The German ZEW survey shows investors are becoming less negative on the economy… Since everything that matters in our macro models occurs on the margin, this is important.

The Centre for European Economic Research (ZEW) produces its benchmark sentiment indicator by surveying 300 analysts and institutional investors to capture the sentiment of Germany’s “smart money”. After declining sharply since Q1, the latest index ZEW data suggests that sentiment troughed in October and is turning less negative as the impact of government’s bailout programs start to be felt. The index level released today for November was -53 -up 10 points from last month.

While not a good indicator of the mood of the general population, the ZEW has demonstrated value as a leading indicator over the past decade. We are long German equities via the EWG (etf) and we continue to view Germany as the strongest of the major European economies on a relative basis. We expect that if domestic investor sentiment truly has found a bottom for the near term that many other investors will start to share our view.

Andrew Barber