LIVE MARKETS-Utilities not immune from growth slowdown
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UTILITIES NOT IMMUNE FROM GROWTH SLOWDOWN
Europe's utilities sector .SX6P has outperformed the broader market since Trump announced his tariff measures on April 2, but RBC analysts warn that they are not immune from a recession, even as direct U.S. exposure is low.
European utilities generated circa 10% of their EBITDA in the U.S., and most of that is "low risk", RBC says, as about 50% relates to networks owned by National Grid and Iberdrola which are supported by supply chains with long-term framework agreements.
But, global growth is expected to slow in the wake of tariffs, impacting the sector.
"Although the sector is defensive and we believe it will continue outperforming in adverse scenarios, it is not immune to the potential negative macroeconomic effects from a global escalation of tariffs in GDP growth or in disruption of supply chains," RBC says.
"Within our coverage we think Veolia and Acciona are the most directly exposed to any GDP downturn due to the exposure to the economic cycle," they add.
On the positive side, markets are now pricing in more rate cuts from the ECB and BoE in the wake of Trump's tariff proposals.
"The sector has historically shown a strong correlation to rates/yields, albeit there has been some disconnect in the past few years with the sector having been more resilient to a rising yield environment," RBC notes.
"We would continue to expect that a fall in rates/yields would be a positive catalyst for the sector going forward."
(Samuel Indyk)
THURSDAY'S OTHER LIVE MARKETS POSTS:
THE CASE FOR A RETURN TO US OUTPERFORMANCE CLICK HERE
STOXX 600 SOFT, LUXURY IN FOCUS CLICK HERE
EUROPE BEFORE THE BELL: CAUTIOUS START BEFORE ECB CLICK HERE
NO SURPRISE AT JAPAN TALKS, EXCEPT TRUMP CLICK HERE
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The United States still has nearly the highest tariff in the world The United States still has nearly the highest tariff in the world https://fingfx.thomsonreuters.com/gfx/breakingviews/lbpgwmyobpq/The%20United%20States%20still%20has%20nearly%20the%20highest%20tariff%20in%20the%20world.jpeg
Soft start for Europe, US futures rise https://reut.rs/3Ge9mGk
Europe's utilities sector outperforms since Trump's tariff day
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