European Recovery

“Europe NERI fell to -11.0 this month, the lowest since December 2011. It’s rather odd that this index is so weak given the solid improvements in the region’s Manufacturing PMIs and Non Manufacturing PMIs.”

MSCI Europé Net Earnings Revision.

MSCI Europe Net Earnings Revision

The conviction of an amazing recovery in Europe from fund managers is rock solid.

“US investors bought $23bn of European equities in December – largest single month of net buying on record – data going back to late 1970s.” (Goldman Sachs)

Buying European Equities

Earnings revision trend according to Goldman Sachs.

“Over past month STOXX 600 2014 earnings estimates declined by 2.1%.” (Goldman Sachs)

Change in Earnings Estimate


Earnings Forecasts

“Lots of downward revisions through February. I believe they are consistent with subpar global economic growth. Keep in mind that analysts tend to be too optimistic, so their estimates tend to be revised downwards. Nevertheless, NERIs tend to be positive when an economy is growing fast, especially during economic recoveries. They can be negative when economic growth is steady and middling. They always go negative during recessions since industry analysts aren’t any better than economists at foreseeing economic downturns.”

MSCI Earnings Revisions

Weather, Weather, Weather

“US GDP growth tends to drop during colder-than-average winter quarters, but then tends to bounce back in Q2. We look at GDP growth during episodes in which the cumulative heating degree day deviation was at least 1.5 standard deviations above average during Q1 (that is, it was colder than usual).” (Goldman Sachs)


There is nothing wrong with home sales in the abnormally cold weather. Buy a house, yes. Go to the store, no.

“New home sales rose 9.6% in January, vs. consensus -3.4% – upward revision to December – level at new post-recession high of 468k, vs. consensus 400k – timely indicator of housing activity. This is a welcome departure from recent downside surprises on the NAHB housing market index, housing starts, and existing home sales.”

Profit & Margin

Recent earnings season in Europe is somewhat depressing. Profit forecasts 12m fwd continues to fall and the expected improvement is postponed. In seven of ten sectors there have been more disappointments than positive surprises in terms of profit. No sector has so far beaten expectations in terms of sales.

Eurostoxx 600 Earnings Revision

The anticipated increase in sales is low, but the margins are expected to increase. But when looking at the chart below it can be stated that the revision trend speaks another language.

Eurostoxx 600 Margins