• Mixed start in Europe amid Spanish and German inflation reports.

  • Eurozone continues to grow, while German GDP falls to -0.1%.

  • Microsoft earnings key as markets prepare for major volatility ahead.

A somewhat mixed start for European markets has seen the FTSE 100 lag behind its mainland counterparts, with traders weighing up a whole host of eurozone data points released over the course of the morning. This morning saw the Spanish kick off an inflation-heavy period that culminates in tomorrow’s eurozone CPI release. With Spanish inflation falling by -0.5% in July, we saw the country move one step closer to a return to target (annual CPI fell to 2.8%). However, the early signs from the German regional inflation data provided less grounds for optimism, with North Rhine, Westphalia, Saxony, Baden Wuerttemberg, Brandenburg, and Hesse all seeing inflation rise or remain flat.

The trajectory of the German economy remains a concern for Europe, with the manufacturing powerhouse seeing second quarter growth fall back into negative territory (-0.1%). Fortunately, things are more stable for the eurozone as a whole, with the latest GDP figure beating expectations to post a second consecutive 0.3% reading in Q2. Crucially, we also saw a sharp decline in eurozone consumer inflation expectations, with the fall into a seven-month low helping to build a narrative that should embolden the ECB to cut rates in September.

Today marks the beginning of a highly volatile and unpredictable period that could make or break market sentiment for the coming months. In a week that sees roughly a third of the S&P 500 report, markets will be crossing their fingers as we await earnings from four of the Mag7. Today will have a particular focus on Microsoft, with the world’s second-largest listed company reporting before the open. The story appears to be similar for many of these big tech names, with traders on the lookout for signs that the vast sums of money being invested in AI has started to pay dividends. However, once again it may be the now hum drum cloud services segment which comes to the rescue to drive earnings higher once more.

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