Modest Improvement in the Sentix Investment Confidence Index
A monthly leading economic indicator for the Euro area, Sentix reflects investors’ confidence and is based on a survey of more than 2600 investors and analysts that rate the six-month economic outlook in the Eurozone. It improved moderately in July, to -18.2 from a previous release of -24.8.
To put things into perspective, the Sentix index is interpreted based on the zero level – above indicates optimism, below indicates pessimism.
Third Consecutive Increase in the Sentix Index
For the month of June, the poll involved over 250 institutional investors, among others, and the expectations were that the index bounces to -10. I am disappointed, albeit this is the third consecutive increase in the monthly index.
The overall index for the Euro area improved slightly, by 6.6 points, helped by a strong recovery in Switzerland and Austria. Germany also rose for three consecutive months in a row.
However, the index still lies well below the zero level. Its improvements are still modest, and the headline reflects the difficult economic time businesses in Europe are facing. The most important outcome of June’s data is that the long-term outlook did not change at all, with investors remaining skeptical about the pace of the economic recovery. The danger is that the upswing created by the gradual economic activity opening will run out of steam as soon as this summer. For instance, in Germany, investors believe that within a one-year timeframe, only 65% of the economic output can be made up.
It reflects the overall state of the economic activity – depressed, albeit businesses trying to make the best under the current conditions. In normal times, a report that improved by so many points would have clearly indicated a turning point, but this time is different. At best, we can say that moderate optimism dominates the Euro area economic activity, with investors afraid to make plans on a horizon bigger than six months.
The Sentix index is one of the many second-tier data out of the Euro area, designed to track investors’ confidence so as to better monitor economic progress. Investors’ optimism or pessimism offers a clue about what to expect moving forward and traders care because central banks are the first ones to react to extreme values in the data.
As the report indicates, there is a case of “restrained joy” in the Euro area. The zero level is still far away.