European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

  • European Equities took a pause last week and moved sideways after two consecutive weeks of gains. Ten indices are in a Confirmed Uptrend while the STOXX 600 is in a Rally Attempt, pending a follow-through day. The indices have acted constructively near their moving averages in the last few weeks and the distribution count in Europe is at 2.8.
  • We recommend an incremental but a selective approach to adding risk. Focus on high relative strength ideas that are part of leading and or improving industry groups.
  • Over the past 5 days, Transportation has led the market and the sector is now one of the best-performing sectors over four-weeks. Healthcare momentum has continued to deteriorate further. On our rotation chart, Cyclicals, Financials, Basic Materials and Transportation are showing positive short-term improvements. Staples, Healthcare, and Tech, continue to show deteriorating short-term momentum (over four weeks).
  • European Focus List Update:

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

  • The Stoxx 600 is in a Downtrend, along with four other indices. European equities recorded their second weekly decline since mid-October and had their worst weekly fall since late September. During the latter part of the week, majors breached their short-term moving averages and closed at or near their long-term moving averages. The continuing hawkish stance of the central banks has led to the decline. Majors we track were shifted to an Uptrend Under Pressure or a Downtrend in the last two sessions of the week. The distribution day count in Europe stands elevated at 5.1 from 3.1 last week.
  • We recommend a cautious but selective approach to adding risk. Focus on high relative strength ideas that are part of leading and/or improving industry groups.
  • All sectors recorded a decline, with Energy, Health Care, and Staple holding up relatively better, while Basic Material and Tech led the decline. On our rotation chart, Capital Equipment, Cyclicals, and Retail are still in the best quadrant but showing a slowdown in their short-term momentum. Staple and Transportation are showing positive improvements in their short-term momentum (over four weeks).
  • European Focus List Update:
    • Actionable names include Bank Of Ireland Group (BIRG.IE; BIRG ID), Bic (BIC.FR; BB:FP) and Ipsos (IPS.FR; IPS:FP) .
    • Addition: Finecobank Spa (FCBK.IT) and Asml Holding (ASML.NL)
    • Removal: Serco Group (SRP.GB)

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

  • European equities gained last week, advancing for the seventh week in a row, marking the highest consecutive weekly gains this year. Most majors have acted constructively, post retaking their key moving averages in the last two weeks. Only three of the indices are in a Rally Attempt and the rest 14 are in a Confirmed Uptrend, along with the Stoxx 600.
  • We recommend an incremental approach to adding risk, with a focus on high relative strength ideas that are part of leading and/or improving industry groups.
  • Sector momentum was flat to marginally positive throughout the week. Retail and Cyclicals led the gain, while other sectors were flat to marginally in the green. On our rotation chart, Capital Equipment, Cyclicals, and Retail stand out, showing improvement in the short-term momentum while moving into the best quadrant. Energy, Staple, Tech, and Transportation lag in their short-term momentum (over four weeks).
  • European Focus List Update:
  • Actionable names include Evolution (EVOG.SE ; EVO SS ), Brunello Cucinelli  (BC.IT ; BC IM ), Bank Of Ireland Group  (BIRG.IE ; BIRG ID), Bic (BIC.FR; BB FP), Deutsche Telekom (Xet) (DTEX.DE; DTE:GR), Bic (BIC.FR ; BB FP), Edenred (EDEN.FR; EDEN FP), AstraZeneca (AZN.GB; AZN LN), Pearson (PSON.GB; PSON LN), LVMH (LVMH.FR, MC:FP), Ipsos (IPS.FR; IPS:FP), Jyske Bank (JYS.DK; JYSK:DC), Novo Nordisk ‘B’ (NON.DK; NOVOB;DC), and Rwe (Xet) (RWEX.DE ; RWE GR ), Moncler (MONC.IT; MONC IM), and Lancashire Holdings (LRE.GB; LRE LN).
  • Addition: Evolution (EVOG.SE; EVO SS), Brunello Cucinelli (BC.IT ; BC IM )

Luxury Sector Note

Some highlights from this report:

  • The global luxury industry has emerged stronger from the pandemic, accelerating a V-shaped recovery. In particular, European luxury players stand out from their global peers helped by a strong dollar and pricing power. As a result, through the O’Neil quantitative metrics, these players have now popped up among the best-rated names within the European Consumer Cyclical.
  • So far, insulated from macro headwinds, the sector is expected to deliver high-single-digit revenue and earnings CAGR in the next two years (FY22-24), following a stellar performance in Q3 with double-digit organic growth reported by key brands.
  • Despite the sector’s great outperformance since 2020, European luxury stocks have not been immune to multiple contractions this year. On average, the sector trades at a historically low valuation, in conflict with its strong fundamentals. Thus, we view the European luxury sector as an attractive investment opportunity due to long-term growth prospects led by Gen Y and Gen Z and the sector’s cash generation profile which has led to rapid deleveraging since the 2020 peak.
  • Top picks include Focus List names LVMH (LVMH.FR) and Moncler (MONC.IT).
  • Watchlist names include Hermes International (RMS.FR) and Brunello Cucinelli SpA (BC.IT).