Summary: Euro-zone composite sentiment index up in June; above expectations; readings from major euro-zone economies up except Spain; sovereign bond yields inch up on day; index implies near-5% GDP growth.
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 117.9 in June, above the market’s expected figure of 116.0 and well above May’s reading of 114.5. The average reading since 1985 has been just under 100.
Confidence improved across all five of the industry, retail trade, construction, services and consumer sub-indices. On a geographical basis, the ESI increased in Germany, France and Italy but declined in Spain.
German and French 10-year bond yields finished the day a touch higher. By the close of business, both yields had inched up 1bp to -0.18 and 0.17% respectively.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-June growth rate of 4.9%, up from May’s comparable figure of 4.2%.