Oil prices tumble again on Chinese slowdown

Good morning,

• European indices higher despite disappointing PMI figures;

• Oil prices tumble again on Chinese slowdown;

• Overall UK retail sales slow but the core number is what counts;

• Lots of US data to focus on today.

It’s already been a busy day in the markets for economic data, with Chinese and eurozone PMIs and UK retail sales figures being released, and now it’s over to the US where manufacturing, housing and jobs data will come into focus.

The data seen so far today hasn’t been great but that hasn’t affected investors’ appetite for risk, as European indices have continued their march higher. Even the FTSE which has a high exposure to China due to its heavy weighting in mining stocks is up more than 20 points on the day, while the CAC and DAX are faring even better.

This is despite a mixed bag of manufacturing and PMI readings, with both German numbers exceeding expectations along with the French services number. Although, this doesn’t really paint the whole picture; the German numbers may have been better than expected but they still experienced a decline from last month and the overall eurozone numbers were very disappointing. Maybe what we’re seeing here is another example of disappointing figures getting a positive response on hopes of more monetary stimulus, although as I’ve said previously, I believe this is very premature. I can’t imagine the ECB providing more stimulus until next year at the very earliest. And even then I doubt it would be quantitative easing.

Oil prices are tumbling again today following the HSBC manufacturing PMI from China. The number is just further evidence that China is facing an uphill task to maintain the kind of growth it has become accustomed to. We’ve already seen oil prices falling due to lower demand in China and Europe and clearly this number would suggest that demand is not got to pick up in the coming months.

UK retail sales rose by only 0.1% in July, which fell short of expectations, although the core number slightly exceeded expectations at 0.5%. Given how volatile the overall number can be, traders tend to pay more attention to the core number so won’t be overly concerned with the overall number.

There’s still plenty more data to come from the US today, including initial jobless claims which are expected to remain low at 300,000 in a further sign that the labour market recovery in the US remains strong. Also today we have the preliminary manufacturing PMI for August, which is expected to remain roughly in line with last month’s figure, and the CB leading indicator. This will be followed by existing home sales data which is expected to decline slightly to 5.01 million, the first since March, and finally the Philly Fed manufacturing index.

With so much data being released I expect to see some volatile markets today. The only question now is, how will traders respond to the data? With the Fed appearing slightly more hawkish in the minutes from the last meeting, will we enter into another phase of bad economic news is good for the markets and vice versa? Or have investors moved on from this and instead rewarding a strong economic recovery?

Ahead of the opening bell, the S&P is expected to open 4 points higher, the Dow 32 points higher and the Nasdaq 5 points higher.