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Chinese Credit Downgrade is Offset by Strong German Sentiment

By:
David Becker
Published: May 24, 2017, 11:31 UTC

European stocks mixed, with Eurozone markets slightly in the red while the FTSE 100, which underperformed yesterday, managed to bounce back as risk

Forex Trading Signals

European stocks mixed, with Eurozone markets slightly in the red while the FTSE 100, which underperformed yesterday, managed to bounce back as risk appetite stabilizes, after being hit by the terror attack Tuesday. The DAX is down in quiet trade ahead of a regional holiday tomorrow and relatively dovish comments from ECB heavy weights Constancio and Praet didn’t lift sentiment on stock markets, even if it underpinned Bund futures. The FTSE 100 is up after an Asian session that ended mostly higher, as indices clawed back losses seen in the wake of Moody’s ratings downgrade for China. Japanese markets outperformed and was up 0.66% at the close as the Nikkei dropped against the Dollar during Asian trading.

Moody’s Investors Service downgraded China’s credit ratings on Wednesday, to A1 from Aa3,  for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

ECB sees higher risk of re-emerging debt crisis. The central bank said in a statement on the publication of the new Financial Stability Report, that “the risk that debt-sustainability concerns may re-emerge has been revised upward since the last Financial Stability Review published in November”. It warned that “repricing risks in fixed income markets remain significant”, adding that “this could materialize via spillovers from higher yields in other advanced economy, in particular in the U.S.” At the same time “continued political uncertainty and potentially higher bond yields could trigger renewed debt-sustainability concerns”. At the same time “Market pressure on euro-area banks has receded amid persisting structural vulnerabilities”, although low interest rate remain a challenge. Brexit meanwhile is “not expected to pose significant financial stability risk to the euro area”.

German Ifo Service Was Steady in May

German Ifo services confidence steady at 108.0 in May. The current conditions indicator dropped back, but the expectations index jumped higher to 101.4 from 100.0 in the previous month. This is the first improvement in the expectations index since October last year, which adds to other confidence indicators suggesting the German recovery remains on track and growth is likely to stay robust in Q2.

German consumer confidence rises to 10.4, with the projected June reading from 10.2 in May. A slightly stronger than anticipated number, which suggests the French election outcome not only lifted business, but also consumer sentiment. The breakdown, which is only available until May, shows a marked rise in business cycle expectations. Income expectations also picked up and the willingness to save dipped further into negative territory.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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