A key measure of investor sentiment in Germany surged this
month to the highest level since May 2010 on improved economic
conditions and a better outlook for the economy over the next six
months. The ZEW Survey of investors confidence surged to 31.5 in
January, much better than the reading of 6.9 seen in December and
beating economist expectations of a reading of a reading of
"The renewed rise in economic expectations shows that
financial market experts believe the economic outlook for Germany
to have improved for the next six months," ZEW President Wolfgang
Franz said. Franz also highlighted reduced uncertainty as to the
future of the eurozone, with Greek, Spanish and Italian finances
seeming healthier over the last few months, as key reasons why
the outlook for Germany's economy has improved.
A key sub-index of the survey which is much more reliable is
the financial market players' index, a survey of key market
participants rather than the pool of analysts and investors who
are surveyed for the broad index. The sub-index inched higher by
1.4 points to 7.1 in January, still an improvement but not the
monstrous strength seen in the headline index.
Franz believes that improving sentiment is a key factor in
creating a sustainable recovery in Europe. In his opinion,
improving sentiment conditions build confidence in companies to
invest in hard assets and infrastructure, investment projects
that may have long been on hold and that could help to spur
growth in the long-run. Also, he noted that many of Germany's key
trading partners, such as other eurozone countries as well as the
U.K. and Poland, still remain weak and the outlook for these
economies is not expected to improve much. Thus, he sees limited
upside to growth in 2013 despite strong domestic tailwinds.
The positive ZEW survey came on the back of other positive
European data earlier Tuesday. Spain reported that house prices
fell less than expected in December, with prices falling at an
annualized rate of 9.8 percent in December, worse than the
previous reading of a 9.3 percent rate of contraction but better
than forecasts of a 10.0 percent rate of contraction. Improvement
in home prices in Spain will help to bolster the Spanish banks,
as many have been crippled by falling housing prices hurting real
estate assets. An improvement in the housing sector would be one
step on the road to recovery for Spain.
In addition, Spain successfully auctioned short term bills of
maturities of 3- and 6-months. Spain auctioned $1.61 billion of
3-month bills to yield 0.441 percent, well below the previous
auction's 1.195 percent. Spain also auctioned $2.1 billion of
6-month bills to yield 0.888 percent, nearly half of the 1.609
percent paid at the previous auction. Overall, the improvement in
Spanish yields and the strong ZEW survey painted a slightly
better picture of the European economy.
Despite positive data, European shares declined in midday
trade as weakness from Asia spilled over to weigh on stocks
following slight disappointment from the Bank of Japan. The
German DAX declined 0.73 percent on fears that the German banking
regulator BAFIN may order some large banks to be broken up after
the regulator ordered Deutsche Bank (NYSE:
) to explore break up options. Also, the Spanish Ibex 35 Index
declined 0.35 percent despite the positive bond auction and the
Italian FTSE MIB Index gained 0.42 percent as bond yields
The euro initially rose on the positive news but has since
retraced most of its gains as markets traded in a clear risk-off
mode. The EUR/USD rose 0.04 percent to 1.3318 after trading as
high as 1.3357 earlier in the session and the EUR/JPY declined
0.83 percent to 118.31 as yen strength was seen in multiple
crosses. Also, the EUR/CHF cross, which has been manipulated by
the Swiss National Bank since September 2010 with a floor at
1.20, declined to 1.2387 following two weeks of consistent gains
which saw the pair reach its highest level in nearly two
European markets will be watching ECB President Mario Draghi
at 1 pm eastern standard time Tuesday, as he is set to speak in
Frankfurt on the state of the European economy.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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