Stocks Droop as Eurozone Policy Hopes Sour

NEW YORK (BBH FX Strategy) -- Market sentiment continues to deteriorate in part from the combination of soft equity earnings and comments from a German official suggesting that the Oct. 23 Economic and Financial Affairs summit will not provide a quick solution to the eurozone crisis.

The negative tone carried into the Asia session, weighing on Asian stocks and currencies, with the MSCI's Asian benchmark dropping more than 2.5%, while Japan's Nikkei lost 1.5%. Elsewhere in Asia, China's monthly data releases show domestic demand remains strong despite growth coming in at its slowest pace since 2009. Industrial production, urban fixed-asset investment and nominal retail sales are all slightly better than expected.

Overnight, Moody's said it may downgrade the outlook on France's Aaa rating to negative in the next three months depending on the extent to which its finances are stretched by the costs of bailing out eurozone members and banks.

Against this backdrop, European stocks are under pressure for the second day in a row with banks shares leading losses in the EuroStoxx 600, down over 1.6%.

Today markets are likely to focus on the dwindling optimism surrounding the potential European plan and in turn a potential shift back to risk off, or at the very least profit-taking, ahead of this week's all-important Greek austerity vote and ECOFIN summit on Sunday.

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It is likely that the EUR-USD remains under pressure with the 20-day moving average (1.355) the next important level to be tested. October's decline in the German ZEW adds further support that Germany is being hit hard by slowing global growth and indeed the eurozone debt crisis. October's reading was in fact the lowest reading since April last year.

Elsewhere, UK Sept. inflation surged to 5.2% year-over year from 4.5% in August, matching the post-1991 high that was seen in September 2008.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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