While all the hype in the markets has been focused on the Federal Reserve and what steps it might take regarding U.S. interest rates on Tuesday, four other central banks - European Central Bank (ECB), Bank of England, Bank of Japan and Bank of Canada - released reports on the well being of their economies last week. Below are brief summaries from the four. Unlike the Federal Reserve, the ECB, Bank of Canada and Bank of England have specific inflation targets as the primary monetary policy goal. The ECB uses a target range of zero to two percent and the Bank of Canada, one to three percent. But the Bank of England uses a numerical target of 2.5 percent.

European Monetary Union
The European Central Bank outlook was optimistic about second half 1999 economic growth in the European Monetary Union. Updated production data coupled with the latest increases in industry and consumer confidence confirmed that the slowdown ended at the start of the second quarter. This supports the view that growth will recover during the rest of the year. Inflationary pressures are expected to remain under control despite increased growth - in the zero to 2 percent range sanctioned by the ECB. However, the Bank does not feel that the unemployment picture will improve soon. Employment generally lags on an upturn. Unemployment has been stuck at 10.3 percent since March. The ECB's current key lending rate is 2.5 percent.

United Kingdom
The Bank of England in its quarterly inflation report looks for growth with low inflation. However they project that the balance of inflation risks has tilted slightly to the upside. Underlying inflation is expected to fall below 2 percent over the next year or so before rising slightly above the government's 2.5 percent target in two years time. Prospects for stronger than expected gross domestic product were strengthened by the improved outlook for consumer expenditures, housing, inventory investment and the international environment. The Bank's short term lending rate to financial institutions has fallen sharply over the past twelve months and now stands at 5 percent - the lowest figure in 20 years.

Japan
The Bank of Japan's August economic assessment is very cautious. The Bank reiterated much that was said in last month's review - that while there are no clear signs of recovery in the economy the deterioration has stopped. Consumer and business confidence are not increasing enough to provide a self sustaining domestic demand recovery. Downward pressures continue to exist on prices although they have generally begun to level out. The Bank's key lending rate remains at zero.

Canada
The Bank of Canada, in its quarterly review expects inflation to stay in the lower half of its one to three percent target range for the rest of the year. The Bank said the economic outlook for Canada was generally firmer and it expects 1999 gross domestic product to be in the upper end of its 2.75 to 3.75 percent target range. The Bank expressed confidence that inflation would continue to stay low despite a gradually rising trend. Important to Canada, commodity prices are stabilizing (and some are rising) and signs of recovery in Japan should help boost exports (which are already at very high levels). Domestic demand also supported the higher growth expectations. It appears that the Bank expects to hold down interest rates to promote expansion despite an anticipated interest rate increase by the Federal Reserve. The Bank of Canada's current key lending rate is 4.75 percent. To summarize, the growth and inflation outlooks are growing more positive in Asia and Europe. This means that there are more choices for investors seeking new venues of investment.

Indicator Roundup - a brief review
Below is some of the more important market moving indicators that were released last week. They provide a guide to help investors monitor the pulse of economic activity abroad.

Asia
South Korea - The economy grew at its fastest rate in almost four years during the second quarter. Low borrowing costs spurred investment by companies and Asia's recovery expanded exports. GDP rose 9.8 percent when compared with a year earlier. The increase was attributed to a low comparative base, along with increases in domestic consumption, corporate investment in plants and rising exports. The Daewoo collapse is expected to have a negative impact on this quarter's growth.

Europe
Germany -Both June manufacturing orders and industrial production were revised upward, adding to the growing evidence of the pickup in economic activity in euroland's largest economy. Construction orders also rose in June.

European Monetary Union - Euroland's harmonized consumer price index rose 1.1 percent when compared with last year. It rose 0.2 percent in July after remaining unchanged in June. This is well within the European Central Banks inflation range of zero to two percent.

France - The preliminary June trade surplus hit a new high for the year exceeding all expectations.

