Investor Sentiment Goes to Heck After Draghi’s Easing Promise

Bitter irony: As Draghi’s term is about to end, investor expectations plunge to where they’d been when he made his “whatever it takes” speech in 2012.

The Sentix economic index, a gauge of investor sentiment in the Euro Area, fell 7.9 points in August 2019 to minus 13.7, its lowest level since October 2014. The index has been on a downward spiral since January 2018 but in recent months the trend line has sharply steepened.

The index of investor confidence is meant to serve as a barometer of the general mood of people and institutions who are invested in bonds, shares, options and other financial instruments. It is run by the Frankfurt-based boutique investment firm Sentix and is based on a regular survey of investors from over 20 countries. It is less about the real economy than it is about the so-called “animal spirits” — the greed and euphoria, gloom and despondence, and fear and outright panic — of the investment community at any given moment.

And right now, those animal spirits, judging by the latest performance of the index, are subdued and dejected. The two basic measures of the index — investors’ opinion about the current state of the economy and how they expect things to be in six months’ time — both plunged to multiyear lows in August.

On the current state of the Euro Area economy, investor sentiment sank 9.2 points, to its lowest level since January 2015. The pace of deterioration “is increasing rapidly”, said Patrick Hussy, managing director at Sentix, adding that there’s no sign, as yet, of “the central banks being able to slow the trend”.

This is despite the fact that the ECB recently revamped its interest rate guidance and said it was preparing for yet more policy easing, including opening the door to a further rate cut and more bond purchases. It was the biggest gift Draghi has offered the markets since formally putting an end to the ECB’s quantitative easing program in December 2018. But since making the offer, on July 25, stock markets across Europe, rather than celebrating the news, have fallen sharply.

Continue reading the article on Wolf Street

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