European Confidence To Continue Its Rally In July, Boosted By Upbeat Stress Test Results

Although confidence in the euro zone has been impacted from the debt crisis which is hurting growth levels, yet in June we saw confidence improving from weak euro which boosted exports, therefore improving the outlook at it supports growth levels.

In July, expectations are referring to further rise in economic confidence to 99.1 from 98.7 which is not strange after the impressive tests results released last week showing that out of 91 EU banks only seven did not pass the test.

Test results gave boost to markets causing European shares to rise to 12-week high and enhanced risk taking as it revealed that the financial conditions in the European financial sector are stable. What bring more confidence are also the latest announcements by Trichet that he will continue supporting the banking system.

By extension, yesterday the ECB published its bank lending survey showing that there has been improvement in credit conditions in the second quarter which provides another clue that fiscal concerns are easing.

Business climate indicator for July is predicted to rise to 0.39 from 0.37. Industrial confidence will inch up to -5 from -6, services confidence to tick up higher to 5 from the prior reading of 4, and consumer confidence will linger at -14, according to median estimates.

Recently, the euro zone has been showing progress after expanding 0.2% in the first quarter but unemployment remains high at 10.0%. In Germany, unemployment for July is estimated to decline for the second month to 7.6% from 7.7%.

The latest growth projections by the ECB are referring to 1.0 percent expansion this year and 1.2 percent in 2011.

In the UK, important housing data is due today in addition to M4 money supply. However, eyes will be on earnings from Europe where large number of European companies and banks will release their earnings.