US manufacturing and housing data also being released

Good morning,

• Not all doom and gloom despite negative markets on Wednesday;

• Eurozone PMI exceed expectations;

• First Portuguese bond auction in three years well covered;

• US earnings in focus, with particular attention paid to Apple after the close;

• US manufacturing and housing data also being released.

US futures are marginally lower ahead of the opening bell on Wall Street following a negative morning session in Europe. The S&P is expected to open 1 point lower, the Dow 3 points lower and the Nasdaq unchanged.

It hasn’t all been doom and gloom in Europe on Wednesday, in fact there’s been plenty to be encouraged by, although this clearly isn’t filtering through to investors at the moment. The PMI readings from the eurozone this morning have actually been quite good, despite the small miss in the French readings. The most important thing is that the manufacturing and services PMIs were all above 50, signalling growth in both sectors in April, while the eurozone as a whole exceeded expectations.

These numbers are being tracked closely right now, by investors looking for any indication that this prolonged period of stagnation is going to be replaced with steady growth. There may be another six months of stagnation before we see that but these forward looking surveys should provide the earliest signal that confidence is improving which should then be seen in the hard data further down the road. Clearly as it stands, the numbers aren’t blowing people away which suggests more stagnation is expected for some time yet.

Another positive this morning came from the successful auction of Portuguese 10-year debt, the first auction the country has completed in three years. It seems investors’ appetite for eurozone periphery debt is not waning after Portugal sold €750 million in 10-year bonds this morning at a yield of 3.5752%. Demand for Portuguese debt was very high - as we saw when Greece sold short term debt a few weeks ago - with the auction being covered by 3.5 times. This came after yields on Portuguese debt fell to eight year lows, which is incredible for a country that appeared to be on the brink of default less than two years ago.

Like the PMI readings, this has been brushed off though, with investors potentially paying more attention to the HSBC manufacturing reading for China, which was released overnight. While there was a slight improvement in the number, it still fell slightly short of expectations and remained in contraction territory for a fourth consecutive month, adding to concerns that the slowdown in China isn’t easing and the government and central bank is doing very little to help the situation. While fears of a hard landing may be exaggerated, growth below 7% for the year may not be out of the question which would represent a slow year by China’s own standards. This could also act as a drag on global growth which is why we’re seeing it weigh on sentiment globally.

With only a couple of pieces of economic data scheduled for release from the US today, attention is likely to remain on earnings season, which has so far been a little disappointing. There is a large number of companies reporting today, none bigger than Apple after the closing bell. The company is expected to report flat revenue growth in the first quarter with only a small improvement in earnings. Investors are not overly concerned about this though as it has already been largely priced into the stock. Of more importance will be details relating to declining margins and new product offering, although we rarely get details of the latter. Hints at the release of the iWatch or a new TV, more so the latter, would surely get people buzzing about Apple again, something we haven’t seen for a while. Details of an increase to the dividend or another share buyback could also help the share price.

On the economic data side of things, we’ll get the preliminary reading of the US manufacturing PMI shortly after the open, which is expected to rise slightly to 56. This will be followed by new home sales for March, which are also expected to rise slightly, as the end of the unusually poor weather hopefully boosts sales.