Dovish Yellen Commentary Propels Stocks Higher

European stock markets are moving higher, following Yellen’s dovish comments Wednesday which saw investor confidence rising again and already underpinned gains in Europe and the United States. The DAX and especially FTSE 100 are underperforming. There is the risk that Yellen may walk back some of her dovish statements at today’s testimony and even occasional dovish remarks don’t detract from the fact that central banks are eyeing exit steps going ahead. So, stock markets will have to cope with higher yields and interest rates in the medium to long term.

German Inflation was in Line with Expectations

German June HICP was confirmed at 1.5% year over year national CPI at 1.6% year over year, which was broadly expected, although the slight uptick in the headline rate over the month was against the general trend in the Eurozone.  Lower oil prices are playing a key factor as annual energy price inflation has now turned negative and stood at -0.1% year over year in June, down from 0.8% year over year in May and compared to 2.8% year over year at the start of the year. Prices for light heating oil rose merely 0.9% year over year in June, after still rising 11.7% year over year in May and a staggering 42.5% year over year in January. So base effects from energy prices are now holding back the headline rate, and indeed the ECB already cut back its inflation projection on the back of lower than anticipated oil prices.

Final Spanish HICP inflation was confirmed at 1.6% year over year, the national rate at 1.5% year over year, sharply down from 2.0% year over year and 1.9% year over year respectively in May. After the noise created by the later timing of Easter this year, energy prices have moved back into focus and base effects from lower oil prices clearly have influenced the June rate. In Spain, this showed up in transport costs, which rose 1.4% year over year in June, compared to 3.0% year over year in the previous month. On the flip side services price inflation and especially prices for restaurants and hotels are rising sharply in Spain, as conflicts in other holiday destinations are driving up visitor numbers.

The June RICS UK house price measure dove to +7% from +17%, posting its weakest reading since the immediate wake of the Brexit vote last year. The survey found 44% of respondent attributing the weakness to political uncertainty, with the June 8 election having unexpectedly produced a minority government, and 27% to Brexit. The report today follows the 1.0% contraction in house prices in the June Halifax price index.