Analysis: Europe Inc earnings season a test for market optimism

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Europe's upcoming corporate earnings season is likely to show whether the renewed optimism about the economy that has buoyed equities in recent weeks is grounded in reality.

In a sign analysts were unprepared for such optimism, Citi's economic surprise indicator for the euro zoneRecent signs inflation could be softening, improved supply chains, revised global growth forecasts and the sudden easing of three years of COVID-19 restrictions in China have raised hopes the corporate downturn may not be as severe as feared just a few weeks ago.

Falls in gas, oil, and other commodity prices over recent months have also eased some of the pressure on companies' costs."Companies are telling us that it's going to be harder to pass on rising costs to customers in 2023 as economic growth slows," said Nigel Bolton, co-chief investment officer of BlackRock Fundamental Equities.

"We have already seen job cuts and a renewed focus on profitability in the technology sector, and we expect that theme to spread across sectors this year."

 

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