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Jump In Eurozone Investor Confidence

James Boston
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Investor confidence in the Eurozone has jumped this month, that is according to the July Sentix Investor Confidence number which has just been published as 10.1, this read at 8.5 last month and a figure of 7.5 was expected today.

This investor confidence number is not proving to be representative of the general softness in the Eurozone recovery. Earlier this morning the blocs strongest economy, Germany, published some disappointing manufacturing figures. Data for May showed that Industrial Production fell 1.3% from 1.8% year on year when measured on a week day adjusted basis. Month on month this number was particularly surprising at -1.8% which represents a significant fall from the previous month’s -0.3%, markets had in fact been expecting this number to recover to 0.3% on the month.

The Investor Confidence number is suggesting that the market believes that the current Eurozone growth troubles represent more of a temporary pullback on the path to recovery rather than a longer-term setback.

The European Central Bank (ECB) is injecting up to €1 Trillion into the flagging banking system across the various economies through the Targeted Long Term Refinance Operation (TLTRO) and this is given investors reasons to be optimistic on the fortunes of the bloc. This however is proving to be a very guarded optimism, there are concerns that the rules governing the TLTRO are not tight enough to ensure that this additional liquidity will find its way into the general economy as planned.

The goal of the fund is to increase bank lending to companies and households for non-property based activity. Hence the targeted nature of this refinance operation. Whether this actually occurs as anticipated by the bank remains to be seen, and it will be next year before the fund ramps up to a sufficient level that would enable it’s success to be judged. Investors for now are giving the benefit of the doubt to the ECB, but sentiment can change quickly and is likely to do so in the absence of a pick up in the fundamental economic indicators.

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