Germany’s financial sentiment surged in February, with the ZEW Indicator rising 15.7 factors to 26.0, the best since July 2024. Optimism was fuelled by ECB charge cuts, hopes for fiscal stimulus, and a brighter outlook for development. Traders turned bullish on European shares.
Germany’s financial sentiment surged sharply in February, with rising optimism amongst monetary specialists fuelling hopes of a restoration for Europe’s largest financial system simply days forward of the federal elections.
The ZEW Indicator of Financial Sentiment rose by 15.7 factors to 26.0, surpassing market expectations of 20. This marks the strongest month-to-month enhance in two years and the best studying since July 2024.
The advance in sentiment was pushed by rising confidence within the development sector, buoyed by the European Central Financial institution’s (ECB) current rate of interest reduce and indicators of additional financial easing. Hopes for a extra proactive fiscal stance from the following German authorities additionally performed a task in lifting expectations.
In February, the ECB lowered rates of interest by 25 foundation factors to 2.75%, reiterating that the progress to return to the two% inflation goal stays nicely on observe.
“Shortly earlier than the day of the federal election, financial expectations have clearly improved in February. This rising optimism might be on account of hopes for a brand new German authorities able to motion,” stated ZEW President Achim Wambach, PhD.
“Additionally, after a interval of absent demand, personal consumption may be anticipated to achieve momentum within the subsequent six months. And the current transfer by the ECB to chop rates of interest in response to sluggish financial exercise within the Financial Union is more likely to have contributed to the higher outlook for the development business,” he added.
Whereas forward-looking sentiment improved, the evaluation of the present financial state of affairs remained deeply damaging, although barely higher than in January. The corresponding indicator edged up by 1.9 factors to -88.5.
The optimism prolonged past Germany, as monetary market specialists’ sentiment concerning the eurozone financial system additionally strengthened. The ZEW indicator for the bloc climbed by 6.2 factors to 24.2, whereas the gauge of the present financial state of affairs improved by 8.5 factors to -45.3.
Traders develop extra bullish on European equities
The improved outlook for Germany coincides with a wave of investor optimism in the direction of European markets. In line with Financial institution of America’s newest fund supervisor survey for February, investor confidence within the European financial system has risen considerably, with a internet 45% of respondents anticipating stronger development over the following 12 months – up from simply 9% final month and the best degree since Could 2024.
Traders view German fiscal stimulus because the probably catalyst for development, adopted by additional ECB easing. Inflation expectations are additionally shifting: a internet 59% of fund managers anticipate decrease inflation in Europe, in contrast with solely 4% who anticipate a decline in world inflation – the weakest studying in two years.
Bullishness on European equities can be rising. A internet 66% of fund managers anticipate near-term beneficial properties from their present all-time highs, up from 44% in January, whereas 76% foresee additional upside over the following 12 months.
Respondents anticipate European shares to be the best-performing fairness market globally in 2025, with a internet 12% now obese on European equities – in comparison with December, when a internet 25% had been underweight.
Market response muted as geopolitics take centre stage
Regardless of the upbeat ZEW survey, market actions had been largely dictated by geopolitical developments. The DAX index reached a contemporary file excessive on the open, touching 22,851 factors earlier than easing barely to 22,750 factors.
On Monday, European leaders met in Paris on the invitation of French President Emmanuel Macron to debate the attainable deployment of European troops to Ukraine and elevated defence spending. Nonetheless, the assembly concluded with out concrete selections.
In the meantime, US and Russian officers had been set to fulfill in Saudi Arabia on Tuesday to discover potential battle resolutions, with Ukraine and European nations excluded from the talks.
The euro was down 0.2% to 1.0460 in opposition to the US greenback by 11:30 CET, whereas the Euro STOXX 50 edged decrease by 0.1%. Amongst prime gainers had been ING and Société Générale, up 1.4% and 1.3%, respectively. On the dropping aspect, Kering and Carrefour dropped 1.8% and 1.5%, respectively.