Wednesday 13 December 2017

Fears grow over US protectionism and President's 'blunt' approach

Sean Duffy

INVESTOR sentiment in the eurozone eased back slightly in February as concerns about the unpredictability of the Trump administration's policies begin to have an effect.

The latest Sentix economic index showed overall investor sentiment in the euro area contracted by 0.8 points in February to 17.4, down from 18.2 in January.

The index measures the attitudes of approximately 1,100 institutional and retail investors from around the world. Expectations across the globe have moderated after the first few weeks of the Trump presidency precipitated increased caution on behalf of investors.

In Europe, the current economic picture remains bright compared to previous months.

Investors reported headwinds which began in early 2016 on the back of a recovery in emerging markets. However, eurozone expectations for the next six months slid back to 14.3, down 5.7 points from January's reading of 20.

Sentiment in Germany also contracted this month, with a drop of 4.3 points leading to an overall fall in the headline index of 1.8 points. However, investor assessment of the current situation rose by one point to 53.5.

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York
Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York

There was more uplifting news for the German economy yesterday, as figures for December showed that factory orders rose by 5.2pc having declined by 3.6pc in November. That represented the sharpest rise for the sector since July 2014.

Sentiment towards the US economy has diminished markedly over the past month.

While appraisals about the current state of the economy are strong - coming in at 45 - the outlook for the next six months had declined sharply, with February's reading of 17.8 coming in a full 8.7 points lower than January.

The report notes that President Trump's "America First" protectionist policy is diminishing optimism after the index hit a 14-year high in January. February's drop-off was the first time in over six months that sentiment has eased. The steepness of the fall in expectation from month-to-month suggests Trump's policies will be "counterproductive for growth," the index states.

The report notes that Trump's "blunt" style is likely to hurt US, as well as global growth prospects.

It adds that the drop in sentiment should serve as a warning to the US President about the adverse market reactions which can be triggered by his comments. The report goes on to express hope that the US judiciary's resistance to the president's policies offer "a glimmer of hope".

Expectations for Eastern Europe have also been tempered this month, with February's reading of 9.8 coming in a full 4.7 points below January's figure of 14.5. The view of the current situation remains flat, with February's assessment marginally higher at 0.5. The overall headline index for the region declined by 2 points to 5.1, however.

Investor sentiment towards Latin America remains in negative territory, albeit the current outlook for February has improved slightly compared to January, with this month's reading coming in at - 10.8 compared to - 16.5 a month previously.

However, expectations for the next six months eased back by 2.3 points to 10; perhaps unsurprisingly given the spat between Mr Trump and Mexican President Enrique Pena Nieto. Should Mr Trump's behaviour continue on its current trajectory, we can expect sentiment to diminish further.

Irish Independent

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