Stocks are “ uniquely hated,” the currency can’t catch a break and Japanese-style economic stagnation apparently looms -- and yet calls to buy Europe are ringing.
Societe Generale SA became the latest big name to preach euro-area bullishness on Tuesday, recommending a series of trades to help clients position for growth surprises this year. Their counsel was well-timed: first-quarter gross domestic product data beat expectations a few hours later.
The French bank is joining the likes of Goldman Sachs Group Inc. and NatWest Markets, both of which have touted the chances of a European comeback in recent days.
The logic is simple: Given billions of outflows and beaten-up expectations, the only way here for Europe Inc. is up.
“Today’s published European economic growth numbers matched or slightly beat hopes, continuing the quiet positive surprise established in the last couple of weeks by the regional corporate earnings data,” said Chris Bailey, a European strategist at Raymond James in London. “With most global fund managers underweight despite relatively attractive valuation multiples, the rationale for the wise full-year investor to build European exposure remains.”
Europe’s hard data have proven “solid” in the first quarter of the year, according to SocGen, which forecasts GDP growth of 1.4 percent this year compared with an average of 1.1 percent.
Goldman Sachs upgraded its targets for the Stoxx Europe 600 Index last week, and on Monday said that China’s stabilizing economy will boost euro-area expansion “notably” in 2019. NatWest switched to a bearish view on German bunds amid signs of a recovery in the region.
Data Drop
Government bonds fell across Europe in the wake of the growth data on Tuesday, which showed expansion of 0.4 percent in the first quarter, versus economist expectations for 0.3 percent. The yield on benchmark German notes climbed to 0.03 percent as of 10:25 a.m. in London, while the euro strengthened a third day to $1.1212.
It will all be music to the ears of the SocGen team, which recommended buying the euro versus the U.S. dollar with a target of 1.16 and a stop at 1.1095. They also predicted that peripheral bonds could outperform in a bund sell-off, because stronger growth would help steady the public finances of those riskier issuer countries at the margin.