A decidedly weak set of domestic economic data and concerns about budgetary developments in Spain provide the backdrop for today’s trading action. While market sentiment ahead of the open was on the positive side, it may be hard to sustain the gains given this uncertain news flow.

The trading action of the last few days suggests that Investors are stepping back from these day-to-day developments to get a sense of the big picture. Next week’s economic releases promise to provide useful clues about that big picture, but it will most likely be the coming third quarter earnings season that will provide the definitive directional nudge to this market.

We will find later today how decisive and determined the Spanish authorities are in tackling the country’s fiscal situation in the face of widespread public protests. A credible budget plan coupled with decisive structural reforms will likely be reassuring enough for the Euro-zone authorities to back-stop the country’s finances. Watch for comments from the Euro-zone officials about the details that Spain announces today.

The overall tone of economic releases on the home front was decidedly weak this morning, with the final read on the second quarter GDP and monthly Durable Goods coming in weaker than expected, while the weekly initial Jobless Claims data coming in better than expected. The GDP revision may not carry that much punch as it was the third look on that reading, but the Durable Goods drop is definitely something to worry about as it raises doubts about the outlook for corporate capital spending.

Granted the headline drop pertained primarily to lower aircraft deliveries from Boeing ( BA - Analyst Report ) , but even the ‘core’ measure that strips out the transportation components fell for the third straight month.

What this tells us that even though consumer confidence may be improving lately as shown by the Conference Board and University of Michigan measures, business confidence seems to be waning. Hard to tell whether it reflects the advance effects of the looming ‘Fiscal Cliff’ or something else, but it’s definitely something to keep an eye on. We will get the first look at the third quarter GDP report in about a month, though next week’s data on jobs and the ISM indexes will set the tone for the broader economic discussion.

On the earnings front, we got a better-than-expected report from Discover Financial (DFS). Nike ( NKE - Analyst Report ) and Research In Motion (RIMM), the maker of the BlackBerry, will report after the close today.

Earnings Expectations: Too Low or Too High?

GDP, Durables, Claims All Dive

How to Find a Successful Investment Opportunity by Tracking an Industry Trend