- Surprising on the downside, the flash CPI estimate from Eurostat showed euro zone inflation coming off sharply in August, falling to 3.8% from July's 4.1%. The result surpassed expectations for a modest decline to the 4.0% level. In July, CPI had been expected to score 4.1%, but real headline inflation in the euro zone turned out at 4.0%.

- In an effort to address weakening economic conditions, the Japanese government announced plans to deploy an economic stimulus package worth around ¥11.7 trillion. The plan includes an extra budget worth around ¥2.0 trillion yen and a ¥400 billion guarantee on loans to small businesses and medium-sized enterprises. Talks are currently ongoing regarding tax cuts for the fiscal year of 2008, but no concrete decisions have been made.

- Despite growing economic uncertainties for the region, the euro zone unemployment rate held its four-month streak at 7.3%, in line with expectations. Meanwhile, the unemployment rate in the European Union was unchanged at 6.8%.

- According to the European Commission on Friday, the business climate index deteriorated in August, but consumer confidence received a small boost in the face of grim economic conditions for the region. The business climate indicator declined to a reading of -0.33 from a revised -0.2 in July. On the positive side, the consumer confidence index rose slightly to a reading of -19 despite expectations for no change to the previous month's score of -20. The economic confidence index deteriorated to 88.8 from 89.5 despite the consensus forecasts for a reading of 89.3, with the industrial confidence index sliding to -10 from -8 and the services index rising to a reading of +3 from +1. The industrial confidence index was expected at -9 and the services unchanged at +1.

- Speaking in an interview with Bloomberg Television on Thursday, European Governing Council Member Lorenzo Bini Smaghi reiterated the need for the ECB to bring inflation back down below the 2.0% target. "Inflation is still high, too high," Bini Smaghi told Bloomberg Television. "Everyone must adhere to this objective, which is price stability." The central banker went on to explain that the ECB's only tool against inflation were interest rates.

- In his final speech as head of the Austrian Central Bank, Klaus Liebscher said there was no reason for the European Central Bank to soften its stance on inflation, and highlighted the importance of keeping inflation expectations in check. Low inflation is necessary for stable economic growth, Liebscher said, and the ECB's top priority is to keep prices stable. Liebscher leaves office today and will be replaced by Ewald Nowotny.

- According to a preliminary report from the Italian Statistics Institute (ISTAT) on Friday, headline inflation for the country declined to 4.0% in August, in line with expectations and below the previous month's 4.1% reading. In month-over-month terms, CPI rose 0.1% despite expectations from a 0.5% increase. July's figure had showed a 0.5% rise in consumer prices. Meanwhile, the harmonized index of consumer prices (HICP) rose to 4.2% from 4.0% in July despite expectations for no change. In month-over-month terms, HICP was flat despite predictions for a 0.2% contraction and the previous month's 0.6% pullback.

- In the steepest decline since April 2005, Italian retail sales contracted 3.4% year-over-year in June, according to the Italian Statistics Institute (ISTAT) on Friday. The consensus had been for a 0.5% annual decrease in retail sales, reversing May's 0.5% increase. In month-over-month terms, retail sales fell 0.5% compared to a consensus forecast for a 0.1% contraction and May's 0.2% increase.

- Spanish retail sales continued to slide in June, but not quite as much as economists had expected, according to a report from the Instituto Nacional de Estadistica on Friday, who said real retail sales had fallen 6.0% year-over-year in July compared to June's 7.9% contraction. The consensus forecast had been for a 7.1% annual decline.

- The Spanish current account declined deeper into deficit in June, according to a report from the Bank of Spain on Friday, who said the balance declined to -€8.4714 billion from -€7.2633 billion last year.

- Preliminary industrial production showed a 0.9% month-over-month increase in July compared to forecasts for a 0.3% pullback and a -2.2% growth rate in June, according to a report from the Japanese Ministry of Economy, Trade and Industry on Friday. Meanwhile, annual production rose 2.0%, above the consensus for an increase of 0.6% and a previous flat reading.

- Japanese retail trade rose 1.9% compared to expectations for a 1.3% increase and higher than June's 0.3% gain, according to figures from the Ministry of Economy, Trade and Industry in Tokyo. On a monthly basis, sales came in flat in July despite forecasts for a 0.1% decrease. Annual wholesale trade increased 10.9% month-over-month in July following a 5.0% increase in June. The report also says that large retailers sales decreased 0.7% on the year despite expectations for a 1.4% decrease and the previous reading of -3.9%.

- Real household spending decreased less-than-expected in Japan, with the annualized rate in July coming in at -0.5% compared to the previous month's -1.8% level, the government's statistics bureau reported on Friday. The consensus had been looking for a 1.8% decline year-over-year.

