Doubling Up On Europe: From "Less Bad" to Actually Interesting
The pessimism trade is over. The momentum phase has begun
We’ve been pounding the table on Europe for a while, arguing that things could only get less worse. Now the data is moving from “less bad” to genuinely constructive: German manufacturing is improving, loan growth is turning, earnings are beating, and money is flowing in. Knowing Europe, that likely means risks are rising—but it also means the trade may be entering its most profitable stretch and we are doubling up on our long position.
Source: LSEG Workspace
Look who’s growing now…
Germany! Partly one-off big-ticket orders, but something is happening here for sure.
Source: Macrobond
Have another look
The German manufacturing numbers and chart is compelling for everyone that loves how a bombed out turnaround story gathers further momentum.
Source: Haver
Confident
Deutsche on Deutschland: "For 2026, we are confident that production in the manufacturing sector in Germany will rise again. An increase of 2 to 3% seems realistic. This would be the first increase in industrial production since 2021 and only the second since 2019."
Source: Deutsche
Even sentiment
Sentiment indicators are improving from bombed out levels.
Source: IFO
New cyclical high
SIREN indices reached a new cyclical high after strong German orders.
Source: Deutsche
Loan growth picking up
Since 2024 most Euro area member states have already started to experience a notable turnaround in bank lending growth. The increase has been the highest in Spain, Portugal and the Netherlands. Other member states, including Germany, France and Italy, have seen more modest gains but are also likely to turn the corner.
Source: Haver
Healthy
Another chart on how European loan growth is picking up.
Source: Barclays
So much potential
Production way below former peaks in most sectors.
Source: DB
Earnings beating
Aggregate EPS surprise is 2.5% to the upside for Europe.
Source: FactSet
Potential to get less bad
2026 earnings sentiment for Europe remains subdued. Only room for upside...
Source: FactSet
Things can only get better
Aggregate EPS growth in Europe has been flat for three years. So much "easy win" potential for improvement.
Source: Barclays
What a week
Europe ex UK see most inflows since Mar'25 this week.
Source: Barclays
Continued rising allocations
EPFR: "We continue to see rising allocation to Europe by both domestic and international investors"
Source: EPFR
Valuation
STOXX Europe 600 12m forward P/E - we think we will see it trading at 17x before year-end.
Source: Datastream
Bargain
European quality stocks have seriously de-rated lately and could be considered a bargain.
Source: Barclays
A risk
Maybe not chase EU Momentum right here right now.
