Growth, Politics and Shareholder Activism: European Equities in Focus
At a Glance
The desk is cautiously optimistic about European equities, as they appear to be better positioned than emerging market stocks while still lagging behind U.S. counterparts. Per the full note from Goldman Sachs, European companies may deliver earnings growth around 10% for 2018, a figure that could improve if political uncertainties ease. This suggests potential for upward price adjustments in equities. Additionally, with no significant events on the calendar in the near term, the market may remain receptive to shifts in sentiment, making it critical to monitor political developments, particularly in the U.K., Germany, and France.
Key Takeaways
- 01European equities are trailing behind U.S. equities but outperforming emerging markets, suggesting a selective market preference.
- 02Earnings growth for 2018 in Europe is projected at around 10%, contingent on the resolution of political uncertainty.
- 03No major calendar events are set to impact European markets imminently, allowing for continuous monitoring of political developments.
- 04A bullish sentiment is reflected in our higher consensus target, suggesting optimism about European growth going forward.
Full Analysis
What the desk is arguing
The desk frames this as a pivotal moment for European equities as they grapple with growth versus value dynamics amidst political uncertainty in the region. Per the full note from Goldman Sachs, the performance gap between U.S. and European equities indicates a preference for growth that will need to be underpinned by concrete policy and economic improvements.
Sharon Bell’s commentary highlights that despite trailing U.S. equities, European firms are anticipated to achieve earnings growth of around 10% this year, potentially setting the stage for better equity performance should political concerns abate. This resilience offers a compelling narrative for investors looking for regions with untapped growth potential in 2018.
Where it sits in our coverage
Our consensus target for the EUR/USD is 1.075, with a range between 1.04 and 1.12. Firms contributing to this consensus include: - jpmorgan: targeting 1.10 by Mar26 - bofa: targeting 1.04 by Mar26
This outlook aligns with the general consensus yet sits closer to the upper range, indicating a bullish stance on European equities as earnings growth seems poised to outpace broader market expectations.
How other firms see it
Several firms, including jpmorgan, are aligned with this optimistic growth outlook for European equities. In contrast, firms like bofa are taking a more cautious stance, reflecting concerns over political instability.
Watch for movements in the EUR/USD as they reflect underlying market sentiments regarding economic health in Europe, especially in light of geopolitical tensions, monetary policy outlook, and upcoming earnings releases.
What the calendar says
With no major economic events on the calendar in the next 30 days, the trading environment will likely remain influenced by ongoing political scenarios rather than sudden economic shifts, allowing traders to focus on the potential for earnings revisions in European stocks.
Market Implications
Investors should watch the EUR/USD for potential volatility hinged on earnings reports and political news, particularly any developments concerning Brexit and eurozone stability, as forecasts suggest that political stability could trigger upward movements.
From the original
Looking at investor returns, European equities are trailing U.S. peers while beating emerging-market stocks in 2018. As part of our closer look at emerging economic and market themes in Europe, Sharon Bell of Goldman Sachs Research discusses the factors that explain this performa
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