UK for the first estimate of second quarter GDP

Good morning,

Yesterday was very much a day of mixed data, with Japan getting the day off to a bad start with weaker export figures only for Chinese manufacturing data to offset it. This was followed by better than expected Eurozone PMIs but a bad month of retail sales for the UK, before being wrapped up with strong jobless figures but weak housing and manufacturing data from the US. It’s hardly surprising then that traders were left struggling for direction, with the S&P once again scraping its way to another finish while the Dow recorded marginal losses.

In Europe, indices were comfortably in the green thanks largely to the PMI readings for July which far exceeded expectations. Today we’re expecting to see a slightly weaker start, as indices pare some of yesterday’s gains ahead of some key data releases and another batch of earnings.

On the data front we have the German IFO business climate survey for July. As it stands, analyst expectations are for another decline in the number to 109.4. However, following yesterday’s PMI readings I imagine most analysts will have raised their expectations for this and I think we’re likely to get a comfortable beat here. The only question now is how much more has been priced into the markets.

I think temporary factors such as the world cup win and the good weather will have played into the stronger PMI readings yesterday and could therefore feed into today’s number. It now just remains to be seen whether this can produce a more long term boost to confidence or whether the end of the world cup signalled the end of this brief economic boost.

It’s then over to the UK for the first estimate of second quarter GDP. This is expected to be 0.8% for the quarter and 3.1% compared to a year ago, which is the kind of growth figure many western economies would kill for right now. What’s more encouraging is that it’s likely to have been driven more by business investment and less by consumer spending, which is extremely important if this is going to be sustainable.

Finally, it’s over to the US later where the only data release is durable goods orders for June. This is widely viewed as a very important reading as people only invest in big items, such as machinery in the case of a business or a new car for people, when they’re feeling more confident in the economic outlook and, with respect to the latter, when they feel safe in their job. While these numbers can be volatile, they have been very good for the most of this year and this is expected to continue today, with a 0.5% increase in orders.

Ahead of the European open, the FTSE is seen 13 points lower, the CAC 10 points lower and the DAX 18 points lower.