LIVE MARKETS-Climbing the wall of worry

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CLIMBING THE WALL OF WORRY

European stocks could keep going up despite the challenging outlook, says Barclays, even though the STOXX 600 .STOXX is nearing the top end of its target range.

According to strategist Emmanuel Cau, low hedge fund and systematic positioning, along with the pause in reciprocal tariffs allowing time for trade deals, could support further gains in the short term.

"We think equities may well continue to climb the wall of worry until something breaks," he says. "Fundamentally, though, asymmetry feels poor and we find it hard to justify much higher equity price/valuation levels than pre-liberation day".

Barclays says the macro set-up is "sub-optimal" and lower short-term yields and falling oil prices are sending cautious signals. On top of that, the Fed "can't do much for now", earnings revisions are deeply negative, Trump policies are lifting US risk premia and seasonality is turning unfavourable.

"The longer uncertainty persists without any concrete progress on deals, the higher recession risk is," Cau writes.

Barclays has a STOXX target ranging from 390 (for recession) and 540 (for de-escalation). The index was at 530 on Wednesday.

That being said, the big picture is still brighter for Europe. Barclays cites potential for stronger domestic growth, more easing capacity than the Fed and undemanding valuations.

For now the bank has a sector allocation with a quality tilt and is adding to UK domestic stocks, anticipating BoE rate cuts.

(Danilo Masoni)

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