Services PMI stands out as key data release today

Good morning,

• Caution expected ahead of massive end to the week;

• Fed statement Wednesday could determine how investors respond to data;

• Services PMI stands out as key data release today.

It’s been a fairly quiet start to the week, which is hardly surprising given the lack of economic data, or any other news for that matter, to drive market sentiment this morning.

This is also probably not being helped by the fact that the second half of the week is looking a little mental in the US, with almost one hundred S&P 500 companies reporting second quarter earnings, the FOMC announcing its latest policy decision and a large amount of major economic data being released, including the July jobs data.

Quite often, the week of the jobs report can see traders sitting on the fence a little, unsure over what the events will mean for the US recovery and how it will be received by the markets. We are fast approaching the point when I expect strong data to be greeted negatively on fears of an earlier rate hike from the Fed.

That could come as soon as this week if the Fed finally concedes that the economy is in much better shape and that rate hike expectations should be brought forward. If I’m honest, while the statement may contain more hawkish language, the absence of a press conference after this meeting suggests to me that this may be yet another year in which the Fed saves the big announcement for the Jackson Hole symposium next month.

As for today, we have a few important pieces of economic data being released. The services PMI stands out for me as the most important of these given the country’s reliance on the sector. Any indication here that growth is slowing in the sector could spook investors and point to further difficulties to come in the second half of the year. Expectations are for a small improvement which would suggest no such worries exist.

Also being released is the composite PMI which highlights confidence in both the manufacturing and services sectors, and the pending home sales for June. The latter is expected to show an increase of 0.5% from May, which would suggest that this period of lower rates is once again having a positive impact on the housing market. With rates seen rising towards the end of the year, we could well see these numbers slip again, just as we did at the end of 2013.

Ahead of the opening bell on Wall Street, the S&P is expected to open 2 points lower, the Dow 14 points lower and the Nasdaq 4 points lower.