European indices lower following mixed sessions in Asia and the US

Good morning,

• European indices lower following mixed sessions in Asia and the US;

• Earnings back in focus as many big names report on the second quarter;

• Eurozone PMI readings seen providing further evidence of 2014 slowdown;

• UK retail sales to show another good month as businesses take some pressure off the consumer.

European indices are expected to open marginally lower following a fairly mixed session in Asia overnight. A strong Chinese HSBC manufacturing PMI reading was offset somewhat by disappointing trade data for Japan, while the US session didn’t exactly provide much direction as the S&P closed at record highs and the Dow finished lower on the day.

Once again today, focus is likely to be firmly on the release of second quarter earnings results and economic data, both of which we have in abundance. On the earnings front, we’ll get results from a number of companies including Unilever, Nokia and Easyjet. As always, the bulk of the impact from these results is likely to be felt in the stocks themselves, as well as the sectors they fall in. Commodity stocks can also heavily impact the commodities that they deal with. That said, sentiment is very important in all markets and earnings season is likely to be a big driver of investor sentiment in the coming weeks so the overall feeling around earnings season should not be ignored.

As well as sentiment, these earnings results are likely to have an impact on central bank decisions even if the results themselves are not something that is discussed too heavily at the meetings. The results can contain important information that provides clues on the sustainability of the recovery at any point, such as consumer spending patterns and business investment. The latter in particular tends to suggest that companies are confident in the long term health of the economy and therefore the business.

In many markets though, such as currency and bond markets, traders do pay more attention to the economic data as it gives a broader update on how an economy is performing at any point. Today, there is a lot of economic data being released, both forward and backward looking and across a number of countries, so I expect to see a rise in market volatility.

PMI readings are generally seen as important economic indicators, particularly at a time of recovery, as they are focused purely on confidence and expected performance in the coming months. That said, the fact that they are surveys and not based on any real numbers means they are not as reliable as hard data, but that does not mean they are not extremely useful. Confidence within a sector doesn’t come from nothing, and it is a very good indicator of how companies see things progressing in the coming months, which is why traders follow these numbers so closely.

This morning, we’ll get manufacturing and services PMI readings from Germany, France and the Eurozone for July. A lot has been said about the slowdown in the Eurozone recently, particularly in Germany which has been the most concerning thing as many don’t believe we can see a strong recovery in the region without its strongest member leading the way. Today’s PMI readings are expected to suggest that the slowdown will continue well into the second half, with the numbers seen either remaining as they were in June or slightly falling. The French numbers are expected to point to another contractionary month in the eurozone’s second largest economy, which is yet another concern for the area, given that people were hoping that this would be the year that we’d start to see some improvement. In many countries are seeing this, unfortunately that doesn’t include those at its core.

Shortly after the PMI releases, we have UK retail sales numbers for June. While these are extremely important readings for the UK, given the importance of the consumer to the economy, they are arguably not as important as they have been for the last 18 months. The reason for this is that until now, we have been witnessing a consumer driven recovery and therefore had consumers taken their foot off the gas, the recovery would have stalled. However, in the last quarter, businesses investment has increased dramatically which has played a much bigger part, taking some of the burden off the consumer. This is far healthier for the economy as consumers could not keep solely supporting the economy when inflation is rising so much faster than wages. Eventually, either the spending would have to slow or debt would have to rise. Fortunately instead, businesses have finally stepped in and are likely to play a much bigger role going forward.

We have more data coming later from the US, with weekly jobless claims, home sales and manufacturing PMI data all being released.

Ahead of the European open, the FTSE is seen 5 points lower, the CAC 3 points lower and the DAX 3 points lower.