European equities received a significant vote of confidence on Wednesday as Goldman Sachs and Barclays raised their forecasts for the STOXX 600 index, citing renewed optimism following the recent US-China trade truce.
Revised Forecasts Reflect Improved Sentiment
Goldman Sachs increased its 12-month target for the STOXX 600 to 570 points from the previous 520, while Barclays adjusted its year-end forecast to 540 from 490. These revisions come after both institutions had trimmed their projections in April amid escalating trade tensions.
The STOXX 600, which closed at 545.17 points on Tuesday, has been buoyed by the easing of trade hostilities between the world’s two largest economies. The United States announced a reduction in tariffs on Chinese imports to 30% from 145%, while China reciprocated by lowering duties on US goods to 10% from 125%. This 90-day truce has alleviated concerns over a potential global recession.
Analysts Cautiously Optimistic
Barclays noted that the “meaningful US-China tariffs de-escalation reduces recession risk,” echoing sentiments from Goldman Sachs. However, both institutions acknowledged that while the immediate outlook has improved, challenges remain. Goldman highlighted that the upside for European equities might be limited due to relatively low earnings growth expectations and valuations that are no longer inexpensive compared to historical averages.
Despite these caveats, Goldman raised its earnings-per-share estimates for the STOXX 600 to 0% from a previous forecast of -7%, attributing the change to strong first-quarter earnings. The firm also adjusted its 12-month forecast for the UK’s FTSE 100 index to 8,800 points from 8,500.
Market Response and Future Outlook
The STOXX 600 experienced a slight dip of 0.52% to 543.03 in early trading on Wednesday, while the FTSE 100 decreased by 0.27% to 8,578.50. Analysts interpret these movements as a temporary pause following a four-day rally fueled by trade deal optimism.
Investors are now turning their attention to upcoming economic data releases and potential developments in trade negotiations. The recent truce between the US and China has set a positive tone, but market participants remain vigilant, aware that the situation could evolve rapidly.
The upward revisions by Goldman Sachs and Barclays underscore a growing confidence in the resilience of European equities amid easing global trade tensions. While the path forward may still hold uncertainties, the current trajectory suggests a more favorable environment for investors in the European market.
