BNP Paribas earlier today reported a loss of about 42% on their bottomline. CNBC Europe, News Editor, Martin Baccardax said tentative pessimism is drifting into the credit prices before the opening of the equity markets.

Credit market conditions are getting more and more difficult, even for the most power financial companies and if the implications are that if the powerful people are having difficulty borrowing then smaller and medium-sized corporations are going to be finding access to capital even more so, he said.

Excerpts from an interview with Martin Baccardax:

Q: How is the mood in the markets over there with crude hovering at highs? Is it looking tentative as well?

A: It is very pessimistic here at the start of the European equity markets trading. The FTSE 100 has opened about 82 points down, which is just shy of 1.4%, the Xetra DAX is off about 90 points or about 1.3% and the CAC in Paris is down just over 50 points, a little more than 1% to the downside.

I think of all of the things, commodity prices are soaring to record highs. That is drawing some money out of equities into that story. This is particularly driven by oil breaching USD 100/bbl yesterday, although it has retreated a little bit. I am looking at NYMEX prices, which are around USD 99.23 at the moment.

But I think particularly what is concerning investors is this story that seems to be emanating from the Financial Times suggesting that an affiliate of KKR, the giant private equity group, is having difficulty funding some of its obligations in the commercial paper market. Now that is a complicated market, which is not easy to understand. But what it does suggest is that credit market conditions are getting more and more difficult, even for the most power financial companies and if the implications are that if the powerful people are having difficulty borrowing then smaller and medium-sized corporations are going to be finding access to capital even more so.

Tentative pessimism is drifting into the credit prices before the opening of the equity markets and that has drifted again into the equity markets now. I think it has to be remembered that we have had a couple of good days of equity market trading and rallying both on Monday and Tuesday, the FTSE 100 in fact gaining about 3% in those two sessions.

So, may be we are seeing a bit of profit taking along with the pessimism because the topline numbers from the banks that you mentioned, BNP Paribas, ING out of the Netherlands, were actually not terribly bad, just smaller impairment charges on US subprime assets. The corporate numbers that we saw this morning from people such as Heineken, AngloAmerican and Giant Platinum Minor, and Rexim - one of the biggest tin-can makers in the world, were not great, but not spectacularly bad. I think we are just seeing pessimism and a bit of profit taking.

Q: What do you think the market is clutching out for in terms of a trigger or a turnaround? Would the expected Fed rate cut be the big thing that might turnaround sentiment or do you think even that 50 bps is largely factored-in?

A: I think it is largely factored-in. The big condition that the market is concerned about right now is the difference between growth and inflation in the major economies. We are seeing growth slow, while we are seeing inflation stubbornly high, particularly in the US and Europe. If that dynamic remains and the dynamic remains in the Chinese economy as well, that puts central banks in a very difficult position. It clouds the future picture of rate decisions at least in the next two quarters and makes investors extremely tentative. So, that growth-inflation dynamic is what people are going to be focussed on and what we have to pay particular attention to.