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Consumer Confidence Falls Further In Europe

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The European Commission has just announced the preliminary Consumer Confidence figures for June for the zone. This headline reading is once again negative and at –7.4 it does not appear to be trending in the right direction particularly when compared to May’s final number of -7.1, the expectation was for a reading of -6.5 today.

Improving confidence in the Eurozone is being taken by some as a reflection of the lowering of financial risks across the bloc. Cheap funds and upwardly trending equities are providing opportunities, this is particularly contributing to the feel good factor in markets because it is accompanied by subdued volatility. The European Central Bank (ECB) is receiving much of the acclaim for this due to the fact that it is backstopping much of the down side with rhetoric. This does however put the Eurozone economy in a precarious position as the ECB walks a tight line between providing support for weaker economies in the bloc while trying to maintain a dampening approach to the stronger ones. In fact a recent study by Bloomberg suggested that a more appropriate interest rate for Germany would be closer to 5% while Spain should have a negative rate of nearer to -10% and Greece should be looking at closer to -20%.

In this light the ECBs default position of postponing any definitive actions starts to make some sense. This however has not stopped the pressure mounting on the Bank for a more action oriented policy. Yesterday the International Monetary Fund (IMF) chief, Christine Lagarde, called for the ECB to move forward it’s proposed quantitative easing program. An undertaking such as this would obviously prove expansionary for the Eurozone as a whole due to creation of Euro denominated liquidity. It would also however offer the ECB the option of weighting it’s sovereign bond purchases more heavily towards those underperforming Eurozone member economies.

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