LIVE MARKETS-"Short covering is done... but don't fade Europe yet"

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"SHORT COVERING IS DONE... BUT DON'T FADE EUROPE YET"

The STOXX 600 .STOXX has hit record highs again this morning, indicating that the "buy Europe" trade is still going strong. The question is how long will it last, given that any outperformance versus Wall St has historically tended to fizzle out rather quickly.

Barclays has provided some insights that traders may find useful -- short covering in European stocks "is done", meaning that a driver of the recent uptrend may be losing steam, while the Euro STOXX 50 .STOXX50 is now in overbought territory.

Nevertheless, Barclays advises: "don't fade Europe yet".

It says relative valuations and positioning still have room to normalise, and it believes tariff risks and earnings impact looks manageable and largely priced in.

"Positioning on Europe is no longer depressed, as CTAs have gone from short to long, yet real money flows have only just turned positive, reversing only <10% of recent outflows," write strategists at Barclays.

Despite the overall tariff risks might be manageable, even more so if they are implemented in a reciprocal fashion, Barclays is staying away from sectors like autos and staple that appear most at risk, having added telcos and financials.

It says a Ukraine ceasefire catalyst has yet to play out and views less tech hegemony as good news.

But "don't get carried away", is the bank's takeaway, noting the lack of structural growth remains an issue.

(Danilo Masoni)

EUROPE BEFORE THE BELL:

RAFT OF POSITIVE EARNINGS KEEP STOXX SWEET CLICK HERE

GAINS AHEAD ON SWEET EARNINGS, CPI LOOMS CLICK HERE

MARKETS LOOK TO US CPI WITH ONE EYE ON TARIFFS CLICK HERE