Sentiment

Sentiment is the general feeling surrounding a given financial instrument, market or economy. In many ways it is the aggregated attitude of all the investors taking part in that specific market. The terms ‘bullish’ and ‘bearish’ refer to the sentiment surrounding a market as much as they describe its price action. Investors also talk of ‘hawkish’ or ‘dovish’ sentiment to refer to the central banker’s attitudes to interest rates and growth; a hawkish sentiment supports and encourages the maintenance of high interest rates while a dovish sentiment promotes economic growth through low interest rates with little or no concern for inflationary pressures. Sentiment alone can dramatically change the fortunes of a market, albeit temporarily. A perfect example of this occurred in 2012 when in the midst of Europe’s sovereign debt crisis and much speculation regarding the future of the single currency, ECB president Mario Draghi, speaking at a conference in London, pledged to do ‘whatever it takes’ to save the Euro. The words alone were enough to cause the Euro to rally and for borrowing costs in Spain and Italy to drop.