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WHAT DOES EUROPE NEEDS FOR FURTHER RE-RATING?

European equities are hot, having raced ahead even against Wall Street this year, in a rare outperformance that now has the Euro STOXX 50 .STOXX50E commanding an 8 percentage point advantage versus the S&P 500 .SPX.

A re-rerating of valuation multiples has surely helped, along with a weaker euro and improving earnings expectations, Barclays says, also noting how the "Trump risk premium" has largely unwound, bringing European stocks back to fair value.

The UK bank believes "easy gains" are now behind us. And that brings up a key question for markets. What can lift Europe valuations further?

Barclays strategist Emmanuel Cau says for that to happen, Europe needs two things to happen. Namely, data must keep improving and rates must become lower.

"Combined with some hope around German elections and a Ukraine peace deal, and assuming front-end cuts also manage to pull back ends lower, there is a possibility we can get there as we go through 2025," he writes.

"But with so many variables (and risks) still up in the air, we wait for confirmation on some of the positives to revise our target higher, as most of our expected re-rating has happened".

(Danilo Masoni)

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