5.1 percent.

Germany - July ZEW confidence index sank to 15.1 from 37.8 in June. The drop was attributed to record oil prices and prospective sales tax increases and health care contributions in 2007. The ZEW, the Mannheim-based Center for European Economic Research, surveyed 293 German financial experts for their opinions on current economic conditions and the economic outlook for major industrial economies between June 26th and July 17th. Current conditions sub-index was up however, to 23.3 in July after 11.9 in June. Current conditions have been improving since June 2005, when this index stood at minus 70.

June producer price index was up 0.3 percent and 6.1 percent when compared with last year. Prices for energy, petroleum products, metals and secondary raw materials added upward pressure. Excluding energy, the PPI was up 0.1 percent and 2.4 percent on the year.

France - June seasonally adjusted consumer spending on manufactured goods was up 1.7 percent and 5.6 percent when compared with the same month a year ago. All categories of spending were up, especially home entertainment sales during the World Cup. Household equipment spending was up 3.2 percent while auto sales climbed 2.2 percent and clothing was up 1.6 percent boosted by summer clearance sales.

Italy - May retail sales were down 0.1 percent but were up 1.5 percent when compared with May of last year. Food sales declined 0.3 percent but were up 1.6 percent on the year while non-food sales were up 0.1 percent and 1.4 percent on the year.

Britain - June consumer price index was up 0.3 percent and 2.5 percent when compared with the same month a year ago. The Bank of England's 2 percent target inflation rate has been exceeded for two months as record oil prices pushed up gasoline costs, household bills and factory-goods prices.

June retail sales were up 0.9 percent and 3.7 percent when compared with last year. Food store sales jumped 2 percent due to supermarket sales, which account for 90 percent of food sales. Household store sales were up1.3 percent while other store sales climbed 1.2 percent. However clothing and footwear store sales were down 0.9 percent.

Second quarter preliminary gross domestic product was up 0.8 percent and 2.6 percent when compared with the same quarter a year ago. Services output was up 1 percent and 3.6 percent on the year thanks to a jump in distribution, hotels & restaurants which were up 1.2 percent and 3.3 percent on the year. Business services output was up 1.2 percent and 4.8 percent on the year but industrial output edged down 0.1 percent and dropped 0.8 percent on the year. The decline was attributed to an output drop in the mining & quarrying sector and a drop in utilities.

Asia
Japan - May tertiary index was up 0.5 percent and 3.1 percent when compared with May 2005. The index is a gauge of demand for services including retail, travel and media that make up more than 60 percent of the economy. Demand for personal services including hair care, spas and dry cleaning climbed 3.9 percent, contributing to more than half of the gain.

May all industry index was down 0.2 percent and was up 2.5 percent when compared with last year. The index, which is considered a proxy for gross domestic product, is compiled from the tertiary index plus the indexes of construction, agricultural & fishery industrial, the public sector and industrial output.

Americas
Canada - June unadjusted consumer price index edged down 0.2 percent and was up 2.5 percent when compared with last year. Core CPI, excluding food and energy, was down 0.2 percent and up 1.5 percent on the year. Prices for auto purchases and leasing were down as were prices for men's and women's clothing. Prices were higher for fresh fruit. The Bank of Canada's core CPI which excludes eight volatile items also was down 0.2 percent but was up 1.7 percent on the year. Seasonally adjusted CPI edged down 0.1 percent and was up 2.4 percent on the year.