Central Banks
Bank of England
The Bank of England's Monetary Policy Committee acted preemptively on Wednesday and raised the base interest rate 25 basis points to 5.25 percent. After falling below the U.S. rate for the first time in 22 years, Britain's rate is now the same as the Federal Reserve's federal funds rate. As to be expected business groups were virtually unanimous in their condemnation of the move.

The Bank's Monetary Policy Committee (MPC) stunned the markets by opting for the quarter-point hike in its repo rate. The MPC cited world demand, the strength of consumption and the housing market, and a tight jobs market behind the move. Surprised analysts now see the BOE maintaining rates through the rest of this year. The bank last changed its base rate in June when it reduced the rate by a quarter point to 5 percent, which was a 22-year low. The so-called base rate - the rate at which it lends to other financial institutions - is the Bank's main tool to keep inflation near a government-set target of 2.5 percent.

The unusually low borrowing costs have resulted in a property boom in some parts of the country, and there is some evidence already of people converting their growing equity from house price inflation into disposable funds. Recent big increases in oil prices are also expected to feed through into inflation over the next two years. The gap between the value of imports and exports is growing to record levels, prompting expectations of a decline in sterling. Low interest rates keep the pound sterling cheap and would be welcomed by exporters - but would also make imported raw materials more expensive, putting upward pressure on inflation. Although conditions are looking relatively benign at present, the longer-term picture is more worrying to the Bank of England.

European Central Bank
The European Central Bank held its benchmark interest rate at a record low of 2.5 percent Thursday, suggesting the bank sees little risk of accelerating inflation in the 11 nations that share the euro. While the Bank of England and the U.S. Federal Reserve Board recently raised their benchmark rates to 5.25 percent, ECB officials indicated that they saw no immediate need for an increase. The ECB had been expected to leave interest rates unchanged amid confirmation from Germany that the euro-area economic upswing was in its early stages and that there were no evident inflationary dangers.

APEC
A two-day meeting of the Asia-Pacific Economic Co-operation Forum (APEC) began on Sunday in New Zealand. The meeting brings together the leaders of 21 countries that border the Pacific Ocean such as the United States, Canada, China, Japan and Russia. Trade issues, including a new round of global trade talks set to start in Seattle in late November dominate the summit's official agenda. This year's meeting takes place in a more optimistic economic climate now that the Asian financial crisis is easing. So far, however, talks on economic issues have been overshadowed by the crisis in East Timor. APEC is supposed to stick to a formal agenda of economic issues, but the unfolding chaos in East Timor is demanding much of the leaders' attention.

Last weeks indicators
Europe
Germany - Industrial production jumped 1.0 percent in July as expected. The increase was due solely to strong export demand while domestic orders dropped. The pan-German jobless total rose 4,000. Analysts had expected unemployment to drop. The increase was entirely due to higher unemployment in east Germany.

Pan-German second quarter gross domestic product (seasonally adjusted) was at the low end of expectations, unchanged on the quarter and rising just 0.6 percent on the year. The main positive contributor was inventories. The August consumer price index was revised down to a level below expectations. The CPI fell 0.1 percent on the month and rose 0.7 percent on the year.

The July seasonally adjusted German trade surplus stood at 6.5 billion euros on a nominal basis, up slightly from June. German exports increased 1.4 percent on the month and 2.9 percent when compared with last year. Imports rose 1.4 percent both on the month and on the year. If the large surplus continues, net exports will make a stronger contribution to third quarter GDP than it did in the second quarter. The strong non-European Union export growth also suggests that Germany is benefiting from the recent weakness of the euro. The decline in the value of imports came as a surprise since import prices and raw materials prices rose strongly in recent months.

France - Nominal wholesale sales rose one percent in June after a 3.2 percent increase in May. Second quarter sales were up 1.7 percent compared to the first quarter and were 4.1 percent above the previous year period. June sales increases were the result of divergent trends. Gains were led by a 2.8 percent recovery in capital goods and a one percent jump in consumer goods. By contrast, semi-finished goods sales were down 0.2 percent on the month but still up 3.8 percent on the quarter because the surge in oil prices boosted fuel sales.

Gross Domestic Product rose faster than most analysts had expected. The increase was almost entirely due to stronger domestic demand, and in particular consumer spending. Second quarter GDP rose 0.6 percent after a 0.4 percent increase in the first quarter.

August's preliminary consumer price index continues to show there are only very weak inflationary pressures in Euroland's second largest economy and backs the European Central Bank's assessment that Euroland inflation is well under control. August's 0.1 percent rise was led by the ongoing increase in oil prices. In addition, the traditional jump in clothing prices after July's discounts boosted manufacturing prices.

Real retail sales rose 2.1 percent in June, due to a surge in hypermarket sales. Food store sales recovered 7.5 percent on the month, led by a 15.1 percent surge in hypermarket sales. Non-food retail sales fell back 3.6 percent on the month, reflecting downward trends in both specialized and non-specialized stores. Vehicle sales and repairs were up 0.4 percent in June

United Kingdom - July manufacturing production rose 0.3 percent but was still down 1.4 percent when compared with a year earlier. The figures were in line with market expectations and confirm that the sector is pulling out of recession. Total output was up 0.3 percent but was down 0.7 percent on the year. July industrial production was marginally stronger rising 0.3 percent on the month but declining 0.7 percent on the year. The CBI distributive trades' survey painted a fairly upbeat picture for UK retailers in August but data from the British Retail Consortium showed more subdued growth.

