– Eurozone weakness provides backdrop of the day

– Confidence surveys expected to bring further downside

– Inflation readings arrive ahead of tomorrow’s big release

A somewhat hesitant start to the day expected, following what was a largely flat US session. European markets have been looking towards today as the major driver of market direction, with a whole raft of economic indicators set to bring the Eurozone back into focus once again. With the S&P500 having reached the key 2000 milestone, it is somewhat of a reality check for many and the potential overextended nature of equity markets is cause for a degree of hesitancy if only for the short term. That being said, with a whole raft of economic indicators out of the Eurozone and US today, we could yet see the next leg higher in today’s session. European markets are expected to open marginally lower, with the FTSE100 -2, CAC -5 and DAX -11 points.

The story for the Eurozone is becoming particularly worrying, where almost every indicator coming out of the region painting a picture of yet more weakness. The most important figure for Mario Draghi is the CPI measure of inflation, which whilst languishing at 0.4%, provides significant room for further action from the ECB. However, unlike the monetary measures undertaken by the likes of the US, UK and Japan, the outcomes of ECB action so far has been somewhat muted. Thus there is a feeling that whilst we have seen substantial measures in place from Draghi as a means to bring growth and inflation higher, this could not yet be enough given the size of the problem at hand. One such problem comes in the form of Russian sanctions, some imposed out of choice and others in the form of retaliation. Whatever the validity of such measures, the decision to go ahead with those steps was either very brave or very misguided. Given the downturn we are currently seeing in Eurozone figures, it is clearly going to be a tough year, with many of those sanctions yet to hit the GDP figures which are already seeing flat lining or negative growth.

It is due to this worrying backdrop that many of this morning’s economic releases out of the Eurozone are likely to move in one direction, and that is down. The sentiment within the single currency is certainly not one of it’s strongest points and thus when we see the consumer, business and services confidence figures, I fully expect to see significant falls in all three. However, the most important release out of Europe is likely to come in the form of the German jobs report which provides us with yet another look at how the biggest economy in Europe is faring. In recent months the deterioration in Germany has been fairly shocking, with many expecting to always see this as the shining light leading the way out of any crisis. On this occasion, it is Germany which is suffering more than most, as personified perfectly by the recent fall in GDP to -0.2% at a time when the Eurozone and French figures both posted a flat figure of 0%. However, this needs to be rectified and quickly, with the weaker peripheral countries looking to Germany for leadership at such a time. Ultimately, the jobs market is possibly the most important barometer of whether action needs to be taken or not as the impact upon the electorate will always be priority to ensure any party stays in power. Thus any uptick in unemployment is likely to bring about increased pressure from the Bundesbank for further steps to be taken at the ECB.

The final figures coming out of the Eurozone are Spanish and German CPI readings, which precede tomorrows headline Eurozone figure. Inflation is no doubt one of the most important figures to be watching at the moment, yet with the introduction of a whole raft of measures at the ECB back in June, it has taken some of the pressure off for the time being. However, with no uptick seen as a result, the pressure is beginning to build once more to prove that the ECB is taking the right steps to raise inflation. The forecast for tomorrows Eurozone inflation figure is a potential fall to 0.1% from and already measly 0.4%. This would put major pressure upon Draghi and thus today’s inflation readings are absolutely key in laying the groundwork for tomorrows number. With German CPI expected to fall to 0% and the Spanish figure expected at -0.2%, it is clear that time is running out for Draghi’s measures to take effect.