The US session is looking a little quieter today

Good morning,

Having closed at record highs for each of the last two sessions, the S&P 500 is facing a more negative start on Friday, with futures currently showing it falling by 4 points ahead of the open, while the Dow is seen 48 points lower and the Nasdaq 16 points lower.

This comes following a fairly mixed start in Europe, where the German DAX is off around a quarter of a percent following the disappointing release of the Ifo survey for July. Yesterday’s surprisingly strong PMI for July suggested activity and confidence had actually picked up during the month, potentially due to a combination of good weather and a world cup win lifting people’s spirits, but apparently no one told the 7,000 businesses surveyed by Ifo, who saw current and future conditions deteriorating more than had been expected.

Clearly businesses are suffering as a result of the weakening trade ties with Russia, which has had sanctions imposed on it by Europe and the US due to its involvement in the crisis in eastern Ukraine. Russia is a big trading partner of Germany and given the deterioration in business confidence, it’s not surprising that Germany is reluctant to impose more sanctions on Russia that it believes would have an increasingly negative impact on its economy. While this should not theoretically come into the equation, it clearly does and it tells us a lot about what kind of response we can expect from Europe if the situation worsens.

The UK continued its impressive run of growth in the second quarter, with another 0.8% expansion. This growth means that output in the UK has finally surpassed the level reached in the first quarter of 2008 and suggests the country is well on its way to a real recovery. To make matters even better, it would appear that business investment is picking up the slack from a drop in consumer spending, which is not only healthy in terms of the quality of the recovery, it would suggest that productivity may finally improve and finally lead to real wage growth in the not too distant future.

The US session is looking a little quieter today, with the only economic release being durable goods orders for June. These numbers are far more useful that some people give them credit for. Not only do they represent people’s and companies confidence in the economic outlook, as people only tend to make these purchases when the outlook is positive, but it shows people are putting their money where their mouth is. It’s one thing to say you’re confident in the economic outlook, it’s another thing to act on it and this data shows whether or not people and companies are. The numbers have been very good this year, although they can be volatile at times, and we’re expecting another decent figure of 0.5% today.