Latest news with #Uleer
Qatar Tribune
7 days ago
- Business
- Qatar Tribune
Europe Q2 earnings: Strong euro, tariff worries weigh but banks shine
Agencies European companies are proving they can just about endure U.S. import tariffs, eking out earnings growth for a fifth straight quarter, but at a slower pace than in the United States. According to LSEG I/B/E/S, second-quarter earnings are expected to have increased 3.1% from the same period a year ago. Just over half of the companies to have reported have exceeded analyst estimates, broadly in line with a typical quarter. Earnings from financials (up 11.4%) and healthcare (up 15.4%) are among the strongest growth rates but while the former is loved by investors, the latter is currently out of favour. Here are five lessons from Q2 earnings: European companies remain optimistic even though their Q2 earnings growth is substantially weaker than the big tech-powered 12% expected in the United States. 'Roughly 30% of companies have increased their guidance and very few companies downgraded guidance, which is surprisingly positive,' Maximilian Uleer, Deutsche Bank's head of European equity and cross asset strategy research, said.'We think this guidance observation is pretty important and the theme will continue as companies have better visibility on the downside risk,' Uleer added, citing the recent trade deal between the U.S. and European strategists bet that the dollar would strengthen, particularly against the euro, when the higher U.S. import tariffs kicked in. But the single currency has risen over 12% against the greenback this year and Europe's export-heavy companies have felt the pain. 'Larger companies are typically more globally diversified, they generate more revenues from outside of Europe and obviously with the euro strength, that's been a relative headwind for earnings for them,' said Rory Dowie, portfolio manager at Marlborough. Barclays and Citi estimate that, typically, a 10% appreciation in the euro results in around a 2% earnings headwind, with Citi pointing to sectors like materials and energy as the most sensitive to FX seven lenders in the STOXX 50 blue-chip index (.STOXX50), opens new tab beat expectations, and two improved their guidance. The sector index (.SX7P), opens new tab surged to its highest since 2008, as investors bet on the industry's resilience. Financials delivered the biggest positive second-quarter earnings surprise among European sectors, coming in 12% above analyst forecasts, more than twice the 5.5% rate for the broader STOXX 600 (.STOXX), opens new tab, according to LSEG I/B/E/S data. 'In Europe, banks have been the main driver of this season, whereas in other areas like autos and discretionary goods we're seeing sharp downward revisions,' said Alberto Tocchio, Head of Global Equity and Thematics at Kairos Partners. Still, after a 37% rally this year and the best three-year run since the euro's launch in 1999, some caution is creeping in. BofA has advised long-term investors to hedge exposure, warning that banks could be vulnerable if the economy slows. The European healthcare sector (.SXDP), opens new tab has posted Q2 earnings growth of 15%, second only to the technology sector, but investors are keeping their powder dry given U.S. President Donald Trump has mooted a 250% levy on pharmaceutical imports. 'We are very cautious on the sector despite the earnings growth,' said Deutsche Bank's Uleer. 'If we have certainty at some point, it's one where I could think of doing a double upgrade from underweight to overweight.' Investors are turning away from consumer stocks as weak results and cautious outlooks highlight the sector's vulnerability to tariffs and shifting spending habits. Companies from luxury to staples are struggling to balance cost pressure with fragile demand, especially in the U.S. - forcing tough decisions on pricing and strategy. 'Anyone exposed to consumption, especially services, is really being hit,' said Arun Sai, senior multi-asset strategist at Pictet, noting that the market has underappreciated how much the U.S. has already slowed. According to LSEG I/B/E/S data, earnings from consumer cyclicals such as carmakers and luxury have come in 8% below expectations, while the rate for consumer non-cyclicals such as food companies is 2%, less than half the broader market. Adidas ( opens new tab shares fell 18% over six days after it warned it may have to hike U.S. prices, while brewer AB InBev ( opens new tab fell 11% as weak Brazil and China demand hit volumes. In the luxury sector, Ferrari slumped 12% in its biggest drop ever after saying it would cut U.S. prices, while Hermes ( opens new tab shares dropped 12% over three days.
CNBC
18-05-2025
- Business
- CNBC
German stocks near record highs — but will a Wall Street comeback spoil the party?
