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Eurozone Sentiment Falls

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The Whit holiday has rendered it quiet on the data front across Europe this morning, however Sentix GmbH have proceeded with the publication of their monthly Investor Confidence indicator for the month of June. This has come in markedly down at 8.5 for the month compared to a reading of 12.8 in May and has significantly missed the market consensus estimate for a rise to 13.2 on the month.

This Sentix Investor Confidence figure, which captures the views of 1,600 participants across the Eurozone, most likely contains some inputs obtained in advance of last Thursday’s European Central Bank (ECB) action, and these are negatively skewing the reading.

There is no doubt that last week’s monetary stimulus package by the ECB has contributed to a pick up in sentiment towards the Eurozone economy. It is not considered likely that the moderate 10bps cuts in either the Refinance Rate or the Overnight Deposit rate will in themselves contribute directly towards a significant increase in economic activity.

In the markets eyes last week’s action achieved two things. Firstly, that after months of prevarication the ECB finally got off the fence and took some action towards stimulating the flagging Eurozone economy.

Secondly, given that the ECB has demonstrated it’s willingness to take rates into negative territory, it is difficult to say that rates are now as low as they can go since zero appears now to be just another number as opposed to a natural stopping point. It is however at this juncture unlikely that the ECB is considering further rate cuts as the solution, it is more likely that last week’s action was a play for time. The next logical action by the Bank would be the introduction of quantitative easing, the ECB however has been reluctant to embark on this road. The recent cuts therefore are starting to look like an interim move by the ECB to appease markets while it returns to it’s more natural ‘wait and see’ stance.

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