Next week is going to be busy, with potentially a lot of volatility in the markets. It’s going to start off with a bang, considering the release of a series of preliminary PMI figures for July. PMIs often move the market because they are the freshest data available to traders on the state of the economy.

This could be especially important in the current environment where markets are being driven by shaky risk appetite. There are general risk-on signals in the markets, such as the tech-heavy Nasdaq recently hitting an all-time high. The dollar has been underperforming and so has gold, the other traditional safe-haven asset. But the demand for risk is very narrow, concentrated in a couple of specific areas that are over weighted. This means that risk can suddenly switch the off button, and swing radically depending on smaller fluctuations in the data.

The lack of broad-based growth

Tech stocks are typically seen as the bellwethers of risk, since they have high valuations. Normally, tech stocks surging would be a sign that there is strong positivity among investors. The problem is that so far it’s pretty much only tech stocks that are moving higher. The majority of shocks are actually underperforming. The reason indices are moving up is because tech stocks constitute an unusually large amount of index valuations.

The Nasdaq is seeking to correct this problem, and starting Monday will “re weight” tech stocks to reduce the influence they have on the index. For forex traders, this isn’t directly relevant. But, it’s a sign of just how weak the risk on appetite is. That’s why forex traders need to be extra cautious in this environment about getting too optimistic and keep an eye out for potentials for when safe havens can make a resurgence.

The upcoming data

The main impact of PMIs on forex markets is shifting risk appetite. If they underperform expectations, generally this leads to a surge in safe-haven assets. If they outperform, then risk appetite can get a boost. With investors having their hands hovering over the sell button, the expectation is for PMIs to generally signal trouble for the economy. It might not take much to turn risk off.

First to report is Australia, where not only is Manufacturing PIM expected to fall further into contraction (47.6 compared to 48.2 prior), but services is expected to fall into contraction as well at 49.2 compared to 50.3 prior. Typically the main focus for the markets is Manufacturing PMI, but with inflation being key to monetary policy, consumer demand as measured by services is getting renewed attention.

Japan is expected to be an exception, with manufacturing PMI just creeping back into expansion at 50.0 from 49.8 prior. Services PMI is expected to go in the other direction, falling to 53.4 from 54.0, but staying in expansion.

German PMI is expected to slide further into contraction to 40.0 from 40.6 prior, which would contribute to dragging the EuroZones’ flash manufacturing PMI down to 42.8 from 43.4 prior. Both German and EuroZone Services PMIs are expected to remain healthily in expansion, but fall a modest amount.

The UK is also expected to see a slide in its Manufacturing PMI, but still be comparatively less in contraction at 46.0 compared to 46.5 prior. Services PMI is expected to drop 7 decimals to 53.0.

US manufacturing PMI is expected to also slip further into contraction at 46.0, but at a more modest rate of being just three decimals lower. Services PMI is expected to remain firmly in expansion at 54.0

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