Displaying items by tag: europe

(New York)

Well they might not have exactly said what is in this headline, but they might as well have. The bank is urging investors to rotate into European equities and out of US stocks, shifting the former to “overweight” and the latter to “neutral”. The bank argues that European stocks represent a much better value after their underperformance over the last year. They believe European stocks have a great deal of upside and look close to “outright cheap”.

FINSUM: European stocks do seem to have a lot more room to move higher, but they also have a giant morass staring them in the eye called Brexit.

(Berlin)

The future of the EU is an open question, and one that seems to be growing bleaker once again. Much of the cultural mood that preceded Brexit is now taking hold in Germany. German media is angry at the ECB about robbing its savers of income with very low or negative interest rates. News outlets refer to the “expropriation” of German assets (a term with huge historical resonance). Altogether, the German people are angry about their wealth funding the rest of an EU they see as squandering it.

FINSUM: Germany has benefitted disproportionately from the Euro as it keeps their currency artificially weak. Yet it is also true that hard working Germans have been subsidizing the irresponsible finances of southern Europeans for years. It seems a way off, but Germany could be the next EU domino.

(Munich)

In a very worrying report from the EU< European manufacturing is in a “free fall”. Data from Germany, the bloc’s largest economy, shows that the country’s manufacturing industry is declining rapidly. “In manufacturing, the business climate indicator is in freefall”, said the head of a highly regarded economic research group. The chief economist at Commerzbank added that “there is far and wide nothing to be seen of the second half recovery hoped”, continuing “Germany is in a grey area between a marked growth slowdown and a recession”.

FINSUM: Europe certainly looks headed for a recession (unless the ECB can save it). Will the US catch the economic flu this time, or remain Teflon America?

(New York)

America tends to be very US-centric, but right now it would be wise to pay attention to some global economic signals. In particular, manufacturing is starting to look very weak across the world, and the negative wave is already impacting the US. Factory output across Europe and Asia declined in June, and the US’ barely rose. Globally, it was a second straight month of contractions, something that has not happened since 2012. More specific data showed declining sales and production in both China and Germany.

FINSUM: The US has been sprayed with Teflon for most of this bull market, but given the global nature of the trade war, it seems like we may be starting to get sucked into the downturn.

(New York)

One the tail risks for markets right now is the sharp downturn that is supposed to happen to the stock buyback market. Huge levels of corporate buybacks have been supporting US equities for years, but that is forecast to drop dramatically. While that may wound US stocks, it poses a major opportunity for another area: Europe. European stocks don’t see much in the way of buybacks, which has left them much less loved than the US recently. However, the declines in US buybacks are likely to make Europe look much more attractive.

FINSUM: European valuations are significantly more attractive than in the US, which means that if the playing field gets levelled by decreased buybacks, there is probably a good opportunity here. That said, Europe has a lot of economic issues right now.