Summary: Euro-zone composite sentiment index improves; above expectations; all major economies’ indices improve; sovereign bond yields modestly lower; index implies GDP smaller contraction.
The European Commission’s Economic Sentiment Indicator (ESI) is a composite index comprised of five differently-weighted sectoral confidence indicators. It is heavily weighted towards confidence surveys from the business sector; the consumer confidence sub-index only accounts for 20% of the ESI. However, it has a good relationship with euro-zone GDP, although not as a leading indicator.
The ESI produced a reading of 91.1 in September, above the market’s expected figure of 89.3 and higher than August’s revised reading of 87.5. The average reading since 1985 has been just under 100.
Overall sentiment in the euro-zone improved as all five confidence sub-indices increased. On a geographical basis, the ESI rose in most euro-zone economies, including the larger ones of Germany, France, Italy and Spain.
German and French bond yields lost ground. By the end of the day, German and French 10-year bond yields had each shed 2bps to -0.55% and -0.25% respectively.
End-of-quarter ESI and annual euro-zone GDP growth rates are strongly correlated. This latest reading corresponds to a year-to-September growth rate of -0.30%, up from August’s implied growth rate of -1.10%.