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US Pre-Open Call

Last updated 7/3/2012 4:34 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

US stock index futures are indicating a softer open for equities this afternoon. This follows on from a quiet start to the second half of the year on Monday which saw major stock indices little-changed on the day. This is perhaps surprising given the general weakness of yesterday's economic data. We saw Manufacturing PMIs from a number of countries come in below 50 indicating contraction. These included the UK, Japan, Italy, Norway and Taiwan. China's official number is holding just above 50, although HSBC's data has now come in below this threshold for eight consecutive months. Unsurprisingly, the euro zone as a whole remains mired in contraction territory. But perhaps most shocking were the manufacturing numbers from the US which plunged month-on-month and registered the first contraction in nearly three years. What these numbers tell us is that the debt crisis in the euro zone is putting immense pressure on countries around the world, even as they struggle from the effects of the financial crisis of 2008/9.Some profit-taking could have been expected in equities given the extent of Friday's rally following positive news from the EU summit. After all, while the initial euphoria can be justified on the grounds that any form of agreement was unexpected, the devil is in the detail. In this case, we have an European Stability Mechanism which is being relied on to prop up Europe's troubled banks and also buy sovereign debt in the secondary market. This is expected to stabilize the situation in Spain and Italy - yet the pledges to the ESM still total 500 billion euros - a sum that is likely to be insufficient. Additionally, both the Finnish and Dutch (both triple-A rated within the euro zone) are unhappy with the decision to use the ESM to bail out banks directly and have said they will attempt to block the move. On top of this, the ESM as a whole is still in doubt as the highest German court has questioned whether it is constitutional or not. Yet investors' appetite for stocks continues to be strong. On Thursday, the ECB is expected to announce a rate cut and hopes are high that President Draghi may announce further stimulus measures. On the same day, the Bank of England's MPC is expected to boost its Asset Purchase Programme by at least £50 billion. But tomorrow US market participants will be away for Independence Day, and trading volumes are expected to be light ahead of the holiday. Today the focus will be on Total Vehicle Sales and Factory Orders. We are now getting back to the situation where bad economic data is good as anything that points to weakness strengthens the belief that the Federal Reserve will announce further intervention at its August meeting. For this reason, Friday's Non-Farm Payroll report will be the major event of the week.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.