European earnings outlook: sunny Q1, but clouds on the horizon
The European earnings season suggests a stronger-than-expected Q1 for most sectors, even retail and consumer-related, despite economic headwinds. IGTV’s Angeline Ong explains why Q2 might not be as rosy.
Q1 earnings: not bad so far
About half the STOXX 600 companies have reported Q1 results and two thirds of them exceeded estimates. Cyclicals, says Barclays PLC, were behind the bulk of EPS beats.
Industrials, like Siemens AG, have done well, pointing to growth and investment across a wide number of sectors.
Banks like Barclays, BNP Paribas SA and Deutsche Bank AG have also beat forecasts.
STOXX 600 earnings are seen growing 7.3% in Q1, according to data from Refinitiv I/B/E/S.
This suggests that customers have been largely absorbing inflationary pressures, and the labor market has held up so far.
Clouds on the horizon
However, European stocks are down from a 14-month high in April. Net profit margins seen declining in Q3, show data from Refinitiv I/B/E/S.
Bank of America says European equities have seen nine straight weeks of outflows.
Retail has started to show signs of margin weakness, if numbers from Boohoo.com plc, ASOS PLC and even Watches of Switzerland Group PLC, which sits on the high-end retail spectrum.
Euro zone inflation is seen staying high this year.
If those consumers who have dipped into savings start to run dry, then it is only natural that consumption, along with earnings, will start to deteriorate.
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