United Kingdom - July retail sales disappointed market players as it rose a lower than expected 0.1 percent. However, the prior two months were revised upward suggesting that underlying growth is continuing to pick up. The 2.7 percent increase over last year was in line with expectations.

Underlying inflation rose 2.2 percent on the year, below the 2.5 percent official target of the Bank of England. Goods inflation was subdued but services inflation crept up.

Americas
Canada - Several important indicators were released last week. The June trade balance soared to C$2.8 billion thanks to expanding exports, especially to the United States. June manufacturers' shipments rose 0.4 percent, lower than analysts' expected. June retail sales rose 0.3 percent as consumers spent more on big ticket items such as autos. The mixed results will keep the market guessing about the Bank of Canada's response to the expected Federal Reserve Open Market Committee interest rate hike on Tuesday. The currency is extremely sensitive to interest rate spreads between the United States and Canada.

World Stock Exchanges
It sounds melodramatic but …markets around the world traded nervously while they waited for the Federal Reserve to act on U.S. interest rates. The dollar's sag against the yen also affected the markets. It is the end of August and light trading volumes produce more market volatility.

Asia
With the exception of South Korea, which had to deal with the Daewoo bankruptcy, the Asian markets finished on the plus side for the week. The markets reflected growing confidence in the Asian turnaround. The Nikkei rose after the merger between Industrial Bank of Japan Ltd., Fuji Bank Ltd., and Dai-Ichi Kangyo Bank Ltd. was announced to form the largest bank in the world. It is expected to be the first of many Japanese bank mergers, which should make the banking sector more competitive with foreign rivals.

Europe
The markets were volatile with low volume last week. The DAX and CAC edged up on the week, but the FTSE declined. The markets are suffering from August malaise and the height of the vacation season. The markets also were affected by the slumping dollar particularly against the yen and nervousness before Tuesday's FOMC meeting. Anecdotal evidence indicates that the once sacred August vacation is no longer what it used to be. Cell phones, laptops, interrupted vacations and other heretofore unthinkable things (merger activity) have been conspiring to make the celebrated European vacation a thing of the past.

Currencies
Yen
Expectations of stepped up buying of Japanese assets by foreign investors have spurred yen's current rally. And the absence of intervention by the Bank of Japan has accelerated the yen's gains. Japanese officials said that it was useless to do anything until after the FOMC meeting on Tuesday.

During last week, the yen rose (that is, fewer yen per dollar) when investors bought Japanese stocks. On Friday, Japanese exporters and life insurers sold dollars in an attempt to protect the value of overseas earnings. As the U.S. currency weakens, Japanese exporters get fewer yen when they bring home dollar based receipts. The surging yen could become a drag on Japan's economy; but analysts say that the hazards are less now because of the improvement in Asian and European economies.

The yen's strength can cause problems on two fronts. For Japan, it makes their exports more expensive and threatens to sabotage economic improvement. For the United States, the dollar's weakness raises the price of imports and can lift the rate of inflation. A month ago 120 yen bought a dollar and a year ago, 146 yen were needed. The yen has risen about 30 percent since the beginning of the year.

Euro
The euro traded within range this week, bolstered by the positive German production numbers. The euro's strength against the dollar is a sign of positive growth within the eurozone. As yet, the euro has not appreciated enough to affect exports.

Why U.S. investors care...
With European and Asian economies getting their act together, alternative investment opportunities are becoming fashionable. The value of the dollar will be affected because these countries are doing better, and investors are attracted by the relative investment bargains that are available. While the risk averse will still prefer higher interest earnings from U.S. investment opportunities others will want to be in on the ground floor of growth, despite the hazards. Those countries with fledgling recoveries are watching U.S. interest rate moves very closely. Their better outlooks stem in part, from their low interest rates. Higher U.S. rates could drain badly needed funds from these struggling economies.

Release dates are subject to change.
For U.S. data releases, see this week's Simply Economics.