- The Japanese seasonally adjusted unemployment rate fell to 4.0% in July despite expectations for no change to the previous 4.1% level. The report also says the labour force declined by 520k participants compared to the previous month's 60k contraction, while those not in the labour force rose 220k compared to the 120k reported in June.

- According to data released by the Japanese Ministry of Internal Affairs and Communications on Friday, inflation in Japan rose more than expected in July, with headline CPI rising 2.3% year-over-year in July, just higher than estimates for a 2.2% increase and above June's 2.0% gain. CPI excluding fresh food rose 2.4% year-over-year in July, above estimates for a 2.3% increase and higher than the previous month's 1.9% increase. Consumer prices excluding fresh food and energy rose 0.2% year-over-year compared to forecasts for no change from June's 0.1% annual increase.

- The report also said prices in Tokyo grew 1.3% year-over-year in August compared to July's 1.6% gain and below forecasts for a 1.6% increase. Excluding fresh foods, Tokyo CPI was up 1.5%, below expectations for a 1.7% increase and lower than the previous month's 1.6% gain. Tokyo CPI excluding fresh foods and energy advanced 0.2% against calls for a 0.3% annual growth rate and the 0.3% rise seen in July.

- Japanese automobile manufacturing surged forth in July, according to a report from the Japanese Automobile Manufacturers Association on Friday. A 24.1% annual increase was recorded in the production of vehicles compared to twelve months ago. In June, the annual growth rate was 4.5%.

- According to a report form the Ministry of Land, Infrastructure and Transport on Friday, annualized housing starts surpassed expectations in July, reaching 1.144 million compared to June's 1.130 million. The consensus had been looking for 1.099 million housing starts for July. The results translate into a 1.2% month-over-month increase compared to June, when start rose 5.4%. Starts are also up 19.0% compared to twelve months ago, with housing starts having fallen 16.7% in June.

- Small business confidence in Japan rose for the first time since March 2008, according to a report from Shoko Chukin Bank, whose small business confidence index for Japan rebounded to 41.4 in August from 39.9 in July. The consensus had expected another contraction in the index to a reading of 38.0.

- According to a report from NTC Research, the Nomura/JMMA manufacturing PMI slid to a reading of 46.9 in August from 47.0 in July. Consequently, the index now lies marginally above the three-month average of 46.8.

- A Bank of Japan report suggests that the number of outstanding loans from Japanese banks increased by 2.1% on the year in July compared to a 1.96% increase in June. The report also said that outstanding loans to corporations increased by 1.02% compared to June's 0.93% rise.

- According to the Australian Housing Industry Association on Friday, new home sales totalled 7,223 in July compared to 7,785 in June, an decline of 7.2% in the month. In June, new home sales advanced 0.5%.

- In a press release, the Australian Housing Industry Association said, "there can be no further delay in respect to a drop in the official cash rate. A slowing economy as seen by declining residential construction activity highlights the absolute need for the RBA to lower the official cash rate this Tuesday."

- Credit from Australian financial intermediaries increased as expected by 0.5% for the month of July, up from last month's 0.4% figure, the Reserve Bank of Australia reported Friday. On an annual basis, private sector credit rose 11.2%, higher than the 11.0% forecast but lower than last month's revised 11.8% figure. The RBA also reported that M3 and broad money grew by 2.2%. On an annual basis, broad money increased by 15.7%.

- Late Thursday evening, the GfK Group published its UK consumer sentiment data for August and reported that the consumer confidence indicator stood at -36 for the month. Economists had expected a decline to -41 after the indicator had slipped to -39 in July, the lowest level ever recorded.

- According to the National Hurricane Center, a significant intensification of Gustav is possible, and the storm is forecasted to be a "large, powerful hurricane as it approaches the northern gulf coast." The storm is expected to regain its hurricane status on Friday or Saturday. Meanwhile, Tropical Storm Hanna might swing to the southwest, but remains more likely to move towards the eastern United States.

At 6:37 a.m. EDT:

The euro was up 0.26 cents to 1.4733 USD.

The U.S. dollar was down 0.28 cents to 1.0485 Canadian Dollars.

The U.S. dollar was down 72.30 cents to 108.77 Yen.

The pound sterling was down 0.19 cents to 1.8278 USD.

The Australian dollar was up 0.05 cents to 0.8630 USD.

The U.S. dollar index was down 22.20 points to 76.93.

The U.S. ten-year note was up 7.8 ticks to 116.91 with yields up 0.4 bps to 3.78%.

The German ten-year bund was up 31.0 ticks to 114.46 with yields down 4.5 bps to 4.13%.

The British ten-year gilt was up 19.0 ticks to 112.05 with yields down 2.6 bps to 4.46%.

The Australian ten-year bond was flat at 94.28 with yields down 0.4 bps to 5.76%.

The Japanese ten-year government bond was flat at 138.37 with yields down 2.0 bps to 1.42%.

