Eurozone investor sentiment hits three-year high - Sentix

Investor confidence in the Eurozone has surged to a three-year high, a closely-watched survey showed on Monday, as the economy continued to recover from the worst of the Covid-19 pandemic.

The Sentix Economic Index recorded its third consecutive increase in May, jumping to 21.0 from 13.1 in April. It was the highest reading since March 2018 and well above the consensus forecast of 15.0.

Within that, the current situation index surged to 6.3 from -6.5 in April - the highest since May 2019 - while expectations are now at an all-time high, at 36.8.

Manfred Hübner, managing director of Sentix, said the data showed the recession "caused by the coronavirus has been overcome".

"Despite the strong momentum, expectation scores remain at very high levels. This is very unusual, and underlines that the very expansive monetary and fiscal policy that has been in place for a year has not failed to have an effect on the real economy.

"But where there is light, there is also shadow. There are increasing signs that the economy is being overstimulated; this is evident in individual sectors that report shortages of materials. However, the strong global economy is having an even strong impact on commodity prices and thus on inflation."

Within in the Eurozone, Germany - its largest economy - recorded its highest reading since March 2018, with the index rising to 26.1 from 20.0 in April. "The German economy is proving to be extraordinarily robust despite the ongoing lockdown policy," Hübner noted.

Away from Europe, and the US index reached a record high of 40.1, up on April’s 38.6 and the 13th consecutive increase, while Japan eased slightly month-on-month, to 25.2 from 25.5.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: "Investor sentiment in the Eurozone is still motoring higher, consistent with the increasingly clear evidence that the continent will soon have beaten the virus, thanks to a strong vaccine push in the second quarter.

"This is all great, though we are a little bit concerned that these data, and stock prices, will weaken over the summer, as markets will have to contemplate if, when and how policymakers intend to dial back emergency policy stimulus. The mere talk of this could be a challenge for markets, at least at to begin with, even if the underlying policy environment remains accommodative."