Deutsche Bank expects a double-digit increase in profits for European enterprises in the second quarter, but this round of improvement is not fully developed and is still largely driven by a few plates. The more important question for the European stock market in the coming financial season is whether growth can spread from a single industry to a wider range.
Promising growth depends on a few blocks.
In the light of current projections, there is a marked divergence in the business-for-profit rehabilitation in Europe. Some sectors are still affected by weak demand, cost pressures and changes in the external environment, while others bear a larger share of the growth contribution. According to the Deutsche Bank, one of these industries will be the main pillar of the current round of profitable growth.
If this block is performing as expected, the overall profitability data for European enterprises will be markedly boosted; but if results fall short of expectations, market judgement of double-digit growth may also be affected. This makes the current financial season more structured.
Fiscal season focused on the division of industries
Next, market observations will focus not only on whether enterprises exceed expectations, but also on whether profit improvements begin to spread to more industries. If growth continues to be concentrated in a few areas, the profit base of the European market remains uneven.
There are two types of signals that are usually of greater concern: whether the lead industry can sustain strong performance, and whether the wider sectors of consumption, industry and so on can improve simultaneously. Only if the latter follow up will overall profit-making rehabilitation become more sustainable.
The second half of the year is expected to await validation
As financial disclosure continues, the ability of European enterprises to meet their earlier higher profitability expectations will have a direct impact on the market ' s judgement of growth prospects for the second half of the year. If the double-digit growth drops, the basic support of the European stock market will be strengthened; if the market depends mainly on a single block, the requirements for subsequent performance will be higher.
Overall, this judgement reflects an improvement in the profitability of European enterprises, but the path to repair is uneven. What really needs to be tested in the fiscal season is not just the rate of growth per se, but the breadth and sustainability of growth.