London View

Espirito Santo Resumes its Drop, Yellen Due to Testify to Congress

European stock markets fell on Tuesday as traders expressed a degree of hesitation before significant economic data releases, whilst concerns over Portugal’s Banco Espirito Santo returned to the fore.

The Stoxx Europe 600 Index slipped 0.2% while the DAX in Frankfurt fell 0.1% but the FTSE100 index in London was up, though by only 0.2%. Overnight, US stock markets rose as did share markets in Asia in a relief rally following recent weakness due to the situation in Portugal.

In Asia, Hong Kong’s Hang Seng added 0.3% and South Korea’s Kospi gained 0.9% while the Shanghai Composite pared losses to trade broadly flat after central bank data showed money supply rose at an annual pace of 14.7%, better than expectations of 13.6%. In Japan, the Nikkei 225 rose 0.6% despite the central bank there cutting its 2014 GDP growth forecast from 1.1% to 1%.

This morning, Banco Espirito Santo's shares were close to an all-time record low, down near another 9.3% in early trading on fears over the lender’s possible exposure to their various companies. Traders in Europe are now focusing on a key euro zone economic release, with the German ZEW survey due for July likely to show investor confidence fell slightly during the month in line with other German data, according to the market consensus.

Closer to home in the U.K., Bank of England Governor Mark Carney is due to testify to the House of Commons Treasury Committee on the June Financial Stability Report. Traders will closely dissect his comments for hints as to a date for upcoming monetary tightening, with the BoE gearing the market up for it in recent weeks.

Across the Atlantic traders will be eyeing US earnings from JPMorgan Chase and Goldman Sachs as well as Intel and Johnson & Johnson. At the same time, there’s a large amount US economic data due to be released, with retail sales, import and export prices and the Empire State manufacturing index numbers.

Primary attention, however, will be paid to Federal Reserve chair Janet Yellen, who delivers testimony to the Senate today and to the House Committee tomorrow. Yellen last month said that the Fed will keep interest rates low for a considerable time after ending its asset-purchase program. Traders will be hopeful that she hasn’t changed her mind due to recent improvements in the US economy and Labour market.