MNI 5 THINGS: German Investor Sentiment Seen Stuck in the Muck

--German May ZEW Data Due for Release Tues

by Jamie Satchi

     LONDON (MNI) - The ZEW indicator of Economic Sentiment for Germany

moderated sharply in April, down 13.3 points to -8.2, the lowest outturn

November 2012, while the assessment of the current situation fell 2.8 points to

87.9. Data released Tuesday will see if investor sentiment managed to claw back

any of the marked fall or whether uncertainty stemming issues both on domestic

and foreign shores continued generate anxiety.

     Ahead of the release, we outline five themes we feel warrant particular

attention.

     - Significant analyst bias. Analysts have consistently overestimated the

May ZEW ESI outturn over the past fifteen years. Since 2002, a negative data

surprise (when the analysts' consensus has overshot the actual result) has been

delivered every May on all but three occasions, including the last eight May's.

The average downside surprise has been -4.7 points. This trend also extends to

recent months. Over the past year analysts overestimated the index result nine

times, including the past two months, with an average miss of -3.2 points. For

this May the market consensus is for a moderate improvement to -6.0.   

     - Recap of April collapse. The ESI lost a staggering 13.3 points in April,

falling to -8.2 -- a level last seen lower all the way back in late 2012. The

market had expected a fall to -1 so the result constituted a significant

downside surprise. The survey cited both domestic and external issues for the

slump in investor confidence. At home, there were concerns over the soft output

data over the first quarter of the year, down sharply from a stellar end of

2017, and whether this signalled a downturn in the growth cycle. Elsewhere,

uncertainties over the global trade landscape, a stronger currency and

airstrikes in Syria all also spooked market watchers.     

     - Continuation into May. Many of the factors at play in April remain in

play in May and thus support the consensus view for only a marginal improvement.

Though the decision by the US to delay the imposition of tariffs on imports of

steel (25%) and aluminium (10%) on the EU until June 1 would have provided some

relief, the longer-term picture remains unclear. Staying with the US, President

Trump's decision to pull out of the Iran nuclear deal, in place since 2015,

helped assist a rise in oil prices and would have also weighed on sentiment.

Offsetting this, the stronger domestic industrial production data will have

boosted hopes that the soft Q1 data was just a momentary. 

     - Incumbent surveys point to stabilisation. The timelier Eurozone Sentix

investor confidence index nudged down a slight 0.4 points to 19.2 in May.

Although this was the lowest level since last February and index started the

year sitting above the 30-mark, the rate of decline did ease. The European

Commission measure of German economic sentiment, meanwhile, held firm at 112.2

in April. Despite losing momentum this year, at 112.2 this is still above the

2017 average of 110.9.   

     - As did the DAX. Signalling a sense of optimism, the DAX headed back

towards healthier levels in April and May. The index, elevated for much of the

back end of 2017, fell at the start of the year following a number of one-off

factors and ongoing uncertainties but has trended upwards since April, breaking

past the 13000-mark at the end of last week. 

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

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