After yesterday’s session saw global equity markets rally higher in a strong start to the week, today’s session saw European stock indices reverse those gains, sparked by a drop in German confidence and cautious comments by US Fed chairwoman Janet Yellen in her testimony to the Senate. Major benchmark indices spent much of the session under pressure despite attempts to push into positive territory after the ZEW current situation survey posted a surprise drop, coming in at 61.8 in July against expectation of 67.4.
The cautious undertones resonated to the US session with both the S&P 500 and DJIA trading lower at the open. Market participants were optimistic ahead of Yellen’s testimony, however, warnings regarding the “considerable uncertainty” of the US economic outlook spooked investors somewhat. Chairwoman Yellen went on further to state that despite conditions in the labour market improving, the economic growth trajectory would need close monitoring before any decision to increase the fed funds rate was taken.
Despite the Empire manufacturing index substantially beating expectations in July, coming in at 25.6 against expectations of 17.0, the cautious commentary dominated market sentiment. With macro data and corporate earnings releases largely overshadowed by Yellen’s testimony today, we expect to see a further reduction in risk appetite in the run up to Yellen’s semi-annual monetary policy testimony to the House Financial Services Committee tomorrow. Among the corporate earnings releases today, both JPMorgan Chase and Goldman Sachs reported earnings per share that beat expectations. JPMorgan reported earnings per share of $1.46 against expectations of $1.31 in the second quarter while Goldman Sachs earned $4.10 per share, largely outstripping forecasts of $3.07 as the positive results propelled financials higher.