A stop in the dollar’s rapid acceleration against the euro could
threaten exporters’ leadership of the rally in European stocks, according to J.P.
Morgan Cazenove analysts.
The ICE dollar index DXY measurung the greenback’s strength against a basket of six rivals, has surged nearly 8% this year. But recently the dollar has tumbled as traders bet the Federal Reserve will hold off on raising interest rates until at least September.
According to analysts, US-oriented stocks could start outperforming European exporters, particularly auto makers. Those firms have been big beneficiaries of the euro’s EURUSD drop close to parity against the dollar, as well as the slide in oil prices.
Analysts also consider that commodities,
particularly oil stocks, “should start faring better” if the dollar
continues to dip.
Reiterating their upgrade of the sector to overweight, analysts said that energy stocks were one of the few “value sectors.” “The cuts to energy earnings projections appear to have overshot the fall in the oil price,” they said.
The luxury-sector also was “a huge beneficiary of the currency” move, but J.P. Morgan is now trimmimg its view on the sector to neutral from overweight, adding that sales of luxury goods in the key Hong Kong market “are weakening again.”
J.P. Morgan has cut its ratings on LVMH Moët Hennessy Louis Vuitton SE MC and Christian Dior SE CDI to neutral from overweight.
In their view, Italy could start outperforming core European markets, such as Germany. Germany’s export-heavy DAX 30 DAX index has surged more than 20% this year, aided by the euro’s fall. But it has reduced gains in recent sessions.
Italy’s FTSE MIB FTSEMIB is up 21% so far this year.
