Japanese spending figures lift the Nikkei

Good morning,

• Hang Seng hits near four year high on improving data;

• Japanese spending figures lift the Nikkei;

• Lack of economic data could mean more choppiness today;

• More earnings to come including GSK, BP and Pfizer.

European futures are pointing to a slightly positive open on Tuesday following a strong Asian session overnight that saw Japan’s Nikkei rally to 4-month highs, China’s Shanghai composite reach seven-month highs and Hong Kong’s Hang Seng hit a near four year high.

The improvement seen in Chinese data over the last couple of months has been a big driver behind Chinese and Hong Kong stocks trading at these high levels. While many people have spent the year doubting whether China can sustain such high levels of growth and hit its 7.5% growth target, the country has undertaken a combination of targeted fiscal and monetary stimulus programs in order to counter the slower first half of the year. If the data is to be believed then this is just what the doctor ordered and the chance of the country not reaching its targets now look very slim. The only hope now is that these efforts to shore up growth in the short term aren’t damaging the long term economic stability in the country, for example by unintentionally assisting the growth of shadow banking.

In Japan, investors are more upbeat following the release of a batch of spending figures that showed the decline in household and consumer spending was not a severe in June as had been expected. Spending in the country is still falling as a result of the sales tax hike back in April, with consumers having upped their spending in anticipation of the hike beforehand and have since been deterred somewhat by the higher prices at a time when wage growth is still low. That said, the decline was not been as bad as feared in July and the numbers overnight showed household spending and retail sales exceeding expectations in a sign that the impact of the sales tax hike may not be quite as extreme as was first feared. It’s worth noting that the numbers for April and May were pretty awful so we’ll need to see more evidence that spending has improved before we get carried away but the July figures are encouraging.

While some of that positive sentiment appears to be filtering through into Europe ahead of the open, futures are only pointing to a marginally better open and another choppy session should be expected. Not only do we have a lot to come in the second half of the week, with lots of earnings reports, an FOMC decision and the jobs report, among other things, there’s a real lack of drivers to come today.

The economic calendar is looking very bare. In fact, the only notable releases are UK mortgage approvals for June and lending data for June and let’s face it, based on yesterday’s market response to the US PMI and housing data, the chance of a significant market impact is slim. This will be followed later by the S&P Case-Shiller home price index and consumer confidence readings for the US.

With such a lack of data being released today, additional focus may be paid to earnings season, with GlaxoSmithKline and BP among the notable companies reporting this morning, while later we’ll get results from Pfizer among others.

Ahead of the European open, the FTSE is expected to open 6 points higher, the CAC 1 point higher and the DAX 19 points higher.