A breakdown of the bulls in Europe

Forget about Pamplona's festival, the bulls are already running in Europe.

Check out some of these recent comments from professional number crunchers who watch the region:

  • June 20: Germany’s Ifo Institute raised its outlook for economic growth in 2017 from 1.5 percent to 1.8 percent. The reason? A strong start in construction and consumption are now fueling a manufacturing boom.1
  • June 22: The European Central Bank said growth will remain brisk in the second half, likely opening the door to narrower budget deficits. The bulletin also saw banks acting less stingy about giving loans – another potential positive.2
  • June 23: France admitted they were wrong, but in a good way. First-quarter gross domestic product actually grew 0.5 percent, not 0.4 percent. Sorry, we overestimated the drag from foreign trade… (One day earlier the same government agency gushed about surging business orders in June.)3

Other recent economic reports have matched those forward-looking projections. For instance, British manufacturing orders hit a 22-year high in June, while Eurozone consumer confidence rose to its best level since 2001. Yesterday morning Germany’s Ifo survey (different from their growth estimate cited above) rose more than expected to its highest level ever.4

Traders monitoring the U.S. have noticed that things haven’t been as amazing on this side of the pond. Last Friday, June 23, for instance, influential Bank of America Merrill Lynch economist Michelle Meyer cut her 2017 GDP estimate from 2.5 percent to 2.1 percent. She blamed the glacial pace of stimulus and tax cuts in Washington.5

S&P Global 100 vs S&P 500, YTD chart

Source: OptionsHouse by E*TRADE

Political headlines have also given the European bulls something to write home about. Remember the mess in Greece? That got fixed, or at least bandaged on June 15.6 Italian banks? Bailed out this week.7 And these positive developments are in addition to the unexpected rise of Emmanuel Macron as a pro-business centrist at the helm in France. 

Traders have noticed something new in the currency and commodity markets as crude oil stops tracking the euro. That’s a complete reversal from last decade, when energy was closely correlated to “global growth.”8 It was also before the boom in U.S. shale production. Now the narrative has been cheap oil means less inflation, which means a dovish Fed, and therefore a weaker greenback.

Another effect has been lower interest rates in the U.S. That’s given a boost to high-multiple technology stocks on the Nasdaq but also weighed on financials and domestically focused small caps. 

That brings us to the one last statistic haunting some investors as June draws to a close: The S&P Global 100 Index, which has a heavy focus on European companies, is on pace to outrun the S&P 500 for the second straight quarter. The last time that happened? Mid-2009. 

Bottom line: European stocks grabbed attention with a strong first quarter, and some experts see more good times ahead.


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1. CES Ifo Group: Increase in ifo Institute’s Economic Forecast. 6/20/17.

2. European Central Bank: Economic Bulletin. 6/22/17.

3. RTT News: France's Q1 GDP Growth Revised Up. 6/23/17. Insee: In June 2017, the economic climate improves again in the building construction industry. 6/22/17.

4. CES Ifo Group: ifo Business Climate Index Hits New Record High. 6/26/17.

5. MarketsInsider: Bank Of America Lowers U.S. GDP Outlook. 6/23/17.

6. Wall Street Journal: Greece, Creditors Reach Long-Sought Bailout Deal but Postpone Relief Decision. 6/15/17.

7. Business Insider: Italy is spending €17 billion to wind up 2 failing banks. 6/26/17.

8. Data from Bloomberg analysis of weekly correlations between crude oil and U.S. dollar index.