Further to last week’s post, we have received some very mixed signals over the last seven days.  a) Stock markets in retreat as Spain’s banking system  takes the heat.  b) Some bad manufacturing PMI readings for May both in Euro-zone and the UK.  c) Some degree of bounce in business confidence despite consumer reticence.

For example, the latest ICAEW business survey for Q2 2012 revealed a remarkable turnaround in SW business confidence, swinging from a big negative to a sizeable positive despite Europe’s travails.  If sustained, this augurs well for the second half of 2012.  Business confidence reached its highest rating since Q3 2010 and could be interpreted as meaning the ‘double dip’ recession is already over.  Sales volumes grew faster than any time in the downturn so far.

The question is whether overseas risks provide further negative shocks and domestic consumers respond to business optimism and summer parties (Diamond Jubilee, soccer championship in Europe and London Olympics).  The ICAEW survey shows businesses still hesitant about final demand.  So, the great unknowns – will these summer events be positive and more than temporary and will the euro-zone re-construct without severe disruption?