German financial sentiment surprises itself

November 18, 2014

Financial analysts, usually pretty good at forecasting what financial analysts think, all of a sudden are looking in a cracked mirror, at least in Germany.

After a year of steady declines that were more or less slightly underestimated by said financial analysts, the German ZEW index of investor expectations blew out even the most optimistic prediction in the latest Reuters Poll by bolting skyward.

ZEW

 

It’s tough to put much weight on such a shift, given that many investors view the ZEW, which is one of the earliest releases in any given month, as a bit of an echo chamber of what has just gone on.

But plenty of analysts were puzzled on how their predictions of their own sentiment, at least in Germany, could have been so wrong.

Jennifer McKeown at Capital Economics said:

The fact that the index is back in positive territory means that the majority of investors now see economic conditions improving in the next six months. After the disappointing weakness of the Germany economy in Q2 and Q3, this is an early encouraging indication that the recovery will resume.

Fair enough: the latest long term outlook for Germany, taken last month, pointed to 0.3 percent growth this quarter, followed by 0.4, 0.4, 0.5 and 0.5 percent growth through next year.

But there hasn’t exactly been a wave of new optimism about prospects for the euro zone’s largest economy, which is steadfastly resisting pressure from all sides to loosen fiscal policy and instead focus on delivering its first balanced budget since the year NASA first put men on the moon.¬†German economists appear to be in full support.

While there has been plenty of talk in markets about the possibility of the European Central Bank buying government bonds, Mario Draghi, ever masterful at moving markets with his words, really has given no clear indication at all that he is any closer to doing so. And it is still far from clear that would do any good for Germany, given that 10-year Bund yields are already trading below 80 basis points.

And there was the Halloween surprise from the Bank of Japan that it was going to ramp up its securities purchase programme, ahead of shocking news the world’s third largest economy is back in recession.

One analyst summed up the surprise this way:  

Fred-ZEW

 

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