Recap of Global Markets
Europe and Britain
Investors will look back on last week and prefer to remember Monday and Friday when all three indexes followed here were up. Despite mid-week losses, the FTSE, DAX and CAC managed to edge up on the week amid optimism that consumer and electronics companies will be among the first to benefit from a pickup in demand. Insurance companies were also up after a U.S. Senate panel approved legislation for creating a $108 billion fund to compensate asbestos victims, a bill that would limit liability of insurance companies.

The Bank of England added to investors' nerves on Thursday when it cut its key interest rate by a 25 basis points to 3.5 percent. Opinion prior to the meeting had been split on whether the MPC would act. The accompanying statement from the monetary policy committee pointed to the hesitant global recovery though preconditions for recovery remain in place. Fallout from the rate cut sparked a sharp rise in gilt yields (government bonds). Sterling fell to a 3-week low against the euro and is at its lowest point in 8 weeks against the dollar.

The European Central Bank was not expected to cut rates and did not surprise. ECB president Wim Duisenberg said the Bank had already made a significant contribution towards fostering growth in the eurozone and called on national governments to do the same. He pointed to the need to reform labor markets and tackle rising budget deficits, which are a threat to economic prospects.

Asia
Japanese stocks posted an exuberant 247-point increase on Monday but by Friday posted their biggest daily drop since March, dropping 320 points as anxiety spread that the recent rally had lifted share prices too high. Some analysts said Friday's drop was a sign of a market pausing for breath ahead of further gains. Others argued that with Japan's economy still weak, bullishness is soon likely to fade. The fall towards the end of the week wiped out most of the Nikkei's gains (at one point it broke through the 10,000 mark). It closed less than one percentage point higher on the week. It was the same for most other leading indexes, which posted strong gains early in the week only to see them dissipated later.

Many foreign investors have been buying into the Tokyo market as a way of hedging their bets on world economic growth and on expectations that it will benefit Japanese exporters. In June, foreign investment in Tokyo equities hit its highest level in 4 years. Overseas investors who often buy undervalued stocks have driven much of the Nikkei's gains in the past three months, making tactical bets that Japanese share prices will catch up with rising markets overseas. Positive U.S. economic indicators are necessary to maintain foreign purchases of Japanese equities. These investors have been buying as part of broader purchases based on improving global expectations rather than any specific Japan news. Overseas investors were net buyers of Japanese equities for an 11th week in the week ended June 27, according the Tokyo Stock Exchange. The figure marked the longest buying streak in almost four years.

After months of gloomy predictions, some of Asia's biggest economies are emerging from SARS more or less unscathed. Chinese and Japanese statistics show that economic recovery following the epidemic has been rapid, and that some sectors, in fact, benefited from the crisis. The news is in sharp contrast to pundits' pessimism during the outbreak, which centered on the damage done to Asia's services industries, especially tourism. By making human contact less attractive, many argued, SARS cut down on commercial interaction and persuaded potential visitors to shun the region.

Though Japan was barely touched by the epidemic, its economy was expected to suffer along with the rest of Asia. But new data show that it has benefited from the decision of many Japanese tourists and shoppers to stay at home. The number of Japanese traveling abroad in May fell to 575,000 from the previous month's 1,279,000. This alone helped to more than halve Japan's services deficit - the amount by which Japanese spending on overseas services exceeds those it sells abroad.

Not all Asian countries have been as immune as Japan and China, which have the advantage of size. The disease did proportionally more damage in smaller economies, notably Taiwan, Singapore and Hong Kong. But even in these countries, economic recovery is already showing signs of being rapid. And some sectors have reported positive benefits, notably those services catering to the desire to huddle at home.

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