ASML Earnings Are Make-or-Break for Europe’s Rally in Key Week
(Bloomberg) -- As European stocks stumble from an all-time peak, the stakes are high for corporate earnings from a slate of industry bellwethers including ASML Holding NV this week to revive the rally.
Firms comprising about 21% of the Stoxx Europe 600 Index’s market capitalization are scheduled to report in the week through Jan. 31. Chip-equipment maker ASML is among the most high-profile as its outlook will draw scrutiny after Chinese startup DeepSeek’s cost-effective AI model rocked the technology sector.
Luxury giant LVMH, German software company SAP SE, energy firm Shell Plc and lender Deutsche Bank AG are also on the earnings roster.
With the benchmark index retreating from record highs, investors will be looking for signs that profit margins remain robust as economic growth stabilizes. Currencies will also be in focus, as a weaker euro would boost exporters. On the other hand, a stronger dollar poses a threat to earnings at importers.
The bar to beat estimates overall is lower, with analysts expecting just a 2% increase in fourth-quarter earnings from a year earlier, according to data from Barclays Plc. And even though the benchmark rallied as much as 4.5% in January, there’s more room to gain in the event of good news, said Stephane Deo, senior portfolio manager at Eleva Capital.
“When a stock disappoints in the US it gets hammered as it is typically now priced for perfection. In Europe, it’s the opposite,” Deo said. “There’s so much bad news integrated in the price that it doesn’t take much in terms of positive surprises to trigger a surge.”
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The Stoxx 600 hit a record high last week on optimism that US President Donald Trump could take a softer-than-feared stance on global trade. But stocks were roiled on Monday as the buzz around DeepSeek sparked worries about elevated equity valuations elsewhere.
In terms of earnings, early reports in Europe have shown a mixed performance.
Burberry Group Plc surged 10% on better-than-expected sales, while Swiss luxury giant Richemont SA hit an all-time high after posting a stellar update. Their results bode well for the broader sector as they assuaged worries about a slump in China — a crucial market for the group.
“If LVMH can confirm the trend, it would be a good signal, particularly for France and the sector,” said Olivier David, a fund manager at Vega IS. “From the feedback we’ve got, European corporates may also have benefited from US firms replenishing inventories ahead of a potential trade war.”
On the other hand, Ericsson sank 13% after reporting lower-than-expected profit on Friday, while BP Plc tumbled upon warning of broad-based weakness in its business outlook. Retailers began the season on a dour note, with Primark-owner Associated British Foods Plc and Puma SE issuing disappointing reports.
A surprise pickup in euro-area business activity this month could also provide reason for company executives to sound upbeat. Analysts are already turning more positive, with a Citigroup Inc. index showing upgrades to profit forecasts outnumbering downgrades by the most since June.
Over at Goldman Sachs Group Inc., strategist Lilia Peytavin is optimistic that economic growth has stopped hemorrhaging.
“We’re expecting a neutral to slightly positive earnings season,” Peytavin said. “Economic momentum is no longer worsening, the euro has depreciated a bit and rising yields may have been positive for banks.”
--With assistance from Jan-Patrick Barnert.