Euro-Zone Confidence Improves in June, Inflation Expectations Falter

Euro-Zone July economic sentiment improved to 76.0 from 73.2 in June. This was stronger than our forecast and median of 75.1 and the fourth consecutive improvement in the overall ESI reading, which confirms that confidence is bottoming out. The breakdown showed industrial confidence rising to -30 from -32 while consumer confidence improved to -23 from -25, despite rising unemployment. Services and retail confidence also improved, while construction confidence stabilized. All in all a solid number, that backs our view that Q1 GDP was as bad as it gets. However, at the same time consumer expectations for price trends over the next 12 months have dropped sharply in recent months and this is something the ECB will need to keep an eye on. The breakdown of the report showed the gauge for price trends slipped to -9 from -8 in May, and the weakening outlook for inflation could weigh on the exchange rate as the central bank maintains a dovish policy stance.