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European Stock Market Looks Stronger – But Don't Be Fooled

A few economic reports over the past two weeks have fueled optimism that a Eurozone recovery will trigger bullish performance in the European stock market.

The German Economy Ministry released a report on Friday saying that economic activity has increased notably in Q2, supported by both private consumption and investment in building construction.

Last week, the Purchasing Managers Index (PMI) report for July, which surveys around 3,000 firms, came out to 50.3 points, up from an initial estimate of 50.1 points. This marks the first time Eurozone manufacturing was above a 50-point boom-or-bust trajectory since July 2011. The PMI also showed that production was up for the first time since February 2012, and that job losses are being staved off.

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European Central Bank Does Nothing - But Markets React in Big Way

"Maybe next year..." was basically the message sent today (Thursday) from the European Central Bank (ECB).

The European Central Bank left interest rates unchanged despite slightly lowering its outlook for the ailing Eurozone economy for the remainder of 2013. But, it sees a gradual recovery in 2014.

The ECB forecasts Eurozone GDP will contract by 0.6% this year, down from its March projection of 0.5%. However, it modified its 2014 estimates, predicting a return to growth at a rate of 1.1%.

"Euro-area economic activity should stabilize and recover on the course of the year albeit at a subdued pace," ECB President Mario Draghi said at a news conference.

The region has been stuck in recessionary mode for six consecutive quarters. But Draghi cited improving economic data in May as reasons for not taking immediate action.

"But we stand ready to act, and we will continue to monitor closely all incoming data," Draghi said at a news conference. He added the ECB would remain "accommodative" for as long as necessary.

Draghi also staunchly defended the ECB's actions, saying the bank's outright monetary transactions launched last year were "probably the most successfully monetary policy measure undertaken in recent times."

Draghi said the policy had no negative affect on markets.

"The ECB hasn't done anything to increase volatility in the markets," Draghi said. "If you think the ECB has done anything comparable to other central banks, we wouldn't agree."

After today's ECB briefing, the Stoxx Europe 600 Index fell 0.4% to 294.04, setting it on pace to close at the lowest level since late April. Banks suffered some of the steepest losses.

European bond yields plunged the most in three months, with Portugal taking the worst hit.

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