German Investor Expectations Plummet From 20-year High

- Forward-looking indicator lowest since May

- Current situation reading improves

- “Great euphoria” in August and September disappears

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

13 October 2020 / 09.55 GMT

 

FRANKFURT – Investors and financial market analysts soured on Germany’s prospects for the near future but expressed less pessimism about the current environment in the country as officials in Berlin and many Eurozone member states grapple with the latest spikes in Covid-19 cases.

 

October’s forward-looking economic sentiment indicator from the ZEW thinktank plunged to 56.1, well short of the market estimate of 74.0 and September’s 77.4 reading, which was a 20-year high. The increase in the current situation indicator to -59.5 beat the forecast of -60.0 and last month’s -66.2 result.

 

Expectations for the Eurozone dropped sharply to 52.3 from 73.9 in September, according to the results of the ZEW’s monthly survey.

 

ZEW President Professor Achim Wambach said the forward-looking indicator is “still very clearly in positive territory”, but he noted that the “great euphoria witnessed in August and September seems to have evaporated.

 

“The recent sharp rise in the number of Covid-19 cases has increased uncertainty about future economic development, as has the prospect of the UK leaving the EU without a trade deal. The current situation in the run-up to the presidential election in the United States further fuels uncertainty.”

 

Analysts often warn about the volatility of the ZEW measures, but VP Bank Chief Economist Thomas Gitzel said the latest survey results suggest trouble ahead for the Eurozone’s largest economy. “We must not deceive ourselves: The rising number of new infections will have economic consequences. Restaurant visits will be avoided, retail shops will be frequented less, and weekend trips to museums will be postponed.

 

“It is becoming clearer that the autumn and winter months will be difficult for the German economy.”

 

The ZEW's forward-looking confidence measure for the Eurozone (blue) compared with the composite PMI for the single-currency area. (Source: Pantheon Macroeconomics)

Investor mood swings can presage economic data

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics said the rebound of ZEW expectations readings following their March crash “is now reversing, consistent with a sustained return of the virus. If history is any guide, expectations will fall further, a shift usually associated with weakness in risk assets and the headline economic surveys.

 

“More often than not, investor sentiment leads the economic surveys higher, but on this occasion it appears to be the other way around (see chart), and we fear further weakness in both, in the near term.”