ENERGY SET TO ANCHOR EUROPE'S Q2 EARNINGS GROWTH
Second-quarter earnings growth in Europe is set to be primarily driven by the energy sector (.SXEP), strategists at Deutsche Bank said, but estimates for non-energy growth remain in the mid-single digits.
Excluding energy, Deutsche Bank estimates earnings growth of about 3% y-o-y and 2% q-o-q, marking a slight deceleration from Q1. Including energy stocks however, earnings are set to grow by 12% y-o-y, they forecast.
"As most energy-intensive companies seem to be well hedged, we estimate the net effect from higher energy prices to be positive, as earnings in the energy sector are up massively," strategists led by Maximilian Uleer said.
Despite recent re-escalation of hostilities between Iran and the United States, brokerages including J.P. Morgan and Barclays have raised their STOXX 600 TVC:SXXP index targets following the ceasefire deal agreed on earlier this month.
Europe's benchmark index has risen more than 7% since the first ceasefire announced in early April, hitting multiple record highs during that period.
At the sector level Deutsche Bank expects chemicals (.SX4P) and industrials to post strong growth. Health care stocks (.SXDP) are likely to post a third consecutive quarter of declining earnings, they added.
Earnings growth for the region's banks (.SX7P) is projected to continue decelerating to mid-single digits before a recovery is expected in H2, the brokerage said.
Uleer expects the earnings growth gap between the U.S. CBOE:SPX and Europe to narrow from the upcoming earnings season.
"The U.S. could once again see a very strong earnings season. However, after the outstanding Q1 earnings season, the bar to deliver another similarly strong season is high," he said.
In June, Deutsche Bank turned "neutral" from "overweight" on U.S. versus European equities, saying a narrowing growth gap and easing tailwinds for U.S. stocks could limit their relative outperformance.