Good value in markets, positive surprises in earnings or macro front could create a much better market tone
 
The sovereign debt crisis continues to dominate sentiment in Europe (not to mention the world), and investors have had plenty of news to digest over the past week. Indeed, staying on top of the press releases from credit rating agency Moody’s alone has been quite a task, with the company downgrading Italian government debt and a whole host of European banks during the week.

Subsequently, the ECB unveiled a new liquidity programme to support the European banking system in which it offered to buy covered bonds from the banks, in a re-run of the policy it put in place at the height of the credit crunch. To some, these moves show that we are in the depths of a new financial crisis that threatens to bring down the entire financial system; to others, they are a sign that the authorities are alive to the threats and determined to avoid full-blown catastrophe. 

Conclusions:
- Mario Draghi will reverse this year's two interest rates increases in short order
- Greece will default (restructure), significant haircut for holders of Greek bonds
- No significant downturn expected in aggregate earning this quarter
- Very good value in markets, positive surprises in earnings or macro front could create a much better market tone

This European Equity Viewpoint is written by  William Davies, Head of European Equities at Threadneedle.