The Eurostoxx was trading up 5.59 points to 2917.11.

The FTSE 100 was trading up 23.80 points to 5625.00.

The Dax was trading up 4.63 points to 6425.17.

The Nikkei closed up 304.62 points to 13072.87.

The Australian ASX closed up 69.10 points to 5135.60.

The Hang Seng closed up 289.60 points to 21261.89.

The Shanghai Composite closed up 47.23 points to 2397.37.

Dow Jones Futures were down 19.00 points to 11676.00.

S&P 500 Futures were down 2.50 points to 1295.50.

WTI Crude oil is up $ 1.53 to $ 117.12 per barrel.

JP Nomura/JMMA Manufacturing PMI August 46.9 vs. Exp: 46 Prior: 47

JP Jobless Rate July 4.0% vs. Exp: 4.1% Prior: 4.1%

JP Job-To-Applicant Ratio July 0.89 vs. Exp: 0.90 Prior: 0.91

JP Household Spending (Y/Y) July -0.5% vs. Exp: -1.8% Prior: -1.8%

JP Tokyo CPI (Y/Y) August +1.3% vs. Exp: +1.6% Prior: +1.6%

JP Tokyo CPI Ex-Fresh Food (Y/Y) August +1.5% vs. Exp: +1.7% Prior: +1.6%

JP Tokyo CPI Ex Food, Energy (Y/Y) August +0.2% vs. Exp: +0.3% Prior: +0.3%

JP National CPI (Y/Y) July +2.3% vs. Exp: +2.2% Prior: +2.0%

JP National CPI Ex-Fresh Food (Y/Y) July +2.4% vs. Exp: +2.3% Prior: +1.9%

JP National CPI Ex Food, Energy (Y/Y) July +0.2% vs. Exp: +0.1% Prior: +0.1%

JP Industrial Production (M/M) July Preliminary +0.9% vs. Exp: -0.3% Prior: -2.2%

JP Industrial Production (Y/Y) July Preliminary +2.0% vs. Exp: +0.6% Prior: 0.0%

JP Large Retailers' Sales July -0.7% vs. Exp: -1.4% Prior: -3.9% Revised: -4.0%

JP Retail Trade (Y/Y) July +1.9% vs. Exp: +1.3% Prior: +0.3%

JP Retail Trade (M/M) SA July 0.0% vs. Exp: -0.1% Prior: 0.00%

JP Loans & Discounts Corp (Y/Y) July +1.0% vs. Prior: +0.9%

AU Private Sector Credit (M/M) July +0.5% vs. Exp: +0.5% Prior: +0.4%

AU Private Sector Credit (Y/Y) July +11.2% vs. Exp: +11.0% Revised: +11.8% Prior: +11.7%

AU HIA New Home Sales (M/M) July -7.2% Revised: +0.5% Prior: +4.0%

JP Vehicle Production (Y/Y) July +24.1% vs. Prior: +4.5%

JP Housing Starts (Y/Y) July +19.0% vs. Exp: +15.0% Prior: -16.7%

JP Annualized Housing Starts July 1.099M vs. Exp: 1.1099M Prior: 1.130M

JP Construction Orders (Y/Y) July +42.3% vs. Prior: -11.7%

JP Small Business Confidence August 41.4 vs. Exp: 38 Prior: 39.9

IT Retail Sales (M/M) (SA) June -0.5% vs. Exp: -0.1% Prior: +0.2%

IT Retail Sales (Y/Y) June -3.4% vs. Exp: -0.5% Prior: +0.5%

IT CPI (NIC incl. tobacco) (M/M) August Preliminary +0.1% vs. Exp: +0.5% Prior: +0.5%

IT CPI (NIC incl. tobacco) (Y/Y) August Preliminary +4.0% vs. Exp: +4.0% Prior: +4.1%

IT CPI - EU Harmonized (M/M) August Preliminary 0.0% vs. Exp: -0.2% Prior: -0.6%

IT CPI - EU Harmonized (Y/Y) August Preliminary +4.2% vs. Exp: +4.0% Prior: +4.0%

EU Euro Zone Unemployment Rate July 7.3% vs. Exp: 7.3% Prior: 7.3%

EU Euro Zone CPI Estimate (Y/Y) August +3.8% vs. Exp: +4.0% Prior: +4.1%

EU Business Climate Indicator August -0.33 vs. Exp: -0.3 Revised: -0.2 Prior: -0.21

EU Euro-Zone Consumer Confidence August -19 vs. Exp: -20 Prior: -20

EU Euro-Zone Economic Confidence August 88.8 vs. Exp: 89.3 Prior: 89.5

EU Euro-Zone Industrial Confidence August -10 vs. Exp: -9 Prior: -8

EU Euro-Zone Services Confidence August +3 vs. Exp: +1 Prior: +1

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it with contributions from Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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