UK retail sales slip in June but business investment cushions the blow

Good morning,

• World cup and good weather gives PMI readings a boost;

• UK retail sales slip in June but business investment cushions the blow;

• 50 S&P 500 companies due to report on what has so far been a very good third quarter;

• Plenty of data being released for traders to get their teeth stuck into.

US futures are taking the lead from Europe and posting small gains early on Thursday, after a batch of stronger than expected eurozone PMI readings made everyone a little more optimistic about what the second half of the year will bring.

The manufacturing and services PMI readings caught many people off guard, with most expecting to see a further decline in the numbers as we head into the third quarter. We’ve seen no other sign that the economies of the eurozone are improving, not even in Germany which has shown itself to be far more robust than the rest.

That said, you can never ignore the impact that a world cup and good weather can have on an economy. We’ve already seen, for example, that beer sales in Germany exceeded expectations during the world cup and it seems that spending in other areas may have also increased. Given Germany’s success at the world cup, I would be surprised if we didn’t see strong figures across the board for the month of July.

The services sector in France seems to have taken full advantage of these as well, propelling the PMI reading out of contraction territory to 50.4. The manufacturing sector didn’t perform quite as well, falling to 47.6, a third contractionary reading. The only question now is whether all of this is sustainable or not. The world cup is finished now which may take some of the spark out of future readings but as long as the good weather stays, we could see these sectors gather some momentum.

One downside this morning came from the UK, where core retail sales unexpectedly fell by 0.1% in June. This was only just shy of expectations though and the figures compared to the same month last year are still extremely encouraging, with retail sales up 4% and core retail sales up 3.6%. The UK consumer has almost single-handedly driven the recovery over the last year despite low wage growth, which was never going to be sustainable. However, stats have shown that in the second quarter, business investment has risen which has picked up the slack from the drop in consumer spending. With that in mind, we have nothing to worry about just because retail sales are not rising as much as we hoped.

Looking ahead to the US session and earnings season, as well as all the economic data scheduled for release, will be in focus. There’s another 50 S&P 500 companies due to report on the second quarter today, including some big names such as General Motors, Caterpillar and Amazon. Earnings season has been very good so far, especially when compared to the last couple of years. We’re seeing earnings growth driven by larger revenues, less cost cutting and, arguably most significantly, fewer profit warnings. This is a great sign as we head into a very important second half of the year.

On the data front we’ll get new home sales data for June, which is expected to fall back to 0.479 million following the unexpected spike in May, the July manufacturing PMI, which is expected to improve slightly to 57.5, and initial jobless claims.

Ahead of the opening bell, the S&P is seen 2 points higher, the Dow 27 points higher and the Nasdaq 9 points higher.