Choppy trading due to Strong Chinese data and Moody downgrade for German

European markets struggled to find a direction in early trading on Tuesday, as positive manufacturing data from China supported a very much risk on approach whilst on the other hand Moody’s lowered its outlook on powerhouse Germany to negative due to increasing uncertainties from the euro zone debt crisis.

Across Europe the CAC and the DAX by mid morning are trading 0.1% lower whilst Italy and Spain’s main Index have shed over 1.5%. The FTSE is currently trading flat at 5537, stabilising after shedding over 2% on Monday as it fell to its lowest level in three weeks.

For some time now, concerns for the Eurozone had been bubbling away in the background as earnings season and Chinese growth data took centre stage. However this week has seen a marked change in market sentiment resulting in the yield on the Spanish 10-year bond staying elevated above 7%, even hitting 7.55% yesterday. Market confidence is faltering and traders are acting accordingly by removing riskier assets from their portfolio.

Furthermore the fact that Moody’s Investor Service rating agency lowered the outlook for Germany shows that even they are not immune from the growing doubts surrounding Europe. With the possibility of the Greek exit from the Eurozone still a very real scenario and the concerns of the effect that this may have on Spain and Italy, or even if it doesn’t – the increased support that Spain and Italy will require will see the burden fall heavily on the stronger European countries.

UK stocks were mostly higher as miners were on the rise following news that China’s manufacturing activity in July is at the strongest level for five months. HSBC’s China Manufacturing PMI for July rose to 49.5 on a 100 point scale, however a reading below 50 still indicates a contraction implying that demand remains weak and employment under pressure. Regardless the market was pleased to see an improvement from Junes reading of 48.2 and as such miners dominated the top gainers in the FTSE.

Elsewhere on the FTSE Imperial Tobacco said its performance had been in line with expectations, with nine month tobacco net revenues rising 3%. Hedge Fund Man Group revealed another round of cost cuts and also weaker revenue from falling assets under management as nervous client withdrew their funds.

A lack of domestic economic data today indicates focus will be on the US House Price Index released this afternoon.