PMI readings and retail sales in focus this morning

A strong Asian session overnight is helping to drive investor sentiment ahead of the European open on Wednesday. A strong batch of data from China, Japan and Australia has put traders in a positive mood as we enter the business end of the week.

It has understandably been quite a slow start to the week. We've had the bank holiday in the US on Monday, which always acts as massive drag on trading volumes and leaves the markets lacking much direction. Combine this with the fact that we have two major central bank decisions on Thursday and the release of the US jobs report on Friday and investors can be forgiven for being a little careful.

Fortunately there has been a number of economic releases from Europe for traders to get their teeth into in the early stages of the week so it hasn't been too slow a start. Overnight it was the data from China, Japan and Australia that has provided some direction for the European session, driving up indices in the pre-markets.

The most notable of these was probably the Chinese HSBC services PMI, which rose to a 17-month high of 54.1 in August. Given that the sector narrowly avoided contraction the month before, it's no surprise that this provided such a boost. Especially when it comes from a sector that is going to be of extreme importance for the Chinese economy in the years to come as it transitions from an export led economy to a consumer driven one.

The Japanese services PMI wasn't quite as impressive, but a move from 50.4 to 50.8 cannot be sniffed at as we look for further evidence that the economy is coping well following the sales tax hike in April. The last of these hikes sent the country into recession, so if a repeat can be avoided this time around, it will be a small victory for Abenomics. Finally, data confirmed that the Australian economy grew by 0.5% in the second quarter, slightly beating expectations, and wrapping up a solid session of economic data.

Attention is likely to remain on economic data today, with services PMI readings due from the eurozone and the UK. We're expecting another strong figure from the latter, which has produced mixed results from its PMI reading so far this week, giving little indication of what we can expect today. Eurozone PMI readings are likely to disappoint again as the region continues to struggle to drag itself out of the multi-year slump it's been stuck in, despite a large stimulus program from the ECB. The effects of this may take a little longer to kick in though and may come though in the data in the coming months. We'll also get retail sales figures for the eurozone later on this morning.

Ahead of the European open, the FTSE is expected to open 13 points higher, the CAC 4 points higher and the DAX 2 points higher.

Craig Erlam
Market Analyst