Europe cyclical rally heading for a pause, says Deutsche Bank

Bloomberg

The record-beating rally of European cyclical stocks is heading for a pause. That’s according to Deutsche Bank’s head of European equity strategy Sebastian Raedler, who argues that equities geared to the economy will underperform defensive peers by about 10% through mid-year. Sectors like banks and miners — which last year benefited from investor optimism over growth — will bear
the brunt of slowing economic momentum in Europe and globally, he said by phone.
Recent data lends some support to Raedler’s argument. The Purchasing Managers’ Index for euro-area manufacturing fell for a second month in February, with IHS Markit noting that a slowdown in export orders to the weakest level in almost a year means growth could moderate.
“People may say purchasing manager indexes are still at very high levels, but the simple answer is that the rate of change in growth momentum is by far the strongest determinant of equity performance, not the level itself,” Raedler said.