Europe midday: Stocks hold higher, but only just

Stocks on the Continent are holding higher - but only just - alongside a bounce in the Turkish currency, the lira, and gains in Italian sovereign debt.

Nevertheless, in a speech on Tuesday morning, Turkish President, Recep Tayyip Erdogan, reportedly sounded an aggressive note on Ankara's future relationship with the US, blaming a "western attack" for weakness in the currency.

Indeed, lira strength on Tuesday was mostly the result of a move by the Turkish central bank to tighten liquidity conditions, foregoing a one-week repurchase liquidity auction for a second day, even as it pulled a 10-year government bond sale scheduled for later on Tuesday.

There were also reports of local currency traders locking-in profits on their purchases of US dollars.

Against that backdrop, as of 1253 BST the US dollar was retreating by 5.39% to 6.5130 lira, with the Borsa Istanbul 100 benchmark equity index advancing by 0.55% to 93,191.06.

Alongside that move, the benchmark Stoxx 600 was ahead by 0.09% or 0.33 points at 385.24, together with a 0.12% or 14.74 point advance for the German Dax to 12,373.78. The FTSE Mibtel on the other hand was lower by 0.25% or 43.03 points to 20,927.24.

Italian stocks were down despite reports overnight that the country's Prime Minister, Giuseppe Conte, and his top ministers had met and agreed that the 2019 budget would be compatible with stable public finances and a decline in the ratio of public debt to gross domestic product.

Euro/dollar meanwhile was drifting lower by 0.05% to 1.1405 and the yield on benchmark 10-year Italian government debt by seven basis points to 3.03%.

Commenting on the situation in Turkish financial markets, analysts at Jefferies said: "The bottom line is that the longer the central bank desists from hiking rates the more likely some kind of capital controls will be adopted.

"We remain Bearish on Turkey within our Global Asset Allocation. We don’t believe there is significant contagion risk to other EMs."

For his part, David Kohl at Julius Baer chipped-in: "The Turkish lira has depreciated dramatically over the last few days. However, it is not the overall macro backdrop of Turkey that is so disastrous as to justify the sharp drop of the currency.

"Economic activity, including export dynamics and domestic demand, is actually growing at a solid pace. The sharp depreciation of the currency is driven by the fact that the Turkish economy is in constant overheating mode, with inflation above 15%."

To take note of, a barrage of economic indicators released overnight in China came in below analysts' projections.

Tuesday also brought with it a flood of economic data in Europe with most indicators printing either in-line with economists' forecasts or ahead of them.

Significantly, the ZEW institute's gauge of economic expectations for Germany fell by 11.0 points in August to reach -13.7, which was much better than the improvement to a reading of -20.0 anticipated by economists.

Nevertheless, the ZEW itself emphasised that it remained "significantly below" its long-term average value of 23.0 points.

In parallel, Eurostat reported that Eurozone GDP expanded at a quarter-on-quarter pace of 0.4% over the three months to June (consensus: 0.3%).