We suggested that equity markets were trying to break out to the upside at the start of the week, that appears to be the case. A continuation of a decent earnings season alongside optimism remaining on economic growth, as one analyst forecasts the US economy could rise over 5% in the second quarter according to a Bloomberg report. Flash Purchasing Manager Surveys for July further indicated that the US economy is in rude health. The US is not the only region showing positive signs as eurozone manufacturing growth picks up from a 19th month low.
Technology shares continue to deliver solid earnings, Google shares rising over 5% after beating expectations, and United Technology raised guidance for the year. Trade war fears appear to be put on the back burner for now. Equities had a further boost on Tuesday as the Peoples Bank of China announced on Monday that they would offer banks up to 74 billion dollars of one-year loans. The largest use of the medium-term lending facility since inception in 2014. The PBOC said it wanted to encourage banks to provide more loans.
One other topic that has caused a little bond market volatility was the speculation that the Bank of Japan was looking to tweak slightly its ultra-loose monetary policy by loosening the caps on bond yields. The Bank of Japan currently targets zero on the ten-year bond yield. The effect of this was to see a small selloff in bond prices. The ten-year German Bund yield jumped above 40 basis points. US ten-year Treasury yields rising close back to 3%.
With the holiday season in full flow and should the drivers remain in place not only could the skies above remain clear but so could the equity market. The biggest threat appeared to be the trade war, but equity markets seem to want to discount that for now.