European markets are set for fairly quiet day on the economic calendar today as it seems the data takes a break for the majority of the day on Wednesday.
However, the data that does come out is big, as this evening at 7pm we get the release of the FOMC minutes.
Yesterday also saw the start of earnings season in the US and with Alcoa (NYSE:AA) kicking things off in style there is now going to be added pressure on companies to perform and back up the recent equity gains with strong corporate performances.
There is no doubt that the US will dominate proceedings during today’s session but we will have to wait until 7pm for the markets to get into full swing. Pressure is mounting on Janet Yellen and the Fed to act on the positive readings we have seen coming out of the US economy over the last 12 months. Last Thursday saw the first time the non farm payrolls had shown 5 plus 200K consecutive readings since 2001, we also saw the unemployment rate tick to 6.1%.
Many believe that despite a low participation rate that a drop below the 6% level is the catalyst the Fed is looking for to act and it could well be as early as next month that we see an increase in tapering or even a potential rate hike. This could well spell danger for those investors who have invested heavily in this equity market rally.
This rally is built on severely low volatility and even lower volume leading me to believe that if a change in monetary policy would to happen earlier than people expected, it would cause the gains to unravel at lightning speed.
We have already had some data out of China overnight as CPI fell to 2.3% from 2.5% in the previous month. This will not be seen as a huge issue in China, but is still well below the central banks annual target of 3.5% CPI inflation that was set back in March. Delving a little deeper into the figures it showed that yet again food prices were still the main driver of inflation as fruit prices were up 19.8% in June on the previous year.
As we have mentioned the economic data does look fairly quiet however the corporate earnings continue to be released as earnings season enters its second day. Today’s sees the beginning of the major bank releases in the US and with many expecting positive things out of a lot of the major financial institutions the pressure is really on today’s releases of Wells Fargo (NYSE:WFC) and JP Morgan (NYSE:JPM) to do deliver big.
However, when it comes to the earnings this quarter it will have to be real organic growth that we see from the banks and not numbers adjusted positively due to cost cutting. Inventors will want to see that this equity market rally is built of solid corporate performances and not a house of cards with job cuts at the heart of the good readings. Alcoa has so far started things off on the right foot, but the banks are a different story.
Ahead of the open we expect to see the FTSE 100 open lower by 4 points with the German DAX higher by 22 points.
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