The latest data from Sentix on 5 May 2025 shows Eurozone investor confidence at -8.1, compared to an expected -12.5. This represents a modest recovery following a previous sharp decline due to concerns about Trump’s tariffs.
Investor sentiment remains low, but fears have lessened, with the expectations index increasing to 19.6 from 3.8 in April. Sentix’s findings suggest that concerns regarding a recession have diminished, although the US, China, and Switzerland have been impacted by the tariffs policy.
Investor Confidence Recovery
We note from the most recent Sentix figures that investor confidence in the Eurozone has picked up slightly – still in negative territory, but less dire than anticipated. The expectations component rising quite sharply implies that market participants foresee better conditions over the medium term, perhaps adjusting to recent policy moves or successfully pricing in previous shocks. The headline figure of -8.1, versus a forecast of -12.5, isn’t cause for celebration, but it marks a shift in mood that we cannot ignore.
The prior slump, driven by tariff-related anxiety under Trump’s administration, appears to have left its mark. Yet, with the expectations index leaping to 19.6 from 3.8 in just a month, there’s a sense that the worst-case scenarios are fading into the background—for now. Investors clearly aren’t positioned for a deep contraction anymore, which matters when it comes to how risk premiums are being priced.
Given what’s been reported, it’s fair to say that the weight of fears has lessened but not vanished. Recession expectations may have relaxed, but not everyone is out of the woods. The hit to Chinese, Swiss, and American economies brought about by trade policy has been absorbed, but policy clarity remains elusive. That’s something we should remain alert to, especially if data starts to wobble.
Impact On Derivatives And Futures Markets
From a derivatives standpoint, the clear rise in forward-looking sentiment means we can expect some rebalancing. If option skew was heavily tilted toward puts over the past weeks, one might now expect some unwind of that hedging. Not a full reversal into outright bullishness, but definitely a breathing space – a reduction in extreme downside protection appetite, leading potentially to lower implied volatility across shorter-dated contracts.
We also must consider that if market consensus begins to fold in a softer downturn or even modest recovery, pricing models for interest rate futures will be impacted. That could ripple into rate vol instruments shortly. The spread trades we saw in rates and FX derivatives, driven by fear of divergence, may start losing momentum as these fears abate. Positioning will matter more than narrative in the next leg.
We should clock the behaviour of bond volatility and liquidity over the coming sessions. If there’s genuine belief in Sentix’s improving outlook, we might see pressure ease in high-duration assets. This would, in turn, feed into the options structure, particularly for euro-rate options. As ever, flows will tell us more than speeches. Watch the flows.