State Street Index declines despite increase in optimism in North America
Global investor confidence fell in February as turmoil in Europe and doubts over the strength of economies in Asia more than offset increased optimism in North America, according to the State Street Investor Confidence Index (ICI).
The Global ICI dropped 1.4 points in February to 105.2 points from a revised reading of 106.6 points in January, State Street says in a press release. The ICI for Europe declined 8.2 points to 105.9 as European authorities sought to negotiate conditions for an ongoing bailout of Greece and many of the continent’s economies teetered on the brink of recession. The ICI in Asia fell 5.3 points to 93.8, placing the Asian outlook firmly in negative territory.
The ICI for the US and Canada rose 3.1 points to 104.3 due to an increase in confidence in the US economy as labor market indicators improved, consumption rose and lower fuel costs were expected to deliver a further boost to economic growth.
‘The confidence of European managers fell once again in February to its lowest level since last April,’ says Michael Metcalfe, senior vice president and head of global macro strategy at State Street Global Markets, in a press release. ‘This suggests either that investors are not as complacent about events in Greece as some bond spreads suggest or that the promise of quantitative easing in Europe has proved more alluring than its reality. Neither interpretation is particularly good news.’
Kenneth Froot, who helped design the State Street index, says the ICI for North America still depends largely on the outlook for interest rates. Federal Reserve chairman Janet Yellen on Tuesday refused to firm up expectations of an interest rate hike in coming months in a speech to the US Congress.
‘Improved labor market conditions in the US may have boosted North America investor sentiment,’ Froot says. ‘Given the lack of inflationary pressures in the US, however, markets may push out their expectation of the first interest rate hike to later than the previously anticipated June date, which could provide a lift to sentiment.’
The State Street ICI analyzes institutional investors’ level of confidence in the economy by analyzing their buying and selling patterns. An index level of 100 is considered neutral.
Despite the overall decline in sentiment, global equity markets continue to edge up with the FTSE 100 yesterday beating its previous highest point, set in 1999.
