The S&P500 closed at yet another record high yesterday,
but for the rest of US markets progress was a little harder to sustain, as economic data continued to come on mixed, and the IMF downgraded its growth forecast for the US economy for 2014 to 1.8%.
Yesterday’s weekly jobless claims surprised many
coming in at an eight year low at 284k, however that optimism was punctured by some disappointing housing data.
Today’s durable goods data for June
could well reinforce concerns about weak spending patterns, with a rise of 0.4% expected, an improvement on May’s 0.9% decline, but still not indicative of a significant rebound in economic activity in Q2, after a disappointing Q1.
Better than expected French, German and Spanish economic data also helped buoy European markets
yesterday, with the German economy showing surprising resilience given recent concerns that the situation in Russia might damage confidence within the country
and weigh on investment and hiring.
This fears look misplaced at the moment if the PMI data for July is to be believed
, however a better barometer of business sentiment within Germany is likely to be todays IFO reading for July which is expected to come in at 109.6, only slightly down from the previous 109.7.
While yesterday’s PMI data is welcome with a particularly strong rebound in services data,
sometimes these numbers can be misleading, and it’s always better to get a gauge of sentiment from other data sources in the event yesterday’s number was an outlier and will likely get revised in the coming weeks.
The recent ZEW survey was weak
and the correlation between it and the IFO survey can sometimes correlate quite well, so we could see a weak business survey which could knock some of the recent wind out of the sails of the German DAX
, which has managed to rally for the past three days in a row.
Back in the UK yesterday’s June retail sales numbers were a little disappointing
coming in at 0.1%, below expectations of a 0.5% rise, raising concerns about resilience of the UK consumer.
That may well be a worry but nonetheless over the second quarter retail sales have still done better than they did in Q1
, when they declined 0.4%. This quarter they rose 0.6%, which should have a much more positive effect on this morning’s Q2 GDP number.
In Q1 we saw growth of 0.8% with retail sales and consumer spending acting as a bit of a drag,
so today’s first iteration of Q2 GDP could well be a good indicator of how well the UK economy is shaping up for the rest of the year.
The IMF certainly thinks that the UK economy is on firmer ground
than it was over 12 months ago when Olivier Blanchard stated that the UK government was “playing with fire”
in respect of its economic policies.
How quickly times change as they yesterday upgraded their forecast for the UK economy for 2014 to 3.2%, an increase of 0.4%
, though given their track record on forecasting I wouldn’t hang the flags out quite yet.
Today’s first iteration of UK Q2 GDP
is expected to come in at 0.8%, and 3.1% annualised, up from the previous 3%, though given this initial number only covers about 40% of UK economic activity for the most recent quarter, it is likely to subsequently get revised.
– the euro continues to look weak pushing below the 1.3500 level and breaking below the lows this year at 1.3477. This failing momentum suggests we could well see a slow drift lower towards 1.3300, and the November lows. We need to see a move back through 1.3500 to retarget the 1.3570 level and then on to 1.3640.
– we’ve broken below the trend line support from the 1.4800 lows last year, which currently comes in at 1.7005, and could well test the 55 day MA at 1.6950, which also happens to be the lows from 25th June. A break through 1.6950 could well trigger a sharp roll over towards 1.6845 and the 100 day MA.
– short squeeze time yesterday making a new high for the week in the process. We could see further sterling weakness towards 0.7960, with trend line resistance from the highs in March at 0.7990. The pressure remains for a move towards 0.7780, with any rebound needing to overcome the 0.8000 level to stabilise in the short term.
– the pressure appears to be building up on the downside and a move towards 100.60 while below the 101.85 level. It would take a move through 101.85 to target trend line resistance at 102.50, from the 105.50 highs.
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