Profit Omens Rattle Europe as Morgan Stanley Has 2014 Deja Vu

(Bloomberg) -- This earnings season isn’t off to a good start.

Only about 16 percent of the Stoxx Europe 600 Index companies have reported results, but the market is already on its toes, with stocks falling to the lowest since December 2016. On Tuesday, Renault SA reported a drop in third-quarter revenue and Ingenico Group SA cut its forecast in a surprise statement. AMG AG tumbled the most in 10 years after fourth-quarter guidance fell short, while Atos SE sank on a profit warning.

Calling Europe’s earnings season “quite lackluster” so far, Morgan Stanley strategists said this could turn out to be the first time since the end of 2014 that corporate profit misses exceeded positive surprises. Signs of margin pressure started to appear during second-quarter results and are continuing now, according to the bank, with investors watching for signals that trade tariffs are curbing profit growth.

Profit Omens Rattle Europe as Morgan Stanley Has 2014 Deja Vu

Analysts have been slashing their 2018 profit estimates for the region since August, according to Citigroup Inc.’s Earnings Revisions Index, last month cutting forecasts by the most in more than two years. The downgrades don’t bode well for European equities, which have struggled to keep up with the U.S. market this year.

JPMorgan Asset Management strategist Ian Hui said this month it’s important to see whether companies maintain their expectations for 2019, because tempered growth bets would mean stock valuations will need to be sheared.

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