Inflationary Signals Abound;Gold& Oil Prices Strengthen While Dollar Weakens

The ZEW measure of confidence among German institutional investors and analysts in the macroeconomic outlook six months ahead declined in November to 51.1 from 56.0 in October.  While the extent of the decline was greater than expected, the optimists on the outlook still outweigh the pessimists by 51.1%.  A year ago the pessimists outweighed the optimists by 53.5%.  Moreover, the current reading is well above the long term average of 26.9%.

Although there has been some improvement in the appraisal of current conditions, the majority of investors and analysts still view current conditions negatively.  The excess of pessimists over optimists among the respondents declined to 65.6% in November from 72.2% in October.  The first chart shows the two indicators:  the macroeconomic outlook and current conditions.

Some of the reasons why the respondents have become more cautious about the outlook  may be found in their appraisal of the profit prospects in the thirteen industries regularly canvassed.  In November, the respondents expected declines in profits in seven of the industries and increases in six.  Declines in profits are expected in Banking, Insurance, Steel and Metal, Consumption/Trade, Utilities, Telecommunication and Information Technology.  Increases in profits are expected in Vehicles/Automotive, Chemicals/Pharmaceuticals, Electronics, Machinery, Construction and Services.  Selected industries where profits are expected to decline are shown in the second chart and selected industries where profits are expected to increase are shown in the third chart.  Profit expectations in the Banking and Insurance industries have been declining since August and appear to have had the biggest negative reappraisal.