Europe Insights
Summary
This edition of Europe Insights provides valuable insights on the latest European market and macroeconomic developments.
This month, the publication discusses:
- What factors contribute to the disparity in the household savings pattern between Europe and the US?
- Will refinancing the ‘COVID Maturity Wall’ pose a threat to global credit markets?
- What does the corporate earnings post-pandemic tell us about the outlook for the upcoming year?
Savings in Europe versus the US
- Eurozone household savings rates average 15 percent, contrasting with the US’s 8 percent, displaying a structural shift influenced by improved credit conditions and globalisation
- The economic cycle, uncertainty, and structural factors shape household saving behaviour. The eurozone’s lower growth and higher unemployment contribute to the saving gap with the US
- Intentions for increased savings and reduced major purchases signal a potential prolonged elevated saving rate in the eurozone, with OECD estimates suggesting persistently higher rates compared to pre-COVID, influencing consumer spending and fiscal deficits
Fixed Income: Will refinancing the ‘COVID Maturity Wall’ be an issue?
- Opportunistic funding at low rates during and just after the pandemic was a prudent step at the time, but it has created a ‘maturity wall’ in 2024 and 2025 which could create refinancing difficulties at the higher rates now prevailing
- We do not believe that there will be a widespread problem, but there are likely to be pockets of pressure which may pose risks to certain sectors
Equities: Deciphering the corporate earnings
- After a robust post-pandemic recover, European corporate earnings have encountered challenges, with negative 12-month forward earnings estimates and downgrades in key growth sectors like banks and energy
- European corporate margins have declined, and economic indicators like composite PMI and manufacturing have experienced consecutive contractionary months
- A cautiously optimistic earnings outlook for 2024 is contingent upon a turnaround in manufacturing dependent segments or regions such as Germany. Sectors like IT and Consumer Discretionary maintain momentum, while challenges persist in Healthcare, Materials, Energy, and Consumer Staples