The German DAX index continued its gains on Friday, with the index closing in on the all-time high it touched on just four days earlier. The DAX has risen by 19% since the beginning of the year, with European stocks frequently outperforming their U.S. counterparts as Wall Street grappled with selloffs. The upward trajectory came as investor optimism was boosted by Germany electing a new coalition government , a historic vote that paved the way for the country to ramp up defense spending. A so-called "sell America" sentiment that saw money flowing out of U.S. assets as U.S. President Donald Trump's trade policies spooked traders also played a role. But since the U.S. and China agreed to a 90-day pause on tit-for-tat tariffs on Monday, stocks on Wall Street have since reversed course and enjoyed a bumper rally . Lingering geopolitical uncertainty and the flow of money back into American equities is now clouding the outlook for German stocks and dividing strategists and analysts' opinions on how much further the Dax's good fortunes could have to run. Deutsche Bank 'the most bullish' on German stocks Taking a bullish view was Maximilian Uleer, research analyst at Deutsche Bank. While his team expects the S & P 500 's recent outperformance to persist in the short term as U.S. companies will be the bigger beneficiary of Washington and Beijing's bilateral tariff cuts, they do not believe the trend will continue. "We would [emphasize] the 'short-term'," he said, arguing that although tariffs were lower than feared for now, they would still be a bigger burden for U.S. companies than their European and German counterparts. "Political uncertainty is higher in the U.S. than in Germany," Uleer said. "Leaving out Autos, sequential earnings momentum is more favourable in Europe. Valuations are more favourable in Germany. The fiscal outlook is significantly more favourable in Germany. The rates environment is more favourable in Germany. A potential ceasefire between Ukraine and Russia would be more favourable for Germany." Deutsche Bank has a target price of 25,000 points for the DAX by the end of the year, a premium of over 5% on Friday's price. "Index forecasts for the DAX have been beaten significantly in the last 2 years and we expect the same to happen this year," Uleer noted. "We have been the most bullish and still are … The relative performance might stall short term, the directional upside remains." Marc Ostwald, chief economist and global strategist at London's ADM Investor Services, agreed that there was likely more upside ahead for the DAX. He said a broad improvement in risk appetite amid the U.S.-China tariff pause, on top of overall positive European earnings, was benefiting German stocks. However, Ostwald also noted there were caveats at play, including uncertainty around U.S.-EU trade relations and questions on whether the new German coalition "actually turns words into action to stimulate the economy." "The [DAX] upside may run into some headwinds short-term given next week's May equity options expiry, which will likely cap gains, but barring some adverse trade or geopolitical news, which continues to be an elevated risk, this rally has further to run," he said. Investor 'addiction to North America' could hurt upside Dan Coatsworth, investment analyst at AJ Bell, said Europe had been a "natural place to hunt" for cheap opportunities when a so-called "sell America" mentality gripped financial markets earlier this year. "Germany has stood out from the crowd because of its decision to ramp up spending on defence and infrastructure, creating a tailwind for various companies in the Dax index," he said – although he pointed out that Frankfurt's status as a cheap alternative to Wall Street was faltering. "The Dax is now trading at its most expensive level in four years at 14.8 times next 12 months' earnings. While that is still cheap relative to the US (the S & P 500 is on 20.4 times forward earnings), it's no longer the bargain that the German index used to be," he said. "The market has priced in so much good news which means you have to ask what else is needed to keep driving the index upwards." He argued that the S & P 500's recent rally may also have convinced investors that "all is not lost Stateside." "A lot of people … may not be able to fully give up their addiction to North America," he said. "There's a risk that profits are banked on German equities and proceeds reallocated to the US. [But] certain investors might want to hedge their bets and keep money invested in different parts of the world rather than going all-in on the US again." Also striking a more cautious tone was Carsten Brzeski, global head of macro at Dutch lender ING. "Looking ahead, I am not giving any estimates for the DAX but it is clear that if the US economy can defy a recession and the talks about de-dollarisation appear to have been premature, we could indeed see a reversal of some of the flows into European stock markets," he explained. "At the same time, given the high expectations that at least stock markets have for the German government and future growth, investors could get disappointed once they realise that it takes longer than hoped for any fiscal stimulus to reach the real economy." A trader watches his monitors on the trading floor of the Frankfurt Stock Exchange. Photo: Arne Dedert/dpa (Photo by Arne Dedert/picture alliance via Getty Images)
