German ZEW surprise lifts stocks after Moody’s ratings warning

<p>A surprisingly strong reading in German ZEW sentiment lifted European stocks from their lows on Tuesday after prices had started lower following a move by […]</p>

A surprisingly strong reading in German ZEW sentiment lifted European stocks from their lows on Tuesday after prices had started lower following a move by ratings agency Moody’s to warn Britain, France and Austria that they may all lose their top notch credit rating.

By noon, the FTSE 100 had recovered from losses of 0.5% to trade in mild positive territory, whilst the German DAX and French CAC Indices also traded higher by around 0.2%.

The Moody’s ratings warning certainly added a negative edge to trading at the start of the session. The ratings agency downgraded six European nations, including that of Italy, Spain and Portugal, whilst at the same time warned that the UK, France and Austria could all lose their Triple ‘A’ credit rating with new outlooks for all three of ‘negative’. The move was not too severe a surprise, given the fact that we have already seen France lose its top notch credit rating from Standard & Poors.

As a consequence of the Moody’s ratings moves, we saw early pressure on banking and mining stocks, which fell as investors, moved to offset risk in their portfolios.

However, better than expected data out of the UK and Germany helped to lift markets from their lows by mid morning. UK inflation fell to its lowest levels since November 2010, as the impact of an increase in VAT subsided.

UK Inflation fell to 3.6% in January from a previous measure of 4.2%, boosting expectations that inflation should significantly subside throughout the year, helping to give more power to consumers but also boosting expectations that there is further room for more QE from the Bank of England.

The German ZEW sentiment index surprising rose much more strongly than expected to 5.4 from a predicted -12 reading. The current conditions part of the reading also rose much higher than expected, rising to 40.3 from expectations of 30.0, boosting the somewhat sour mood to trading in Europe.

Top stock rise on the day in London large cap shares was packaging firm Bunzl, whose shares were lifted by an upgrade in view on the stock from JP Morgan. The US bank increased their view to ‘overweight’ from ‘neutral’ citing valuation grounds. Shares rose over 3% on the back of the upgrade.

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