European Equity Strategy "Simply Europe: An inflationary slowdown" Fowler

研报英文原文证据摘录

European Equity Strategy "Simply Europe: An inflationary slowdown" Fowler

We no longer favour some areas that previously benefitted from growth optimism and

flow-driven support. We had already moved more negative on consumer sectors but this

month also remove the German Fiscal theme as well as banks from our favoured list.

On the least favoured side, we remain cautious on themes exposed to weak consumer

demand or goods production - both sensitive to rising bond yields and energy costs. We

still think AI disruption in media and staffing remains significant but are no longer

negative on software where EPS revisions are no longer negative.

Regime: The first stages of a slowdown

Data continues to weaken with the OECD CLI and the European PMIs rolling over. Input

prices are surging and while some costs may flow through to output prices too, new

orders appear too weak for growth to be resilient. GDP estimates are being downgraded

to levels well below 2025. This is historically challenging for corporate profitability and

typically precedes earnings downgrades.

Earnings: Upgrades are easy. Downgrades come slowly.

Consensus earnings expectations for 2026 have risen sharply as energy, mining and

semis benefit from significant upgrades. Outside these sectors, we see steady

downgrades that we think will persist as cost pressures and weak demand manifest in

margin compression.

Valuations: No support likely at these levels

Equity valuations have moved in-line with higher bond yields and wider credit spreads.

Unlike earlier drawdowns, however, they have not overshot what discount rates alone

would imply. As a result, valuations still embed a degree of confidence in earnings

delivery into 2026. Should growth disappoint or margins compress, valuation support