Eurozone data paints a worrying picture…

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Overnight the credit ratings agency Moody's downgraded the Japanese's governments credit rating to AAA3 with a stable outlook, matching the rating given by the credit rating agency S&P. The Japanese finance minister stated that Japan was ready to "take bold actions if necessary".

Elsewhere, the debate over Eurozone bonds rumbles on with conflicting signals coming from northern European states. Yesterday the Finish Prime Minister demanded collateral from Greece if further funding is required and reiterated his opposition to shared bonds. This statement was a bit odd seeing as there was already an agreement for Greece to provide collateral in the conditions of the second bailout. 

The news didn't really affect the market however, if other nations start jumping on the collateral bandwagon the bailout package will start to look even more fragile. German Chancellor Merkel has already rebuked demands from within the German cabinet to ask Greece for collateral and also came under increased pressure from party lawmakers to reject the notion of shared debt yesterday. The political tug of war not just between states but within governing parties is a major worry for those hoping for a quick, coordinated solution to the crisis as there is still a long way to go before a plan is agreed on.

Yesterday's data calendar featured so encouraging news from the UK; the CBI Industrial Trends total orders balance rose to +1 in August from -10 in July, much better than the expected deterioration to -12. House purchase loans also rose in July to 33,400 from 32,100 in June which is the highest level since June 2010.

In the Eurozone, the manufacturing PMI's were rather disappointing. The French manufacturing PMI slumped while the German measure held steady while overall business output also declined in the Eurozone for the 3rd consecutive month. Further poor news came in the form of Eurozone preliminary consumer confidence which dropped in August by the most since September 2009, down 5.4pts to -16.6, which is the lowest level since June last year.

The German ZEW investor measure of economic sentiment plunged to -37.6 in August from -15.1 in July and came in below the consensus forecast of -26.0 at the lowest level since December 2008. The drop of 22.5 points just exceeded the post-Lehman Brothers decline of 21.9pts and was the largest since July 2006, as investor fear led the equity markets down sharply amid concern about the Eurozone and US debt problems.