Europe - Issues must be resolved first to make progress

After a volatile start to the year, European equity markets have stabilised somewhat. However, sentiment is still fragile as the broader impact of the credit crisis has yet to be felt. Our view is that there are two key uncertainties that must be resolved before European equity markets can make sustained progress. Firstly, there is the extent of corporate earnings downgrades as economic growth slows. Secondly, unlike the Federal Reserve's actions to reassure financial markets, the ECB remains primarily concerned with combating inflation as unions negotiate pay rounds rather than cutting r...