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Investor sentiment rises, ESM set to launch


Sentiment has improved for the second consecutive month with investors buoyed by the European Central Banks monetary easing policy and the approval of the new permanent bailout fund being approved by the German courts.

The Sentix compiled index shows that sentiment in the Eurozone has strengthened from -23.2 in September to -22.2 in October. The figure fell short of the expected rise to -20.8 but it is something of a miracle that it strengthened at all following last week’s run of bad news for the currency bloc.

“There were plenty of reasons for this: the constitutional court in Germany gave the ESM (European Stability Mechanism) the green light, the U.S. Federal Reserve began a third quantitative easing programme and the Bank of Japan also announced additional bond buying,” Sentix said.

An individual index compiled for Germany showed that sentiment had risen to 6.4 in October, up from 4.4 seen last month. The strong performance was down to last months increased optimism in response to the European Central Banks bond buying scheme.

As the markets change at such a pace this latest data should be taken with a pinch of salt. The data is based on last month when the Eurozone situation looked like it was close to being resolved and was carried out before the release of last week’s terrible jobs data and PMI reports. It’s a sure thing that unless the Eurozone can turn around the situation and swing momentum back to the belief that a solution is in sight next month’s investor sentiment will show a sign of weakening.

Today sees the Eurozone’s finance ministers meeting in Luxembourg for key talks on the situation. It is expected that the new permanent bailout fund will finally be launched. If the details of the plan meet economists and the market’s expectations then we can expect to see the Euro strengthen once again and reverse the declines of last week. The markets have been risk averse due to the lack of action from Spain and the ECB so such an announcement could bolster demand in riskier currencies.

The European Stability Mechanism (ESM) will have a full lending capacity of 500bn Euros (£400bn; $650bn) by 2014.It will initially run alongside, and then eventually replace; the European Financial Stability Facility (EFSF).Europe’s largest economy Germany will make the biggest contribution to the fund, about 27% of its total.

The Pound to Euro exchange rate is currently trading at 1.2396

The Pound to US Dollar exchange rate is currently trading at 1.6077

The Pound to Australian Dollar exchange rate is currently trading at 1.5789

The Euro to US Dollar exchange rate is currently trading at 1.2969

The Euro to Pound exchange rate is currently trading at 0.8066

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