Eurozone Sentix Confidence Higher in October

A growth was seen in the Eurozone Sentix investor confidence today as the index grew to 8.5 for the month of October from the previous month reading of 5.6. This is the third consecutive gain in the index, the reading was also higher than the consensus forecasts, despite it being below the value recorded for the month of May. The near term bond market support will most likely be dampened by the more optimistic tone of the index. The current expectations index also strengthened from 4.5 to 6.3, as the expectations index grew to 10.8, this was the strongest reading since December 2015.

"The euro zone's economy has according to investors now overcome the 'Brexit' induced shock," Sentix said in a statement. "However, the economy remains just on a moderate recovery path."

"In general, the moderate recovery path of the global economy continues," Sentix added.

The German index rose to 27.7 from 19.5 in September, hitting its highest level since May 2015 as the global outlook became significantly brighter with stronger monthly readings for Japan and the US. In the same context, the global aggregate index rallied to its highest level this year with large gains in both the current situation index and the current expectations index. There was a significant shift in institutional investors with the view on inflation expectations rising to the highest level since June 2015. Although primarily related to the gains in oil prices, there was an underlying gain in underlying expectations. The data will provide some relief to the ECB given their focus on inflation and inflation expectations and there was also a shift in sentiment surrounding the outlook for monetary policy with reduced expectations that policy will provide additional stimulus.

The currency-market impact was limited with EUR/USD holding just below the 1.1200 level, while bunds retreated further into negative territory and the DAX registered slight losses. The overall impact is liable to be larger on the fixed-income market with a further shift in expectations away from ultra-low interest rates.