Sentix gauge drops in October as euro zone recovery optimism cools

• The euro zone's Sentix investor confidence reading for October came in at 2.7, against an expected 5.0.
• The September reading had been 5.1.

October brought a pullback in sentiment among euro zone investors, and the underlying components say more than the headline decline does.

The gauge slipped to 2.7 in October from 5.1 a month earlier, missing forecasts and stepping back from September's reading, which was the highest in more than four years.

Still, investors are not necessarily claiming conditions have suddenly worsened. The current situation index was steady at -3.3. Expectations, by contrast, lost 5 points, dropping to 8.8.

Alongside the firmer euro zone PMI data published earlier in the day, these numbers give markets a more intriguing combination. They hint that a disconnect may be beginning to show.

The tougher stretch of the recovery is improving, but investors are growing less confident about the path ahead.

The inflation outlook is one of the more obvious headwinds, with euro area inflation climbing back to 3.8% in September. In addition, borrowing costs remain elevated and fiscal worries in France heap more uncertainty on the outlook.

For the time being, the Sentix survey's weakening is not a sign that the recovery is falling apart. Rather, after several months of improving sentiment, it points to investors starting to doubt how smooth the recovery will turn out to be.