German business confidence unexpectedly surged to a 3 year high in July after exports boomed and economic growth accelerated. It was the biggest rise since the largest since German reunification in 1990.  The Ifo institute, at the University of Munich, said its business climate index, based on a survey of 7,000 executives, jumped to 106.2, the highest since July 2007, from 101.8 in June.

The firms have reported a considerably better business situation than in the previous month. Their business expectations for the coming half year are also more optimistic than in June. The German economy is in a party mood, according to the Ifo.

In manufacturing the business climate has brightened strongly. The business situation of the manufacturing firms has clearly improved. Moreover, the survey participants are now more optimistic with regard to the six-month business outlook. With regard to exports the firms see similarly favourable opportunities as in June. Available machinery and equipment is being utilised more strongly than in the spring. Capacity utilisation is now only slightly below the long-term average. Firms’ employment plans are more favourable and point towards slight increases in staff levels.

Also in wholesaling, retailing and construction the business climate has brightened. An increasing number of wholesalers and retailers have assessed the current business situation as good. The business expectations of the survey participants for the coming six months are now more positive in both distribution sectors. The survey participants in construction have appraised the business situation considerably more favourably than in the previous month. Their six-month business outlook is slightly less confident than in June.

UK GDP: Official  figures show that  the UK economy grew almost twice as strongly as expected in the second quarter of this year.

The performance was lifted by a sharp pick-up in services output and the fastest rise in construction output in almost 50 years.

The Office for National Statistics said GDP (gross domestic product jumped) 1.1% compared with the first quarter, the fastest rise in four years. The annual growth rate of 1.6% was the highest in two years.

Luca Silipo, chief economist at Natixis, is not worried about a possible over-heating in China's property market as the country's real problem is the uneven distribution of income. He explains more to Stephen Davies of Javelin Wealth Management & CNBC's Bernard Lo:

Euro area brushing away the bears: Davy chief economist, Rossa White, comments  - -"We have maintained that the significant monetary stimulus provided by a weak euro would overwhelm extra fiscal tightening for the 'core' euro area economies. That is being borne out so far. Euro area macro data was stellar yesterday: the PMIs beat expectations by a distance and consumer confidence improved to its highest point since early 2008. The bears on the euro area as a whole may need a re-think, especially if the currency does not stray too far from current levels.

There are a few misconceptions about the euro area that need addressing. For one thing, the 2011 fiscal tightening has been exaggerated. Yes it is severe in Spain, Greece, Portugal and Ireland. But together they account for less than 25% of the euro area. Meanwhile in Germany, the net fiscal consolidation is planned to be a meagre 0.3% of GDP. This year, Germany is still running expansionary policy. That industrial power was competitive when the trade-weighted euro was almost 10% stronger than today; it will be hyper-competitive at today's levels. The euro's depreciation is also sufficient to compensate for France and Italy's relative lack of wage/price competitiveness, boosting final demand in those economies.

This month's 'flash' euro area PMI for July showed that manufacturing bounced after a brief (but shallow) dip in May and June. Bar the spike in March and April, manufacturing is expanding at its fastest pace since December 2006. The German reading was outstanding: it jumped almost three points to 61.2 (remember break-even is 50). Services activity is not far behind across the euro area either, suggesting that the expansion is broadly based. Looking at it from the expenditure side, consumer spending is set to pick up somewhat. Many will be surprised at the lift in consumer confidence to its highest level since early 2008. The market certainly was: it expected no change, yet the index rose by three points."

A breakdown of Bernanke's latest report on the economy and monetary policy and the impact on the markets, with William Ford, Tennessee State University former Atlanta Fed president; Ronald Kruszewski, Stifel, Nicolaus & Co. chairman/CEO; David Goldman, First Things Magazine and CNBC's Hampton Pearson:

Economic View:Signs of Life in the Eurozone; Goodbody economist, Juliet Tennent, comments  - - "Things may be looking up for the eurozone with better than expected data from both the Manufacturing Sector and the Consumer yesterday. Manufacturing and Services PMIs both unexpectedly rose in July suggesting that growth in the area remained strong at the start of Q3. The Manufacturing PMI rose to 56.5 from 55.6 driven by a jump in the German PMI from 58.4 to 61.2.

However, France showed a decline to 53.7 from 54.8, which, while still above the expansionary 50 level, shows that the recovery is not yet broadly based across countries. The Services PMI for the region rose to 56 from 55.5. Expectations were for a small fall in both of the overall PMIs. Eurozone Industrial Orders were also better than expected, rising by 3.8% mom in May, confounding expectations for a 0.1% fall. This is the 4th month in a row that orders have grown and brings the yoy rate to 22.7%. Eurozone consumer confidence was also stronger than expected in July, rising to -14, from -17 in June, amidst signs that the sovereign-debt crisis may have eased. While it is encouraging to see positive data from the euroarea the outlook remains highly uncertain and all eyes will doubtless be focused on the results of the European Bank stress tests due later today. "

Aer Lingus (Buy, Closing Price €0.94); Releases bullish H1 trading update – Material upgrades: Goodbody's Eamonn Hughes comments  -- "Aer Lingus (AL) yesterday released a very bullish trading update for H1, underpinned by higher yields and better long haul load factors than anticipated. In H1, AL is guiding that its average long haul (LH) fares rose by 17.4%, load factors were up 5.9 points and capacity was down 31.6%. Given that LH yields were up by just 12.4% in Q1, this simplistically implies a figure closer to 21% in Q2 (given c55% of H1 traffic in Q2). On the Short Haul side (SH), which accounts for circa 90% of capacity, AL is indicating that yields were up by 9% in H1, loads were -1.3% and capacity was 5.3% lower. The performance here is pretty impressive on the yield front given yields were only up by 3% in Q1, simplistically implying a figure closer to 14% in Q2. So much for the volcano!

The airline added that the recent yield performance and long haul load factors have “exceeded expectations” and the forward booking profile suggests that this strength should continue for “at least the third quarter”. The company has guided that it “now expects that its 2010 operating result (before exceptional items) should be no worse than breakeven”. Prior to the statement, we were sitting on an Operating Loss of €33.3m and are this morning revising this by +€50m to a €16.7m profit. In terms of detail, we are revising our LH yield from +14% to +17% (similar to H1 and taking the view of a similar Q3 to Q2 and similar Q4 to Q1). On the SH side, we have moved up from 4% to 8.5%. We have also modestly nudged up our ancillaries performance from +1% to +3%. This drives about €45m of the operating improvement and tweaking our costs to reflect the updated capacity growth comments sees a further €5m, giving the €50m improvement post the statement. Looking out to FY11, the company said in the statement that it was “too early to provide guidance”. In terms of our own estimates, the pace of acceleration in the yield this year sees us pare back our yield growth figures modestly for FY11, but still sees our original €51.3m Operating Profit forecast exactly double to €102.6m. H1 results on August 24 (post the July traffic stats on August 9) should provide a bit more colour on the performance. At the EPS level, our FY10 -4.1c is revised up to +3.9c. For FY11, we are moving up our 9.3c estimate to 16.9c

This operating improvement clearly has positive consequences for the group’s cash pile. Our expectation that net cash would trough at €320m this year is adjusted to now believe that last year’s €336m figure was the trough, as we now envisage the cash pile moving up to €366m at the end of this year (equivalent to €0.69 per share). Moving onto valuations, feeding this improved operating environment into our models sees our fair value (we simply average our NAV, ROE and EV valuation methodologies) move up from €1.25 per share to €1.50 (+20%). We reiterate our Buy call on the stock."