Get Your Earnings Right. The Bar Is Moving Higher

(Bloomberg) -- There is some kind of a contrast between the market attempting to hit new highs while, as shown in our latest survey, strategists see downside for European equities before the end of the year. The impact of macro news has been milder lately as investors’ attention turns to the earning season. On that front, believe it or not, the bar seems to be moving up.

Get Your Earnings Right. The Bar Is Moving Higher

Analysts seem to finally show some love for European companies, according to Citigroup indexes. Earnings upgrades for European stocks ex-U.K. have overtaken downgrades for the first time since August. The move is even more relevant if you compare it with global estimates that are still experiencing earnings cuts.

Get Your Earnings Right. The Bar Is Moving Higher

Analysts have been behind the curve, and are now catching up with the market’s rally, which might still have legs given the low positioning in European stocks. The market does not need EPS upgrades to rally, as it has proved in the past. Analysts tend to lag the market by one to three months, Goldman Sachs strategists write, adding that we could now start to see moderate EPS revisions.

It seems the move may already be happening. The analyst consensus is now calling the bottom for earning growth in the first quarter, with a rebound to follow, particularly in the fourth quarter, according to Deutsche Bank strategists.

Still, for now, the bar is low, which means we might see some decent forecast-beating earnings. Judging by the stronger expectations for the rest of the year, the guidance provided by companies will be more important than usual.

Get Your Earnings Right. The Bar Is Moving Higher

For Morgan Stanley strategists, however, the market is likely to be much more sensitive to bad news than it was during the last quarter given the recent rally, and they expect earnings to be a negative catalyst for the market. The bank keeps a cautious stance on earnings, forecasting just 1 percent growth for the full year. The averse reaction to Kering’s earnings last week was a good reminder of that. Financials will also be in focus as the quarter is expected to have been particularly weak.

Get Your Earnings Right. The Bar Is Moving Higher

Still, the start of the earning season could fuel some hope. “Headline comments from pan-European heavyweights including Nestle, Pernod Ricard, Unilever and Schneider Electric look at least workable and in some places quite optimistic,” said Chris Bailey, a European strategist at Raymond James.

JPMorgan strategists are also relatively positive. They expect margins to improve -- their proprietary margin indicator has already started to move higher -- and while the first quarter is expected to be poor, they wonder if the full-year consensus might actually be too low.

In the meantime, Euro Stoxx 50 futures are trading up 0.2% ahead of the open.

  • Watch oil stocks after crude prices jumped following the U.S.’s decision to end waivers that had allowed other countries to import Iranian oil. Iran has threatened to shut down the Strait of Hormuz in response. Watch oil majors like Shell, Total and BP, oil-services firms like Wood and TechnipFMC and smaller oil explorers like Tullow Oil; note that U.S. energy stocks jumped Monday on the news. Also watch for a negative reaction for airline stocks as higher oil prices could mean a rise in fuel costs.
  • Watch market reaction after U.S. President Donald Trump withdrew Herman Cain’s nomination to the Fed. Goldman Sachs thinks the Fed has lost its edge in forecasting against private economists in recent years, which has caused sharper reactions to policy surprises. The inverted yield curve has also lost some relevance, according to Bank of America Merrill Lynch. And some Fed policymakers seem resigned to running the risk of asset bubbles and other problems as they seek to keep the U.S. economic expansion ticking along.


  • “Equities continue to rise despite lack of flow, long positioning, or over-exuberance,” Citi strategists write in a note. “FOMO flows could push the index to/above the previous all-time high. As some forward looking indicators point to further deceleration in growth, Central banks will be pivotal to the continuation of the risk rally. Typically, when the Fed pauses/eases U.S. equities can return 20%. The concern now is that YTD performance of +16% diminishes the risk/reward.”


  • Dassault Systemes Is Said to Eye U.S. Deals Including Medidata
  • Volkswagen Faces New Probe on Fraud in Diesel Rigging: Bild
  • VW Truck Unit Chief Says IPO Is Postponed, Not Canceled: FAS
  • Nissan Set to Reject Renault Integration Proposal: Nikkei
    • New Ghosn Charges May Flip the Narrative on Deposed Auto Titan
  • Engie Is Said to Consider Takeover of U.S. Services Firm Emcor
  • Casino Group to Sell 32 Properties in Deal With Apollo
    • Casino Group Expands Partnership With Amazon
  • Swatch Group Sales Can Top $10 Billion, CEO Hayek Tells Le Temps
  • Bayer Loses Case in India on Generic Cos Exporting Drugs for R&D
  • Fiat Chrysler Recalls 300,000 Cars That May Roll Unexpectedly
  • TechnipFMC Wins ‘Significant’ ConocoPhillips Contract
  • Faurecia Confirms Full-Year Targets
  • Barclays to Cut Investment-Bank Bonuses, Financial Times Reports
  • Nordea Says Total Nordic M&A Activity Near Pre-Crisis Peak Level
  • Plastic Omnium First Quarter Revenue EU2.24 Bln
  • Funds Seek EssilorLuxottica Board Seats Amid Fight for Control
  • Anglo Steps Up Defense to Repel Agarwal’s Interest: Telegraph
  • Umicore FY Adj. Ebit Forecast Misses Analysts Estimates


  • Barclays started Genfit coverage with overweight, praising a pair of late-stage drugs led by elafibranor in two liver diseases. The biotech may receive more sell-side praise over the coming days after analysts at firms including its U.S. IPO underwriters are set to launch coverage.

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 392.7 (July high); 403.7 (100% Fibo)
  • Support at 385.7 (76.4% Fibo); 377.3 (50-DMA)
  • RSI: 70.3

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,516 (76.4% Fibo); 3,596 (May high)
  • Support at 3,403 (61.8% Fibo); 3,334 (50-DMA)
  • RSI: 75.1


  • DNA upgraded to hold at Berenberg
  • Deutsche Wohnen upgraded to buy at Kepler Cheuvreux; PT 46 Euros
  • Petra Diamonds upgraded to buy at Berenberg
  • Privanet Upgraded to Reduce at Inderes; Price Target 67 Cents
  • Smurfit Kappa upgraded to neutral at Goldman; PT 28.50 Euros
  • Stora Enso upgraded to buy at Goldman; PT 14 Euros


  • BillerudKorsnas downgraded to sell at Goldman; PT 120 Kronor
  • Fresnillo downgraded to market perform at BMO; PT 9 Pounds


  • Alcon rated new neutral at Guggenheim
  • DWF Group rated new buy at Jefferies; PT 1.65 Pounds
  • Genfit rated new overweight at Barclays
  • Man Group rated new buy at Berenberg
  • Nobina Rated New Buy at Kepler Cheuvreux; PT 70 Kronor


  • MSCI Asia Pacific down 0.2%, Nikkei 225 little changed
  • S&P 500 up 0.1%, Dow down 0.2%, Nasdaq up 0.2%
  • Euro down 0.07% at $1.1249
  • Dollar Index up 0.06% at 97.34
  • Yen up 0.03% at 111.91
  • Brent up 0.5% at $74.4/bbl, WTI up 0.6% to $65.9/bbl
  • LME 3m Copper down 0.5% at $6444/MT
  • Gold spot down 0.1% at $1273.8/oz
  • US 10Yr yield down 1bps at 2.58%

MAIN MACRO DATA (all times CET):

  • 11am: (EC) 2018 Govt Debt/GDP Ratio, prior 86.8%
  • 4pm: (EC) April Consumer Confidence, est. -7, prior -7.2

©2019 Bloomberg L.P.