Outlook for Europe: Political, economic uncertainty

15.42 AEDT, Thursday 11 October 2012

Outlook for Europe: Political, economic uncertainty drives nervousness through Europe
By David Land (Head of Analysis, CMC Markets)

The nervousness throughout the European region continues to limit any upside. The uncertainty that is driven on both a political and economic level fails to provide confidence that there is a turning point for the region in the near future.

The analysis from the IMF has been important for the direction that the market has taken in recent days. I think it underlines just how many issues there are to be dealt with by policy makers. At the same time it's a reminder of how slow the committee thinking will be to deliver solutions. I believe that investors are greatly frustrated by the politicisation of critical decisions that would benefit from a degree of altruism on the part of the countries making them.

The Asian session has been doggedly positive again in many areas. Futures in the US have improved significantly off their lows which may provide some early cheer for the European markets. The combination of flow on from the IMF reporting and US earnings season hangs over global markets for the most part and has impacted outside of equities. The oil price was sent lower in overnight trade but has rallied back to short-term resistance levels during the Asian session.

I think there has been some paring back of negative expectations for the outlook in China. Whilst this isn't a switch back to sentiment of last year it's a big improvement and we see this reflected in some of the currency and commodity markets.

Keep in mind too that the market has been priming for a poor reporting season in the US so it won’t take too much in the way of outperformance to provide a boost for US equity and wider sentiment that it impacts upon.

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