00:00This is a great earnings season for Europe. It's also good for the U.S., but I haven't seen such
00:07a strong earnings season in Europe in years.
00:10Earnings revisions breadth has shot up to the high teens, so the net percent of analysts upgrading their numbers is
00:16very high.
00:17It's higher than the U.S. now.
00:19If you look at earnings revisions by sector, almost every sector is now in the green, by the way, including
00:26luxury, which is unusual.
00:28And we have earnings growth consensus for this year.
00:33I think some people drop off their chair when they hear this, but it's 17 percent.
00:37I mean, Europe normally does zero or one percent. We're doing 17 percent growth this year.
00:43So we're seeing we're seeing more interest in European equities in part because of the strong earnings season that we're
00:50seeing.
00:50And so is there I mean, is there one factor driving the strength?
00:54That's that's incredibly broad, isn't it? That statistic.
00:56Yeah. So it's a combination of factors.
01:00I would break it down into a few. So three main ones.
01:03So number one, AI. We do have some AI.
01:06I know that there's been a sell off recently, but it is still driving earnings strength in Europe.
01:12And I think I think Europe was kind of lagging that earnings strength in the U.S.
01:16And now it's coming through. So AI is the top of earnings resistance, but still you have the banks, which
01:22are coming through very strong, higher yields, steeper curves, higher oil prices.
01:28This all helps the banks as long as we stay out of a recession.
01:32And so banks are very strong. And then to your point, there's broadening.
01:36So it's happening across sectors. And one one stat I've been pointing out a lot is that Europe actually benefits
01:43from inflation.
01:43As long as we're not in a recession, because 60 percent of our earnings pie is real assets, banks, compute
01:51all areas that benefit from inflation.
01:53So we're seeing that rise the tide. Yes.
01:55If you've got the pricing power to deal with the inflation, then.
01:58Yeah. OK.
01:59So a really fine line to tread there, really, if you're trying to get between inflation and recession risks just
02:05on the A.I. theme, though, how do you play it more specifically?
02:09Well, I mean, it's all kind of acting as if it's one trade right now globally, the A.I. trade.
02:16We still like European semis. We still like some of the larger cap cap goods, which are very A.I.
02:23heavy.
02:23We're overweight. Obviously, it's been painful recently.
02:27But I mean, one thing I would say is that this we typically get poor seasonality and momentum in the
02:36summer.
02:37And this is unusual that this level of seasonality.
02:40The last time we saw this was 2022, this unwind and top momentum and rally in the bottom momentum.
02:46But typically in August, we start to come through that.
02:49And so I am hopeful that you start to see a recovery in the A.I. trade in in in
02:57August.
02:58And we would play that through European semis and cap goods.
03:01And thanks.
Comments