StateStreet comments on Investor confidence index in May
State Street Global Markets has commented that the lines -it was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness...- from Charles Dicken’s -A Tale of Two Cities- could be retold as -A Tale of Two Economies given the dramatic way in which the fortunes of the US and Europe continue to diverge. The Conference Board had announced that the US leading index is 0.7% below its April 2006 level. By contrast, the German ZEW Center announced its index of economic sentiment hit an 11-month high of 24, beating expectations.
This macro backdrop is reflected in May month’s State Street Investor Confidence Index. Investor confidence held steady falling by just 1.8 points to 91.2. However, it is the regional pattern of investor confidence that is more telling. As was the case May month, the confidence of North American investors fell, whereas the confidence of European investors moved higher.
With first quarter GDP growth in the US a sclerotic 1.3%, inflation above the Federal Reserve’s 2% target, the yield curve inverted and leading indicators headed south, it is perhaps not surprising that US investors are feeling a little downbeat. The Eurozone, meanwhile, is growing at its fast clip since 2000.
The relative economic performance of Europe and the US is mirrored by the fortunes of the two currencies, as the euro tests record highs against the dollar. It also finds an echo in cross-border equity flows. US flows are somewhat firmer in recent weeks having been lack-lustre. However, they still pale beside Eurozone flows, which hit a record in the past month.
Overall, the level of investor confidence remains robust despite US economic woes. Excluding March 2007, the ICI is at the high level since May 2004. This is consistent with both the cross-border equity flows recorded by State Street Associates, which dipped earlier in the May month but are now better, and with the other measures of risk appetite used by the strategists at State Street Global Markets.
Perhaps investors contemplating the US are mindful of another quote from Dickens, this time from -The Pickwick Papers which quotes as -There are dark shadows on the earth, but its lights are stronger in the contrast.
26-Jun-2007