European services PMI figures set to dominate

- Asian services PMI figures largely mixed

- RBA keeps rates constant

- Western markets start to show sign of strength

- European services PMI figures set to dominate

European markets are hoping to post a broadly more positive start to Tuesday than has been provided by the Asian outlook which has been dragged down by a disappointing services PMI number out of China. However, with the bailout of Portuguese Banco Espirito Santo yesterday, the Europeans are hoping to see more green after yesterday bucked the negative trend of last week. Futures point towards a largely positive open, with the FTSE100 +1, CAC +11 and DAX +38 points.

Overnight saw markets begin to focus upon the services sector on a day where most of the major economies looks set to disclose their latest PMI figure. A somewhat mixed back saw the Japanese figure rise above the crucial 50 mark, posting an expansionary figure of 50.4 after last month’s number of 49. However, the focus was largely upon the Chinese figure, which fell to the lowest ebb since the creation of this statistic. Resting precariously on the 50 mark, it is clear that whilst the manufacturing sector has begun strengthening once more, the Chinese services sector remains highly weakened. This poor figure is likely to be driven by the slowdown in the housing market, where residential prices and demand are seeing a correction after years of runaway growth. What is interesting about today’s figure is that it presents yet another problem to the authorities in China and as such it could drive the expansion of stimulus measures to specifically target this sector.

This morning, the RBA decided to leave rates unchanged for another month. The actions of Glenn Stevens and co has become increasingly predictable as they seek to offer a period of stability between rate cuts and rate hikes. As such, today’s announcement left little out there for investors, choosing to tout a largely unchanged line from last month.

Yesterday saw the European markets finally buck the downward spiral seen in the back end of last week. The confirmation from US markets provided an element of security amid a period where investors remained cautious of a more protracted downturn given the incessant rises in the major indices over the past year or so. There is no guarantee that we have avoided a more protracted sell-off, which in my opinion is both necessary and healthy. However, a strong first half of this week would go some way to allaying the fears that this market of constant buying does also go down.

Today’s European session is likely to be focused upon the services sector as the Eurozone and UK post their July PMI readings. Whilst some of the major European countries are not as reliant upon the services sector as the UK, they still provide a significant chunk of growth and thus today’s reading will make key reading for those seeking to find the direction of European growth in Q3. Predictably it is the Germans that are in front once again, with market expectations looking for a massive boost to 56.6 following a figure of 54.6. However, I am more interested in whether the French services sector can drag itself out of contraction this month following a figure of 48.2 last month. The UK services sector reading is the main event as this counts as one of the key barometers of future GDP growth. Standing at 57.7, the sector is no doubt in rude health and thus there is not too much to worry about. However, the ability to further grow and develop at a faster rate is crucial to attaining the kind of leading growth expected by the IMF and alike. UK growth is made up of around two thirds services to one thirds manufacturing and industry. Thus should we see this figure move higher yet, I expect us to see UK output rise yet further in Q3.