Economic data remains the focus on Wednesday

Good morning,

• US investors enjoying perfect mix of economic data;

• Decline in Australian exports sees trade deficit rise;

• Economic data remains the focus on Wednesday.

Overnight in the US, the S&P and Dow rallied to once again reach new record highs, with the latter coming within touching distance of the psychologically important 17,000 level. While this level has no real significance, as the index has never traded at this level before and therefore no actual resistance should be apparent, traders regularly view these major round numbers with an element of caution. For many, as price approaches this level, it just makes sense to lock in a little profit. That said, once we do see this level broken, the buying can be quite aggressive and the move exaggerated as a result.

Current conditions are very favourable for US equity investors right now, which probably goes a long way to explaining why we’re repeatedly seeing record highs being made in the major indices. US economic data is in a real sweet spot right now in that it gives investors plenty of encouragement that the recovery is both strong and sustainable, but it isn’t so good that the Fed will be convinced to tighten any time soon. This is perfect conditions for investors right now. That said, we’re already hearing murmurings at the Fed, most notably last week from James Bullard, that an earlier hike may be on the cards, although this would still probably come early next year so this can continue for a little while yet.

Trade figures from Australia hit the Australian dollar pretty hard overnight, as data showed exports falling by 5% in May, while imports fell 1%, increasing the trade deficit to A$1.91 billion. This comes a day after the encouraging Chinese manufacturing PMI readings, which the aussie rallied off the back of. While today’s reaction is understandable, I don’t expect any significant sell-off in the aussie as the Chinese data is forward looking and may suggest that we’ll see an improvement in Australian exports in the coming months.

While at first glance it may appear that today is not looking as busy as Monday or Tuesday, that is certainly not the case. The economic calendar may look a little lighter but that is simply because there is less noise, by which I mean fewer economic events that tend to have no, or minimal, market impact. There is, however, still a few important things to keep an eye on today.

The Eurozone first quarter GDP reading will be released shortly after the European open and is expected to be unchanged at 0.2%, quarter on quarter, and 0.9%, year on year. While these are far from the growth levels most people would like to see, compared to what we’ve become accustomed to in recent years, I guess we should be grateful. That said, the benefits of all this austerity needs to start bearing some fruit soon or we may start to see more unrest in the countries that have been hit hardest by it.

The UK construction PMI could give the pound a further boost in the currency markets this morning, after the manufacturing PMI rose to new highs for the year which sent sterling soaring through 1.71. Another good reading today would provide further support for the sterling rally ahead of the all-important services PMI reading tomorrow.

Also this morning we have the Spanish unemployment reading, while later on we’ll get the ADP non-farm employment and factory orders data, along with a speech from Fed Chairwoman Janet Yellen, who’s scheduled to speak at the International Monetary Fund in Washington DC.

Ahead of the open, the FTSE is expected to be 2 point lower, the CAC 3 points higher and the DAX 25 points higher.