EU foreign ministers likely to announce further sanctions

Good morning,

• Cooperation from rebels doing no harm to investor sentiment;

• EU foreign ministers likely to announce further sanctions;

• Earnings season key as Apple, Microsoft and Coca Cola report;

• US inflation reading the highlight of the economic data releases.

Given how well US stocks have held up over the last couple of days, it’s difficult to claim that investors have been pricing in too much risk when it comes to the conflicts in the Ukraine and Gaza. However, the developments in the former over the last 24 hours have certainly done no harm to investor sentiment, with the returning of the bodies to the Netherlands and the black boxes from the plane to the relevant experts, at least showing some form of cooperation from the rebels and more importantly, Russia.

This is unlikely to prevent further sanctions being imposed on Russia, with foreign ministers from Europe meeting today to discuss exactly what those will be. Many countries in Europe are in a much tougher position than the US when it comes to sanctions, as they themselves stand to lose quite significantly due to the ties they currently have with Russia. With that in mind, I don’t expect any sanctions from Europe to be too severe, with foreign ministers avoiding areas such as the oil and gas industry that could significantly damage the Russian economy but do plenty of harm to the fragile European economies at the same time.

With investors not appearing to be overly concerned with the current situation in the US, focus is likely to remain firmly on earnings season with some big names scheduled to report on the second quarter today. Top of the list is Apple, the largest component of the S&P 500, which is scheduled to report after the close in the US. Alongside this we’ll hear from Microsoft, United Technologies and Coca Cola, to name just a few, which could quite easily have a major baring on sentiment as the day goes on.

Aside from earnings, there’s also plenty of economic data being released, again from the US. The one release that stands out above all others is clearly the CPI inflation reading for June. While this may not be the Fed’s preferred measure of inflation, it could provide insight into the future direction of the personal consumption expenditure price index and therefore when the Fed will first hike rates.

There isn’t a huge amount holding the Fed back now, with growth in the second quarter likely to be confirmed as very strong, job creation growing at a very good rate and unemployment falling rapidly, and not just because of a falling participation rate. Wage growth is a big concern and low inflation is allowing the Fed time to see if this improves before it acts. However, if this rises significantly above its target, it may lose that privilege and be forced into a hike earlier than it wants. The figure is seen remaining at 2.1% today, marginally above the Fed’s 2% inflation target, while the core number is seen exactly in line with it. Any spike could be taken negatively by traders and prompt some selling in equities and Treasuries, while the US dollar would likely benefit.

Ahead of the opening bell, the S&P is seen 3 points higher, the Dow 42 points higher and the Dow 11 points higher.