UK data and EU flash PMIs in focus

Before new survey growth data is released on Friday, investors are expected to digest the European Central Bank's larger-than-expected interest rate increase, which may give a higher open to stocks.

As a result of soaring inflation, the European Central Bank increased interest rates by 50 basis points on Thursday. According to its recent policy announcements, it is widely expected that the Federal Reserve will raise interest rates by 75 basis points at its policy meeting on July 26-27.

In the wake of weak US economic data, some bets on how much the Federal Reserve will increase interest rates next week have been pared back after the dollar rebounded strongly on Friday, but is still on track for a 0.95% decline, its biggest weekly loss since late May. 

In the wake of weekly jobless claims rising over 250k in July and the Philadelphia Fed index falling to -12.3, US markets are outperforming on the theory that deteriorating economic data may temper rate hikes next year. 

Oil

Oil prices climbed on Friday, recovering from previous declines amid supply tightness and geopolitical tensions, even as weak demand in the United States has clouded the market.

A report from the US Energy Information Administration showed that US gasoline demand had declined nearly 8% since a year ago during the peak summer driving season due to record pump prices. Consequently, WTI has been hit hard over the past two sessions.

The Brent benchmark, on the other hand, is on track for its first weekly gain in six weeks after signs of strong demand in Asia supported it. Despite higher prices, India's demand for gasoline and distillate fuels reached record highs in June, with total refined product consumption up 18% over a year ago and refineries at near-peak levels.

Events of today

Retail sales and the UK economy data are today's highlights. In a month marked by a new record high CPI of 9.4%, there is the sobering possibility of even higher levels in the months ahead. Retail sales in the UK declined by 0.1% in June, slightly better than expected. Despite this, the figures still represent a drop of 5.8% annually, as consumers reined in their discretionary spending due to the rising cost of living. It could well be that another negative month for the economy is on its way, as grocery price inflation is running at 9.9%, according to Kantar. The market is expected to decline by -0.2%, but it could just as quickly go the other way. It is still likely that the UK economy will experience a weak Q2 GDP. 

Manufacturing and services flash PMIs for July are expected to slow from June.    

The Eurozone PMI survey will be released later in the session, providing insight into how the region's companies are dealing with current economic conditions. 

The German manufacturing PMI is expected to drop to 50.6 from 52.0 in July, remaining in barely expanding territory.