A return to form for European equities today, after yesterday’s session saw a reversal of Monday’s solid gains after comments from Fed chairwoman Janet Yellen’s testimony spooked investors. Appetite for risk resumed from the outset as Chinese Q2 GDP growth posted a slight improvement overnight. Year-on-year growth in the second quarter increased to 7.5%, slightly better than the 7.4% expected by market participants. June’s industrial production data also surprised on the upside, growing by 9.2% y/y in June against 9.0% expected. Despite the encouraging data failing to lift benchmark indices across Asia, with both Japanese and mainland Chinese stocks paring recent gains, the European session rallied higher, with London’s blue chip index, the CAC and DAX all erasing yesterday’s losses and posting healthy gains throughout the day.
The positive sentiment carried over to Wall Street which saw both the S&P 500 and DJIA open higher on the open after a string of positive corporate earnings and firm macro data. Producer prices as measured by output prices increased .4% in June from -0.2% the previous month, signalling at the steadily improving macro outlook. However, industrial production slightly missed expectations as it gained 0.2% in June against forecasts of 0.3% growth and the previous month’s figure of 0.5%. the bullish sentiment failed to be derailed despite the slightly lower than expected industrial production reading and with the Fed’s beige book due for release later today as well as initial jobless claims and housing starts data tomorrow, markets are expected to remain buoyant throughout the remainder of the session in the run up.
The dollar index rallied higher today, building on firm support at yesterday’s close as it rose past 80.520 for the first time since mid-June. Encouraging comments from Yellen, arguing a case for stimulus measures that would extend for as long as necessary and a withdrawal from previous hawkish commentary regarding an increase in interest rates has seen the dollar index strengthen from 79.740 seen at the start of the month.