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German Investor Confidence Slips as Greece Crisis Drags On

Posted by Joseph Trevisani on Apr 21, 2015 12:29:00 PM

German investor sentiment skidded unexpectedly in March weighed down by anxiety over the never-ending Greek drama and several weaker than expected economic statistics.

The index of investor and analyst expectations over the next six months from the ZEW Center for European Economic Research slipped to 53.3 in April from 54.8 in March.  It was the first fall in six months. This measure had seen dramatic gains in a short time from its 34 month low in October at -3.6. Economists in the Bloomberg sure very had predicted a score of 55.3. 

The ZEW measure of investors’ current situation rose to 70.2 in April from 55.1 the prior month. It was the best reading since July 2011 and far outstripped the 56.5 forecast.

German investor confidence can be forgiven its somewhat divided view of Europe’s largest economy.  Bonds and the Dax Index are at or close to record prices, but a solution to the Greek debt problem and its potential disruption to the heavily export dependent German economy from a Greek euro exit, looms over the economic future. 

The European Central Bank 1.1 trillion euro ($1.2 trillion) quantitative easing program has forced interest rates to record lows in Germany and across the continent.

Returns are negative on German bunds out to nine years and the 10 year yield traded down 0.066 percent today close to last Thursday’s record of 0.049, before recovering to above 0.10. 

The German economy expanded 0.7 percent in the final quarter of last year and is expected to have slowed slightly to 0.5 percent in the first three months of this year. The initial estimate for GDP will be released by the German Federal Statistical Office on the 13th of next month.  

Factory orders were much weaker in February than predicted, shrinking 0.9 percent on expectation for a 1.5 percent increase. It was the first decline in two years, though mitigated by January's upgrade to -2.6 percent from -3.9 percent. Workday adjusted factory orders fell 1.3 percent in February, almost three times as poor as the 0.5 percent forecast, and the previous month was revised down to 0.3 percent from -0.1 percent. 

Industrial production also faltered in February. The seasonally adjusted statistic rose 0.2 percent, just ahead of the 0.1 percent prediction, but revision turned January's 0.6 percent gain into a 0.4 percent loss and the work day adjusted number at -0.3 percent badly missed the 0.6 percent forecast. In addition the January performance was revised down to flat from 0.9 percent.  One factor that was not in play was the weather, the past European winter was much milder than normal with little snow. 

The Bundesbank said yesterday that recent data suggested growth momentum in Germany will probably be weaker than forecast though it still expects robust expansion for the year.  

Greek bonds declined and rates rose sharply after yesterday's order from Prime Minister Alexis Tsipras required local governments to move funds to the central bank.

The Greek 10-year bond yield rose 35 basis point today to 13.64 percent and the interest on debt due in 2017 briefly touched 29 percent the highest since it was issued.  The Athens General stock index fell 3.3 percent to its lowest since September 2012. 

The government order illustrates the severity of the country’s financial impasse as month-end salary and pension deadlines draw closer and a payment of 770 million euros to the International Monetary Fund on May 12th edges near.   The Athens government has said that if it has to choose between paying its creditors or its employees it will pay its workers first. 

Greek banks are subsisting on funding from the ECB under its emergency liquidity assistance program to replace funds withdrawn by account holders fearful of capital controls which could prohibit removing money from the country, as the Greek government financial crisis deepens.  Without the liquidity assistance of the ECB the Greek banking system would collapse.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

zew exp april 21

zew curr april 21

greek 10 april 21


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