German Business Confidence, Italian Consumer Confidence Fall

Friday, the IFO survey of German business confidence plunged to 27-month lows. The survey revealed that business leader sentiment fell to 105.3 in June, the lowest level since March 2010. The IFO institute attributed this plunge to declines in manufacturing and wholesaling and a deterioration in expectations for future business conditions.

The index barely missed economist expectations of 105.4. However, the continued fall in business confidence in Germany might still worry investors. In April, the index read 109.9. In addition, the index was above 108 for the first four months of 2012. Because commentators have widely considered Germany's economy to be the strongest of the European Monetary Union (EMU), the June deterioration of German business confidence was likely considered a strongly negative data point for investors. Without German growth, the EMU might be more likely to slip into recession.

“The recent surge in uncertainty in the Eurozone is impacting the German economy,” IFO President Hans-Werner Sinn said in a statement. Sinn also noted that "companies expressed greater pessimism about their business outlook."

On a sector basis, the manufacturing index dropped to 5.0 from 10.5 in May and wholesaling fell to 5.0 from 7.9. The services index meanwhile fell in June to 21.3, the lowest level since December and lower than the previous month's 24.8 reading.

June Italian consumer confidence also slipped, falling to its lowest level since 1996. This slip implied that Italian consumers' fears over the sovereign debt crisis, tax increases, and other austerity measures might have increased.

Friday, Istat, the Italian statistical institute, said Italy's consumer confidence index fell to 85.3 in June from 86.5 in May. This June figure was the lowest since the series started in January 1996. Earlier in June, Istat said Italy's unemployment rate rose to 10.2% in April, the highest ever level. Italy's economy has contracted since summer 2011 as domestic consumption has sunk, credit conditions have tightened, and select growth sectors have not propped up the economy.

This data suggests that the European economic situation might be deteriorating further. Additional growth would likely be needed to help ease European nations' debt-to-GDP ratios.

The EUR/USD traded lower on the news but then rebounded to around 1.2562. Italian 10-year bond yields rose Friday to approximately 5.8%. German 10-year yields were higher at close to 1.58%.

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