Euro zone sentiment hits record high in July, peak may be near

Euro zone sentiment hits record high in July, peak may be near

Euro zone economic sentiment hit a record high in July, estimates from the European Commission showed on Thursday, but a drop in optimism among consumers and the slower rate of increase may signal the peak is fast approaching.

The EU executive said its monthly survey that sentiment in the 19-country single-currency bloc rose to 119.0 points in July, a record since data began to be collected in 1985, from 117.9 in June, which was already a 21-year high.

However, as the positive impact of the reopening of economic activities begins to wane and fears grow around the Delta coronavirus variant, sentiment grew at a slower pace.

“Compared to the last months, the latest improvement was much weaker, suggesting that the indicator is approaching its peak,” the European Commission said in a statement.

The rise in sentiment in July was supported by a new surge of optimism in the manufacturing sector which reached another all-time-high after repeated increase this year as factory managers remain largely upbeat.

Confidence also rose to its highest level since August 2007 in the services sector, which has been hit hardest during the pandemic and is the chief beneficiary of the current reopenings.

But the rise in the overall sentiment was checked by a decline in consumers’ confidence, after a five month rally, partly caused by households’ worse assessment of the future economic situation and plans to make major purchases.

That contributed to a slight fall of optimism in the retail sector.

Selling prices expectations continued to increase across the board in line with forecasts of higher inflation towards the end of the year in the euro zone.

Low interest rates are bolstering money managers like Schroders (SDR.L), its chief executive said on Thursday as the British firm posted a jump in first-half profits and record high assets under management of 700.4 billion pounds ($977.7 billion).

The low rate environment has been a major driver of flows into equities while competing assets of cash or fixed income were “very unattractive”, CEO Peter Harrison said.

Robust investor sentiment amid trillions of dollars in government stimulus has also helped, with Schroders saying demand for its mutual funds and higher margin equity products increased.

“Savings rates are higher but many of the flows have also come from institutions, so I think the key driver will be interest rates remaining low and markets remaining stable,” Harrison said.

Schroders, which lifted its interim dividend by 6% to 37 pence a share, said pretax profit rose 33% to 373.9 million pounds ($521.03 million) for the six months ended June 30. It booked in net new business of 17.9 billion pounds.

The company said total assets under management climbed 6%, with strong demand for its higher margin equity-focused mutual funds, especially from clients in the United States and continental Europe, helped by rising markets.

Financial updates from three other asset managers this week also showed inflows running at billions of pounds.

However Harrison said he was mindful of the fact that markets had “travelled up a long way”.

“There is clearly lots of evidence, particularly in private markets of a bit of trough. It is not something that is keeping me awake a lot at night at the moment,” he added.

Schroders also cautioned that if inflationary pressures persisted, or the recovery in economic growth disappointed, there could be increased market volatility which would impact its business.

“There is a tug of war going on. On the one hand we have fears of inflation and on the other hand we have fears of growth slowing. Three weeks ago the world was talking about more inflation and now the world is more worried about too little growth,” Harrison said.

“Somebody used the phrase goldilocks … arguably we are in that place where it is neither one nor the other, and that is not too bad for financial markets.”

Separately, Schroders announced that Elizabeth Corley would be joining as a non-executive director, and that she would succeed Michael Dobson as its chairperson at the end of the company’s shareholder meeting in April next year.

Corley, currently a director at Pearson (PSON.L), BAE Systems (BAES.L) and Morgan Stanley (MS.N), has previously headed Allianz Global Investors.

($1 = 0.7176 pounds)