Summary: Euro-zone composite sentiment index unchanged; above expectations; results from major euro-zone economies mixed; sovereign bond yields lower; index still implies GDP 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 90.9 in October, above the market’s expected figure of 89.6 but the same as September’s revised reading. The average reading since 1985 has been just under 100.
Confidence improved in industry, retail trade and construction while services and consumer confidence deteriorated. On a geographical basis, the ESI rose in Germany and Italy while it fell France and Spain.
German and French 10-year bond yields fell. By the end of the day, the German bund yield had slipped 1bp to -0.64% and the French OAT yield had shed 3bps to -0.36%.
End-of-quarter ESI and annual euro-zone GDP growth rates are strongly correlated. This latest reading corresponds to a year-to-October growth rate of -0.40%, unchanged from September’s revised rate.