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DAX Down 2% As Europe's Outlook Goes From Bad to Worse

No matter which direction European traders looked on Thursday they couldn’t escape mounting evidence of an economic slowdown in Europe. The European Commission slashing economic forecasts across the eurozone region sent the euro and European bourses sharply lower. Whilst the BoE’s trimmed growth forecasts initially hit the pound, sterling recovered on Mark Carney’s optimism.

The DAX led the charge southwards tumbling over 2% after the European Commission cut economic growth forecasts for all the major European economies. The commission also warned that Brexit and the slowdown in China threaten to make the dismal picture even worse, as risks mount to the downside. The downbeat report confirmed what the markets have been alluding towards for the past few weeks. A whole percentage point was knocked off growth for Italy, the eurozone’s fourth largest economy, whilst growth for the region was slashed to 1.3% from 1.9% for 2019.

The gloomy report has confirmed investor fears of a slowing outlook. There is a feeling in the market that not all the bad news surrounding Europe is out yet. There is likely to be more weakness in data before we eventually start to see a turnaround. The mood in Europe was strongly risk off, with investors moving out of riskier assets such as equities, particularly the banks. Safer havens such as bods and the Japanese yen benefited from the risk averse sentient, as did gold which rallied over $10 from earlier lows, into positive territory.

Pound pares losses on Carney optimism
The pound pared earlier losses following the BoE trimming its growth forecasts, rallying over 1% on Mark Carney’s optimism. Despite growth forecasts being downwardly revised to the weakest level since 2009, Mark Carney’s upbeat tone regarding the UK economy in the case of an orderly Brexit, helped boost the pound to just shy of $1.30.
Whilst the central bank governor offered some pound pleasing views, until Brexit “fog” clears we are not going to have a clear idea on the future path of interest rates. May’s quarterly inflation report should give more clarity over the expected path for policy. Not only should we know the type of Brexit the UK is going through, but we should also have a better understanding of the gravity of the global economic slowdown.

Global growth concerns spilled across the Atlantic sending Wall Street lower for a second straight session. The Dow Jones dumped 174 on the open with Apple and Caterpillar lagging. 
Whilst 2019 was already earmarked to be a challenging year, slashed outlooks for both UK and the eurozone doesn’t bode well.  


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