Germany ZEW Sentiment Improves as Risk Assets Rebound

That macro backdrop is showing up in markets. The S&P 500, tracked by SPY, has rebounded to 776.34, well above its 50-day moving average of 748.54 and 200-day average of 702.75, while RSI readings around 75 indicate the move is extended. Europe has joined the recovery trade too: EFA sits at 108.64, above both its 50-day and 200-day averages, with RSI near 78. EEM has also recovered from a sharp July selloff and is back above its 50-day average, suggesting investors are rotating into global risk assets rather than hiding in defensives.

The ZEW improvement is especially relevant for Europe because it comes against a backdrop of steady growth rather than recession. U.S. recession tracking, as reflected by the USRECM series, remains at zero, while U.S. 10-year Treasury yields are holding around 4.64%-4.68%, a level that keeps financial conditions tighter than many would like but still compatible with continued expansion. For European investors, that combination reduces the odds of a global downturn and supports exporters, banks and industrials that depend on external demand.

The bull case is that lower inflation and easier policy eventually feed through to credit demand and capital spending, allowing Europe’s cyclical names to catch up with U.S. equities. The bear case is that sentiment may be getting ahead of fundamentals: export demand is still vulnerable to trade shocks, rate cuts have a lag, and any renewed rise in long-dated yields could undercut valuation support. With SPY’s Adalytica trade-signal sentiment at Neutral and recent 1-week changes still negative, the market is not yet in a euphoric phase, but it is clearly willing to reward improving macro data.

For investors, the key question is whether better ZEW sentiment is the start of a broader earnings upgrade cycle or just another short-lived bounce in expectations. If incoming activity data confirms the improvement, European equities — especially cyclicals and exporters — could continue to outperform. If not, the market may quickly refocus on weak growth, sticky funding costs and the limits of policy support.