Eurozone’s earnings set to outstrip US’ this year

Euro signThis year could be the first year since 2007 that Eurozone earnings will outgrow the US, despite the fact that second quarter (Q2) earnings in the US have been slightly ahead of expectations. Research by NN Investment Partners (formerly ING Investment Management) shows that profit margins are close to the peak levels seen in 2007 when revenues expanded faster than wages. Although the firm says that with the labour market strengthening, which should lead to upward pressure on wages, "this is not visible yet". The dollar’s increasing strength, compounded by a likely rate hike in Q4, will hamper US exports according to the firm. At the moment, the position in the earnings cycle is more than 20% above the long-term trend. According to NN Investment Partners: "This has happened before but a return to the mean has always occurred implying below trend growth going forward." Patrick Moonen, senior strategist, multi-asset, NN Investment Partners, says that he expects a decent second quarter earnings season in Europe. This is because of an improving macro backdrop, whereby the peripheral countries will do particularly well; the weakening Euro will have a positive impact; and the high operational leverage will allow margins, which have not recovered at all, to improve. However, he did add a note of caution given the situation in China. Eurozone earnings could be negatively affected as China’s auto sales and cement consumption have turned particularly negative year-on-year. ©2015 funds europe

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