PMIs and Retail Sales Dominate in Data Heavy session

A quiet trading session on Tuesday means European indices are lacking any meaningful direction ahead of the open this morning. Futures are currently pointing to a marginally higher open but that could easily change before or shortly after the open with services PMI readings due from a number of countries in the euro area.

The Spanish PMI reading is looking extremely impressive compared to it eurozone counterparts, particularly those in the periphery that have been hardest hit by austerity, and it is expected to improve further today. While Rajoy’s government no doubt deserves some credit for this, I can’t help but think he’s also been extremely fortunate with the strong decline in the euro which has helped spur export demand and the fall in oil prices which has driven internal demand.

It’s also tough to ignore things like the tax break for the middle class which may be a ploy to secure votes in an election year with support for anti-austerity Podemos growing at an alarming rate. It may be pessimistic but I wonder if the country can continue its impressive recovery once all these factors stabilise, or whether things will cool dramatically after the election. We’re certainly not seeing these kinds of improvements in Italy, although the country has been notoriously slow at implementing the growth friendly reforms, something that has also been an issue in France.

Eurozone retail sales are expected to rise by 0.2% on the month January marking the first four consecutive monthly improvement since the January to April period last year. Once again, I’m not sure how much can be read into this with the region clearly benefiting from lower oil prices, although I’m certainly not complaining about it and I’m sure they won’t be either. This is going to act as a long overdue tax break for the region and you never know, it could be the slice of luck both the people and the politicians need to get the economies moving again.

Over in the UK, the economy is ticking along nicely. It did cool a little last year but that was to be expected, but overall, again aided by the drop in oil prices, the economy is continuing to improve nicely. Today’s services PMI is expected to 57.6, a fairly strong reading and a very welcome one given the UK’s dependency on the services industry, which is responsible for more than two thirds of output.

This afternoon, attention will shift to the US where we’ll get the latest private payrolls data from ADP. This is meant to work as an estimate for Friday’s official payrolls number but it rarely does, instead it tends to provide a warning of when we can expect big swings away from the consensus. The ISM non-manufacturing PMI is likely to get more attention from investors, as will potentially the Beige Book. This doesn’t normally have much of a bearing on the markets but at a time when the Fed is seriously considering its first rate hike since before the financial crisis, investors will take any clues they can get about when this will take place, with the belief currently being that it will come in June or September.

The FTSE is expected to open unchanged, the CAC up 8 points and the DAX up 5 points.

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Craig Erlam

Craig Erlam

Senior Market Analyst - UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam