Macro
German investor sentiment falls for the first time in five months as energy costs bite
The ZEW expectations index dropped to 28.1 in October, below forecasts, even as its gauge of current conditions improved.
HedgeWeekly News Desk ·
The ZEW index of economic expectations for Germany fell 6.6 points to 28.1 in October, ending a run of five consecutive monthly gains and coming in below the roughly 30 economists had forecast. The equivalent reading for the eurozone dropped 7.3 points to 18.5.
The survey's assessment of current conditions in Germany moved the other way, rising 11.2 points to -35.9, well above the -44.5 that had been expected, though still firmly negative. ZEW President Achim Wambach said the economy is slowly climbing out of stagnation but the recovery cannot yet sustain itself, pointing to weak consumer spending and private investment and to high energy prices that erode real incomes, lift production costs and keep inflation higher for longer.
By sector, expectations for German banks fell 18.4 points to 34.5 and for insurers by 9.0 points to 37.4, though both remain clearly positive; steel and metals and the electrical industry improved. Separate data on Tuesday showed German producer prices rose 1.9% from the previous month, above the 1.5% estimate and up from 1.1% previously.
For investors in European assets, the survey points to a recovery that energy costs are capping: the expectations index now stands at less than half its pre-Iran-war level of 58.3, while factory-gate prices are accelerating. Markets looked past the data on the day, with Germany's 10-year yield down 6.6 basis points at 3.397% and the DAX closing 0.05% lower at 25,306.76 as headlines on US-Iran talks swung oil and bond prices. The sharp drop in bank expectations is one to watch for European financials, which have been sensitive to the rate outlook.