Eurozone investor confidence fell to -19.5 in April 2025, compared to an expectation of -10.0. This represents the lowest level since October 2023.
The decline in sentiment is attributed to the uncertainty surrounding tariffs linked to Trump. This decline is the second steepest recorded since the survey began in 2002, with only the Russian invasion of Ukraine prompting a larger drop.
Euro Area Investor Morale
Investor morale in the Euro area has encountered its sharpest stumble in well over a year, as the index fell to minus 19.5 for April 2025—far below what markets had pencilled in. They had anticipated a weaker number, to be sure, but not one of this size. Since 2002, when this measure was introduced, such a steep decline has rarely been seen. Only the initial shock from the Ukraine conflict caused a more dramatic fall.
Looking at the underlying causes, there’s little ambiguity. The sharp swing lower stems from trade policy worries linked to the possible return of hardline tariffs under Trump’s influence. Markets don’t like uncertainty, and when it comes bundled with the sort of protectionism that interrupts supply chains and complicates cross-border cost structures, behaviour changes quickly.
From where we sit, this isn’t just a function of forward-looking sentiment taking a knock. It’s a reflection of near-term cash flow risk now creeping into pricing decisions, especially in sectors that lean hard on exports or rely on import flexibility. Clients with exposure to industrials, large caps in the auto space, or any firm tethered closely to raw material inputs should consider re-evaluating how hedges are structured. The volatility skew has shifted—plainly put, it’s now skewed more defensively across the curve.
Euler’s move in the survey reading is more about repricing future expectations than fear of immediate economic collapse. We’ve not yet seen this spill into funding conditions or liquidity gaps, but it bears watching. Quarterly earnings, particularly in Germany and the Netherlands, may offer some clarity on operational margins under pressure.
Derivatives Desk Activity
On the derivatives desk, we’ve begun to notice higher take-up in mid-dated put spreads and more demand for downside protection in correlated currency pairs. Notably, skew in euro-dollar options is reflecting this new hedging bias. It’s worth noting that VSTOXX remains relatively muted, so insurance is not yet priced prohibitively.
Traders considering follow-through momentum from here should be alert to secondary pricing effects. For example, sovereign spreads aren’t yet reacting strongly, but option-implied rates on short-term German bunds have become more jittery. We think that suggests positioning may be shifting faster than spot curves would imply.
In discussions internally, we’ve also flagged how this sentiment dip carries echoes of Q2 2018 when trade war rhetoric first shifted from talk to action. Then, as now, the chain reaction occurred across real yields, FX pairs with tight export dependencies, and long-end volatility. This sort of price memory can creep back into trader behaviour quite fast.
For those of us watching gamma exposure closely, this is shaping up to be a quarter where maintaining delta neutrality could become costlier. That has clear implications for intraday stability and possibly, if volatility firms up further, for margin calls on directional books.
Positioning into next week’s data on producer prices and the ECB’s recent commentary should be reviewed accordingly. There’s no need to panic, but ignoring this shift would be expensive.
