Watch Out For Industrial Sentiment In Europe? by Jennifer Thomson, Gavekal Capital
Today’s release of business and consumer surveys conducted by the European Commission (EC) portrayed a generally positive picture in the Eurozone as well as the European Union, with rises in both the Business Climate Indicator (BCI) and Economic Sentiment Indicator (ESI):
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Consumer confidence, on the other hand, fell for the fourth consecutive month in the Euro Area:
For a complete look at each industry, broken down into Euro Area and European Union, please see here. A closer look at the details (monthly going back ten years, as well as the one-month difference over the last three years) in each country can be found here.
In addition, we have created simple diffusion indexes for the headlines as well as the component series (industrial confidence, services confidence, etc). For each country included in the respective index– 19 in the Eurozone and 28 in the European Union– a +1 is registered for a gain relative to the same period a year ago, while a -1 is registered for a lower reading than that registered a year ago. The highest possible score for the Eurozone diffusion indexes would be a +19, meaning that the indicator improved in every country versus the prior year. Conversely, the lowest score of -19 would indicate that every country posted a lower reading for that variable than it did last year. Currently, the headline ESI is right around zero– about half of the countries saw an improved reading in July 2015 versus July 2014.
As we saw a few weeks back, European Industrials have had a particularly tough time (here and here). It is interesting, then, to see the relationship between industrial production and the industrial confidence diffusion index (the headline number recorded a +0.5 gain versus June 2015). A further decline in industrial sentiment would seem to suggest some further ugliness ahead for the Industrials sector in Europe.