European markets are trading lower this morning as investors are spooked by the sell off in the market which is led by the German Index. The index has seen the lowest level for the quarter last week and the punishment is continuing this morning. The icing on the cake was done by the news which was released last week on Friday after the market close when the rating agency, Standard and Poor, cut the outlook on France from stable to negative and at the same time took the AAA rating from Finland.
The rating agency made their argument that slow growth and low inflation in France is going to be a challenge for the country in the coming days and given that there are no meaningful structural reforms in place, it is highly likely that the economic situation may remain unstable. This week’s economic data will further peel the skin of this argument when we will receive the number of economic readings which are not expected to be thrilling again. There is also a strong possibility of a slap by the European unions who could reject the budget reform which is submitted by France and the decision is due today or tomorrow. A rejection of this could further pressure on the finance minister to address the structural reform according the European Union’s demand.
The president of the European Central Bank, Mario Draghi has reminded the euro countries last week that a reform is needed urgently and the quantitative easing policies by the central bank are not only sufficient enough to kick start the growth in the region. However, France and Italy both are very reluctant to make the structural changes which have been demanded so far.
Back in the UK, the expectations are gathering further momentum that the Bank of England could raise their interest rate as soon as by the end of this year. However, the economic data has been slightly soft recently which could very easily be blamed due to the sluggish growth in Europe. As for the US, Fed members have already raised their concerns about the strength in the dollar and the economic stall in Europe and as long as these concerns are not addressed, the day of rising interest rate may not see the day light soon enough.
Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.