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Eurozone investor morale stable, but expectations dropping

[BERLIN] Investor sentiment in the eurozone remained stable in August, buoyed by strong current conditions, but future expectations slumped amid growing concerns about the US economy and the potential impact of a widening car emissions scandal.

The Frankfurt-based Sentix research group's eurozone index edged lower to 27.7 points from 28.3 points in July, in line with the mid-range forecast of 27.8 in Reuters poll of analysts.

But expectations fell to 16.0 points from 19.8 points in July in what the group called a worrying sign.

"It is become increasingly clear that the economic momentum has passed its high point," Sentix said, noting that its survey often acted as a bellwether for future economic developments.

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"Expectations are falling around the globe, led by the United States where they dropped for a fifth straight time ... and the German 'model student' has also dropped sharply, with the scandal surrounding the automotive industry killing the economic mood," it added.

Sentix said the investor sentiment index for the United States dropped to 14.1 in August from 14.8 in July, with investors growing increasingly cautious despite US President Donald Trump's boast about "his successes".

The index for Germany fell for a third consecutive month, to 33.2 from 37.5 a month earlier, with expectations collapsing to 5.75 points from 12.5 in July amid growing concern about the emissions scandal affecting some big German carmakers.

The Munich-based Ifo institute's business climate index last week hit a record high, but Sentix said its survey showed "a noticeable decline in momentum".

"Given the crisis in the important automotive industry, that is a signal to investors," it said.

The group said the current conditions sub-index for the eurozone rose to 40.0, its eighth consecutive increase and the highest level seen since November 2007.

But Sentix dampened expectations for a rapid shift in the European Central Bank's monetary policy, citing a drop in inflationary pressures this year and potential concerns about declining expectations for the US and German economies.

"The reasons in both cases are homemade problems, but in the end it doesn't matter why the economic cycle shifts," the group said.

"Both tendencies are likely to cause Mario Draghi (president of European Central Bank) to remain cautious."

Sentix polled 1,037 investors from August 3 to 5.