- Down: Leading indicators are rolling over and turning less positive. Fears of double-dipping global economy on the rise. Not our economists’ core view.
- Headwinds: Strong correlation between US ISM index and European earnings. ISM suggests earnings growth to moderate over the next 6 months. We agree.
- Groundhog day: 1st year of recovery = strong equity gains. 2nd year = the grind. Fears of China slowdown and equity weakness reminiscent of 2004.
- Risk off: Weaker macro has driven risk assets lower. Equities hit hard. 2Q10 was one of the worst quarters for equities vs bonds in the last 20 years.
- Defensive growth: Defensives = downside protection in falling markets. Growth = upside participation in rising markets. We still back defensive growth.
- Stress-busters: Earnings resilience since 2005 and strong forecast growth. BAT, SAB, Syngenta, Sodexo, Smith & Nephew, SAP, Inditex and Nestle feature.
Citigroup European Portfolio Strategist 20100701
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