Equity recovery needs good news

European equities have proved relatively resilient this year but a sustained recovery in stock markets is going to require some…

European equities have proved relatively resilient this year but a sustained recovery in stock markets is going to require some good news on economic growth. ABN Amro believes that, while economic growth rates and interest rates are somewhere near a trough and the second half of the year should see evidence of a rebound in activity, earnings estimates are still lagging and are likely to remain under pressure for some time.

Add in the probability of more bad news with investors' nervousness and it seems unlikely the equity markets will move to discount recovery until there is clear evidence of the activity indicators turning upward again.

ABN Amro suggests the biggest problem for euro-zone investors is the currency market's response to the disappointing economic news. The sell-off in the euro destroyed more value for European investors than the move in the equity indices.