Germany’s Zew survey of economic expectations surprised positively today, with the balance (dark blue line below) rising to 19.2 from 6.4 in May.
Only 6.5% of survey participants expected conditions to worsen, while 25.7% anticipated an improvement in the economy. The majority of respondents (67.8%) forsee ‘no change’ in economic conditions.
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While markets cheered this hopeful piece of news, it is interesting to note the large divergence in sectoral confidence. While groups such as the construction industry, retail and consumer goods, and information technology expressed near-record high expectations for profits, the outlook for banks, insurance companies, and utilities remains rather dismal.
More than 66% of banks surveyed expect profits to worsen (black line), while 28% expect no change (light blue line), and just over 5% expect an improvement (red line).
Insurance companies’ outlooks are nearly identical.
Meanwhile, almost 62% of construction companies expect an improvement in profits (red line), with less than 4% anticipating profits to worsen (black line).
Again, consumer-facing businesses are nearly identical to their construction company peers.
In developed markets, the financials sector is the worst performer on an absolute basis so far this year– thanks in large part to DM EMEA financials’ near 15% tumble.
GKCI DM All Region
Of course, with ECB’s continued monetary easing operations, we would not anticipate a rebound in these interest-rate sensitive groups (banks, insurance companies, utilities) anytime soon. The question, then, becomes how long other sectors can remain at historic highs.