Asia
Japan -Second-quarter GDP rose 0.2 percent in real terms on the quarter for the second consecutive quarterly increase. On an annualized basis, GDP was up 0.9 percent, well below the first-quarter record of a 7.9 percent increase but still a better result than expected by many in the markets, who had foreseen a slight fall in the quarterly result. The increase was attributed the rise to strong domestic demand, especially in private consumption of durable goods. Private investment in equipment and facilities fell 4.0 percent on the quarter after last quarter's gains. Although Japan's public investment declined 4.0 percent on the quarter, it remains at a high level and was the fourth largest spent in a quarter ever. Japan's public investment on the year was up 21.0 percent. The contribution of domestic demand to the change in GDP was up 0.2 percent while the contribution of net imports and exports was flat.

Capital spending by Japanese corporations in the second quarter fell 13.4 percent when compared with the year earlier. But business sentiment at major Japanese companies in the July to September period improved slightly on the previous quarter.

Australia - Wages rose modestly in the second quarter. Australian wages, excluding bonuses, rose 0.6 percent in the second quarter from the first quarter of 1999 and was up 3.2 percent from a year earlier, according to a wage cost index. The index measures movements in underlying wages by calculating the change in the wage and salary cost of a basket of jobs.

Employment jumped in August. This should spur consumer spending and maintain Australia's robust economic growth. However, the unemployment rate also rose, suggesting excess capacity in the labor market.

The number of housing finance approvals in Australia fell a seasonally adjusted 4.4 percent in July from June, starkly at odds with the 2.5 percent rise expected by analysts. The rate of growth in finance approvals has been slowing for five months.

Americas
Canada - The value of building permits rose 4.3 percent in July. Gains in both residential and non-residential sectors pushed construction intentions up for a third straight month. Residential permits edged up 0.6 percent. However, non-residential building permits soared, up 9.1 percent mainly on the strength of industrial projects. Housing starts remained essentially unchanged in August at 147,400 units from the revised level of 147,000 in July, according to Canada Mortgage and Housing Corporation (CMHC). Urban multiples were up 10.6 percent while urban single declined 6.1 percent.

Employment was virtually unchanged in August and the unemployment rate crept up to 7.8 percent. Over the last year, full time employment gains (+2.9%) have outpaced part-time increases (+0.6%). Although overall employment growth has slowed considerably so far this year (+0.8%), hours worked have grown at a stronger pace (+1.5%).

The large number of positive indicators released last week continue to fuel expectations of continuing growth with little inflation, giving investors little to be worried about.

World Equity Exchanges
World equity markets continued to be volatile last week. There was an avalanche of economic data that needed to be absorbed by market players in Asia and Europe. The results were that markets in Asia were up while those in Europe and the Americas were mixed.

Europe
The FTSE (London) dropped when the Bank of England unexpectedly raised its base lending rate 25 basis points to the shock of market analysts. The CAC index (Paris) closed the week at an all time high after a better than expected GDP report. The German DAX index turned in a fine performance as well. The data from Germany were good overall, despite a disappointing second quarter gross domestic product. For the most part, the data pointed to strong third quarter growth for Euroland and especially its two largest economies.

Asia
The Nikkei closed barely higher last week despite the surprising increase in second quarter Japanese growth. The market was affected by the surge in the yen's value on Thursday after the GDP data were released. Intervention in the currency market by the Bank of Japan during the Asian trading session on Friday also was a drag on the Nikkei.

Currencies
Yen
Japanese Finance Minister Kiichi Miyazawa confirmed Friday that the Bank of Japan had intervened in currency markets to weaken the yen. The Bank purchased dollars to stem the dollar's slide in Asian trading Friday morning, pushing the yen above 109 from about 107.70. The Finance Minister said Japan intervened on its own Friday to stop the yen's "violent" increase in value against the dollar on the back of strong Japanese GDP data released Thursday. At the time of the release dollar-yen was trading around Y111.00. Miyazawa said the better than expected second quarter GDP growth does not mean the Japanese economy will stand on its own without further government stimulus.

The Japanese government and the Bank of Japan are deeply split over whether to intervene in currency markets to curb the rising yen. The government fears that the more expensive currency will hurt Japanese exporters who are the driving force pulling the country out of recession. But the Bank of Japan believes that currency intervention is pointless, and that government proposals would be inflationary. The markets believe that with Japan emerging from recession and the U.S. economy slowing down, the fundamentals are all on the side of the yen. But as the dollar weakens, some Japanese imports would be priced out of the U.S. market. That would help to contain the U.S. trade deficit.

Euro
The euro sank this week because of Germany's unexpected lackluster gross domestic product number and weaker than expected producer price index increase in the United States. The euro has retreated to near the low levels of early July.

Why U.S. investors care...
While domestic indicators affected market performance last week, they were by no means immune to U.S. data or international events. While the South Korean and Australian markets moved up smartly last week, the Nikkei continued to be buffeted by the yen's strength. The Japanese economy grew for the second straight quarter, but investors should be wary of the weak business investment picture and the continuing structural problems that have yet to be resolved.

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