Equity markets took heart from a decent earnings season this week, but macroeconomic concerns crept closer to the eurozone core, according to Stefan Angele (pictured), head of investment management at Swiss & Global. 

German sentiment continued to deteriorate in July, according to the ZEW indicator of future expectations, which recorded a third straight month of decline, dropping by another 2.7 points to a six-month low of -19.6. 

This number compares with a historical average of 24 points, and backs up the pessimism recorded by ZEW’s measure of assessments of the current economic situation, which dropped by 12.1 points in July to 21.1. 

Angele said: "Business conditions and economic sentiment in Germany have recently not only suffered amid the eurozone crisis but also from weakening growth dynamics in other regions important to German exports." 

"Further weakness in Europe’s strongest economy could indicate that the region is heading towards another recession." 

Unsurprisingly, given the importance of Germany to the currency union, economic sentiment for the eurozone also declined, with the score for expectations falling 2.2 points to -22.3 points, and the indicator for the current situation almost unchanged at -72.9 points.

Angele points out that the flight to safety has continued, with Finland the latest country able to issue bonds at real negative rates, meaning investors are effectively paying to hold the country’s debt. 

"While some countries – the PIIGS – are facing a sovereign debt crisis with soaring yields for government paper, a handful of eurozone countries are experiencing exactly the opposite," he said.

"They are seeing yields drop to or below zero, meaning they even make money from increasing or refinancing their debt."

The downgrade of Italian banks by Moody’s was expected, given the country’s ratings cut in mid-May, Angele explains. 

"Ratings agencies rarely rate banks higher than the country in which they are headquartered, as they assume that if the sovereign gets into trouble, so will the banks." 

"Therefore, the downgrades were not really surprising. Nevertheless, they could put additional pressure on the already troubled lenders." 

In China, Angele says that small upticks in property prices in Shanghai and Beijing along with flat prices for the country as a whole are possible signs the market is starting to respond to government policy and recover.

"When the Chinese government put strict curbs on the property market to avoid a speculative bubble more than two years ago, it was not obvious that these efforts would coincide with a global economic downturn, heavily impacting world trade and the Chinese factory sector." 

"Yet several signs now indicate that the slowdown in the Chinese economy appears to be letting up and that pro-growth policy easing is gaining traction." 

The news at home was less positive, with Angele raising doubts about the UK’s apparently positive employment figures. 

The Office for National Statistics reported a nine-month low of 8.1 per cent unemployed in the three months to May, compared with recently recorded rates of 8.2 per cent in the US and 11.1 per cent in the eurozone. 

However, Angele says that youth unemployment is much higher, at 21.9 per cent, and the economy’s continuing weakness, along with the planned cuts to the state payroll, mean that the outlook is still negative. 

In the US, consumer prices were flat in June and the annual rate of both consumer and core inflation came in below the Fed’s targets, but Angele warned this was unlikely to last. 

"The recently modest US consumer price inflation could suggest that the Fed can afford to focus its monetary policy on the lacklustre recovery in the real economy."

"But with Brent crude oil now back above $105 per barrel, a renewed uptick in US consumer prices seems unavoidable," he finished.