00:00Is that how we should be thinking about this with some of the markets closed around the world tomorrow?
00:04Is today just a rotation day? What do you think?
00:08Yeah, I think after the past couple of days where we saw quite a negative sentiment today,
00:14that's a combination of multiple things driving the markets up.
00:19We've already seen more positive sentiment in the U.S. on Friday on the back of the first positive news
00:25on the shutdown ending where Europe was already closed, so we're seeing a bit of a catch-up effect in Europe this morning.
00:32We got some positive news on the chips front, so that should also help markets today.
00:39And I guess a bit of that is also dip buying after the past weeks were quite negative,
00:43while the macro environment actually remains quite encouraging.
00:48So the overall sentiment for equities is improving again.
00:55Well, what is driving that?
00:57I mean, it feels like we're waiting for this kind of narrative, at least,
01:00that we're seeing so much of this fund flow go back into the States.
01:03When it comes to Europe, do we just follow the tone that the States is setting,
01:08especially when that tone is largely tech-driven?
01:10How are you thinking about that for this region specifically?
01:14Yeah, so if we look at Europe, actually, the past couple of weeks,
01:18we had a lot of earnings coming in that were pretty strong.
01:21And I think investors are really looking for a broadening out of your U.S. tech stocks.
01:29We're seeing a lot of concentration risk in U.S. tech.
01:32So with quite positive earnings sentiment in Europe,
01:36I think it gets more and more attractive for investors to also move back into Europe.
01:42And we're seeing that sentiment really improving.
01:45And it's also backed by more positive macro data.
01:47We've seen PMIs improving.
01:49So I would say a lot of factors feed into that more positive environment for European equities.
01:56Well, did European equities earnings change your outlook for what sectors you like, actually?
02:03We didn't change our sector views based on earnings.
02:06Actually, I would say the earnings season confirmed our sector recommendations.
02:11So we're still quite positive on banks.
02:15And it was once again one of the sectors which delivered the strongest beats.
02:20Although we have to say that beats within banks declined a bit.
02:24So of the past 10 quarters, we saw massive beats in the bank sector.
02:29On average, about 10 percent beats.
02:32In Q3, beats slowed a bit to 8 percent, which is still very strong.
02:36So we're seeing that the positive surprises from banks are becoming a bit weaker.
02:43But we're still on super positive levels.
02:45NIIs are holding up quite well.
02:48Earnings growth is holding up quite well.
02:49So that's one of the sectors that is still standing out positively.
02:53And financials overall have been one of the largest drivers of European earnings growth this quarter.
02:59I'm looking at the autos' names all bouncing back this morning, Carolyn, partly to do with the Nexperia news.
03:06But do you think that the pessimism over the European carmakers has peaked now?
03:13Yeah, it's a very good question.
03:15So, of course, the positive Nexperia news is helping the sector this morning.
03:20If we look at earnings from autos, I mean, it has once again been the sector with the most guidance downgrades.
03:25We've seen basically all European OEMs downgrading guidance at the beginning of the earnings season.
03:31We still see negative earnings provisions for autos, actually.
03:35But there have been also some green shoots.
03:38So actually, for the first time in five quarters, autos have surprised to the upside during the earnings season.
03:45Of course, that has to do with expectations really weakening a lot.
03:48I mean, we've seen negative earnings revisions of about 60 percent for autos this year.
03:52So expectations are just very, very low.
03:56And now for the first time, we've seen autos' earnings beating consensus estimates.
04:02So there may be a few bright spots on the horizon.
04:05But I wouldn't say it's yet time to buy autos.
04:08So we're still neutral on the sector.
04:12Carolyn, I'm really surprised coming out of this earnings season, and we're only just out of it,
04:16that I'm not seeing more upgrades for next year.
04:19Why are we not seeing more upgrades for European corporates for next year?
04:22Why are the analysts being as cautious as they are right now?
04:26That's a really good question.
04:27I mean, we are also thinking that analysts are too cautious on next year.
04:31We've basically seen earnings revisions being slashed the entire year.
04:36And that's also a big difference to the U.S., right?
04:38Where in the U.S., earnings revisions have started to recover,
04:41and we are now back at pre-liberation day levels.
04:44While in Europe, earnings estimates have never really recovered from the decline they've seen after liberation day.
04:51And just now, just over the past couple of weeks, we're seeing a small uptick in earnings revisions.
04:57The earnings revisions for estimates for next year have increased by 1% over the past couple of weeks,
05:05which is a bit of a positive news.
05:08But, of course, compared to how much earnings estimates came down over the past months, that's not really a lot yet.
05:15But we think that thanks to those strong beats we've seen in the Q3 earnings season, sentiment is really improving now.
05:23And we are expecting and we are also hoping for this trend of slowly recovering earnings expectations continually.
05:31So, we are seeing double-digit earnings growth next year.
05:35So, that is still quite a bit higher than consensus.
05:38What does that do in terms of getting European indexes higher?
05:42If that comes to pass, what are we going to see in terms of the performance next year?
05:47Actually, we're pretty positive on European equity markets into next year.
05:52However, it's a bit hard to compare that to consensus because we don't have that many brokers out with their year-end targets for next year yet.
06:01If we look at valuations in Europe, we are a bit above the long-term average, but we don't think that valuations are too stretched.
06:09And with double-digit earnings growth, we're actually seeing quite some potential for European equities up by double digits next year as well.
06:20So, we really should see that recovery.
06:23And don't forget that we will also see the fiscal stimulus from Germany finally kicking in next year.
06:30We have seen the first positive impulse already in Q4, but markets have got a bit impatient on that fiscal stimulus.
06:38But with the next year budget from Germany being approved probably end of this month, early next month, we should really see that stimulus kicking in.
06:49And it should also help earnings and it should help a positive sentiment on Europe again.
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