Summary: Euro-zone composite sentiment index declines from 118.6 to 117.5 in November, slightly below expectations; readings down in retail sector, other sectors stable or up; up in France, Italy, down in Germany, Spain; sovereign bond yields modestly higher on day; index implies still 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 117.5 in November, slightly below the market’s expected figure of 117.8 and October’s reading of 118.6. The average reading since 1985 has been a touch over 100 and the latest reading is still not far from its series high of 119.
Confidence deteriorated in only the retail sector while it remained stable or slightly improved in the other four sectors. On a geographical basis, the ESI increased in France and Italy but declined in Germany and Spain.
German and French 10-year bond yields finished the day modestly higher. By the close of business, they had both added 2bps to -0.32% and 0.05% respectively.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-November GDP growth rate of 5.3%, down from October’s 5.6%.