Summary: Euro-zone composite sentiment index rises from 117.8 to 118.6 in October, above expectations; readings up in four of five economic sectors, up in France, Italy, Span, down in Germany; sovereign bond yields noticeably higher on day; index implies GDP growth in excess of 5%.
The European Commission’s Economic Sentiment Indicator (ESI) is a composite index comprising five differently-weighted sectoral confidence indicators. It is heavily weighted towards confidence surveys from the business sector, with the consumer confidence sub-index only accounting for 20% of the ESI. However, it has a good relationship with euro-zone GDP, although not as a leading indicator.
The ESI posted a reading of 118.6 in October, above the market’s expected figure of 116.7 and September’s reading of 117.6. The average reading since 1985 has been a touch over 100 and the latest reading is just short of its series high of 119.
Confidence improved in four of the five sectors and only the consumer sub-index deteriorated. On a geographical basis, the ESI increased in France, Italy and Spain but declined in Germany.
German and French 10-year bond yields finished the day noticeably higher. By the close of business, the German 10-year bond yield had gained 5bps to -0.14% while the French 10-year yield finished 6bps higher at 0.22%.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-October GDP growth rate of 5.6%, up from September’s figure of 5.4%.