The Eurozone's 'flash' purchasing managers index (PMI) for manufacturing rose 1.3 points to 50.1 in July, the first time it has shown growth in two years (above 50 indicates expanding business activity). The final reading comes out Thursday, but with 85% of survey responses in, we believe recessionary conditions in Europe are finally starting to fade. Meanwhile, the flash services PMI for the Eurozone also rose 1.3 points to 49.6, which represents about 73% of the economy (manufacturing is 25% and the rest agriculture). Eurozone equities are trading at significant valuation discounts - 13 times trailing twelve-month earnings versus 15 times in the US - and are about 30% below trend on a Price Matters® basis. RiverFront upgraded Europe to a neutral weighting at the end of May, and we are increasingly alert for investment opportunities in the region.
David Fuller's view The Eurozone remains competitively priced
and the gradual improvement mentioned above is encouraging. It is also approximately
in line with ECB Chairman Mario Draghi's forecasts, as I recall.
However, rallies from the June lows by the Euro STOXX 50 Index and the Euro STOXX Banks Index are beginning to appear overextended as they approach prior resistance, within patterns which could easily extend their sideways ranges for a while longer.
The UK FTSE 100 Index looks considerably stronger, although it too is temporarily overextended.