Euro zone investor morale falls on Italy, car industry worries

Investor morale in the euro zone fell more than expected in October, a survey showed on Monday, as concerns about Italy’s fiscal policies and tighter scrutiny of the car industry’s compliance with emissions rules weighed on sentiment.

Sentix’s index for the euro zone fell to 11.4 from 12 points in September. The Reuters consensus forecast was for a dip to 11.7. 

A sub-index measuring expectations rose slightly to -8.3 from -8.8. A sub-index on current conditions fell to 33 from 35, hitting its lowest level since April 2017.

“The cause of the slight fall in the index probably lies in the discussion about the auto sector in Germany and uncertainties over the future fiscal policy of the Italian government,” Manfred Huebner, managing director of Sentix, said. 

German carmakers and the government hashed out a compromise deal to cut pollution from diesel vehicles last week after environmental groups won a victory in February which allowed cities to ban older diesel cars.

The government has asked carmakers to offer owners trade-in incentives and hardware fixes. Not all carmakers committed to the retrofits, as the hardware fixes are known, which would cost billions of euros and eat into profit margins. 

Investors also worry about Italy, where the government is so far defying the European Commisison’s calls to bring the planned budget deficits down, in line with EU rules.

A separate index gauging investor morale in Germany rose in October despite rising pressure on its large automotive sector to cough up cash for expensive retrofits for older diesel models and concerns about the stability of Chancellor Angela Merkel’s government.

Merkel’s coalition, which includes her Christian Democrats, their Bavarian allies and the center-left Social Democrats, has been shaken by disputes over immigration and the scandal-hit chief of the domestic spy agency.

“Despite the negative discussions about the car industry and the question mark hanging over the survival of the governing coalition, German economic data remains stable,” Huebner said.

“The economy is cooling down but a recession is still not in sight,” he said.

Sentix surveyed 925 investors from October 4-6.

[Reuters]