European stocks have lost around 11% in 2021, their second worst start to a year since 2008. The decline comes despite an upbeat first quarter earnings season, which is expected to result in a 41% jump. .5% of earnings, according to Refinitiv data. Excluding the energy sector, earnings are expected to rise 22.4%.
But the outlook remains uncertain as headwinds are building. The war in Ukraine, persistent inflation and the increased risk of recession are all factors that add to this uncertain environment, according to Stéphane Ekolo, global equity strategist at Tradition. “We remain wary of equities given the very challenging geopolitical and macroeconomic backdrop, coupled with the risk of margin pressures,” he said, anticipating a drop in the STOXX 600 index. from about 50 points to 380 by the end of the year.
An aggressive ECB
One of the main risks cited by respondents is the speed with which central banks, including the European Central Bank (ECB), are expected to tighten policy throughout the year to contain inflation. European Central Bank President Christine Lagarde said on Tuesday she sees the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 points. baseline from its current level. Money markets are pricing in a more than 100 basis point rise in ECB interest rates by the end of the year.
“The ECB adopts an aggressive monetary policy, especially when a slowdown in growth is expected, which will have a negative impact on the region“, said Philipp Lisibach, head of global strategy at Credit Suisse, who also pointed to a prolonged rise in energy prices, a spillover or escalation of the conflict in Ukraine and a stronger euro as the main risks for the outlook for eurozone equities.
The ECB last raised interest rates in 2011 and its deposit rate has been in negative territory since 2014.
Among national benchmarks, the German DAX is seen at 14,000 points at year-end, up from 13,920 points currently, according to the survey. The British FTSE 100 could register at 7,494 points (vs 7,484) and the CAC 40 at 6,400 points (vs 6,253).