LIVE MARKETS-European earnings are cautiously optimistic, but market vulnerable
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EUROPEAN EARNINGS ARE CAUTIOUSLY OPTIMISTIC, BUT MARKET VULNERABLE
Earnings season continues in Europe, and UBS equity strategists say things are looking cautiously optimistic, yet stay balanced on a knife edge.
The STOXX 600 .STOXX is up 2.7% since August 1st, as the outlook for European corporate health continues to improve during Q2 reporting season.
Companies are navigating significant headwinds like tariffs and FX while also identifying growth opportunities such as AI investment and capex, they write in a note.
"Revenues broadly missed expectations with the lowest net beats since Q3 2023, yet EPS came in well ahead of consensus. Historically, when this gap has opened up it often reflects margin preservation in the face of weak demand."
One factor behind that trend is the fact that companies are aggressively managing opex (operating expenses), optimising capex, and leaning on productivity gains to shield profitability, says UBS.
"Record net earnings beats in banks heavily skewed aggregate EPS higher, masking softer earnings in other sectors," they add as another factor.
Thirdly, a weak U.S. dollar hurt revenues for exporters.
Despite the optimism, a slowing growth environment leaves profile less durable. If cost levers run out or macro headwinds intensify, the market could be vulnerable, says UBS.
"Weak top-line momentum, even with supportive fiscal and policy tailwinds, hints at a more sluggish underlying demand picture than markets are currently pricing in."
(Lucy Raitano)
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