US to be a major driver in the markets this week

Good morning,

• US to be a major driver in the markets this week;

• Earnings reports from Europe the focus this morning;

• US PMI readings and housing data key this afternoon.

A week that is widely focused on the US is expected to start in much the same way, with no economic releases due from Europe this morning while only a little over a dozen European companies are scheduled to announce earnings. In fact, things don’t really pick up in Europe until Wednesday and even then the releases aren’t exactly game changers.

With that in mind, the US is likely to be the biggest driver of most of the major markets this week. This is particularly true in the second half of the week when we’ll have a barrage of massive economic indicators, almost 100 S&P 500 companies reporting second quarter earnings and an FOMC decision to cap everything off. Do not underestimate how big an impact that final few days of the week could have on the markets. We’ve all been looking for that thing that brings volatility back to the markets, well this could well be it.

With so much to come later this week, we could see a little bit of risk aversion and fence sitting from traders in the early part of the week. Although, with so many companies from the US, UK and Eurozone still releasing earnings, we may not see the kind of paralysis in the markets which we could at other times expect.

There is also a few notable economic releases scheduled for today, including the Markit services and composite PMI readings for July and the pending home sales numbers for June. Given the importance of the services sector in the US, accounting for more than two thirds of total output, changes in the PMI reading are well worth tracking as they give the best indication of whether the improvements seen in the second quarter are likely to carry into the second half of the year. A rise to 61.5 in July would indicate that confidence is high and only improving.

Finally we should forget about the conflicts that are still occurring in the Gaza strip and eastern Ukraine. While these may not have weighed too heavily on the markets recently, this can change rapidly and may well play into the more cautious tone expected in the early part of the week.

Ahead of the European open, the FTSE is seen 12 points higher, the CAC 6 points higher and the DAX 7 points higher.