Riding a global earnings upswing

Global weekly commentary
20-Feb-2017 / By Richard Turnill

Key points

  1. We see an improving growth outlook supporting company earnings, especially in Europe and Japan.
  2. Stronger risk appetite and economic data pushed global equities to record highs. Government bond yields rose. 
  3. This week's February PMI data from major economies are likely to hover near the strong levels hit in previous months.

1. Riding a global earnings upswing

Upbeat global earnings are confirming that the benefits of reflation – rising wages, growth and inflation – are spreading beyond the U.S. We see room for more upside for corporate profits, especially in Europe and Japan.

Chart of the week
Changes in earnings estimates, 2012-2017

Chart of the week

Sources: BlackRock Investment Institute, MSCI and Thomson Reuters, February 2017.
Notes: The lines show the three-month change in aggregate 12-month forward earnings estimates. The data are based on MSCI U.S., Europe, Japan and Emerging Markets Indexes.

Analysts have become increasingly upbeat about corporate earnings in Japan, emerging markets and Europe since late 2016. Earnings estimates have been revised up in these markets, and lowered slightly in the U.S., as the chart shows. Japan leads the crowd.

Here to stay: earnings momentum

Global earnings are collectively posting some of their best performance since the end of the financial crisis. We expect this trend to extend as world growth gains momentum. Our BlackRock GPS, which offers an early peek at the likely evolution of growth expectations for key economies, signals upside surprises for Japan, France and Germany. We believe this growth will translate into even stronger earnings in these markets over coming quarters, similar to the U.S. experience in the second half of 2016.

Japan’s earnings are particularly impressive. The December quarter pre-tax profits rose 11% on the year to the highest level in a decade. The rebound in commodity prices, a softer euro and stronger economic growth are setting European earnings on course for the best quarter since 2011. But investors are just warming up to Japanese and European shares − one reason we favour both over the U.S. Our analysis shows few signs of overly bullish positions on Japanese and European equities, suggesting more room for investors to step in.

Two sector trends stand out globally: Steeper yield curves and improving net interest margins have boosted profits for global financials, while long-term demand trends have lifted technology revenues. Management sentiment, which BlackRock’s Scientific Active Equity team captures by text mining company conference calls, reflects an upbeat and improving outlook in these sectors.



  • Stronger risk appetite and economic data pushed global equities to record highs. Government bond yields rose.
  • U.S., UK, Germany and China data highlighted the global pickup in inflation. But Japanese and European gross domestic product data came in marginally below expectations.
  • Federal Reserve Chair Janet Yellen said inflation and labour market are both close to targets, but the economic outlook is uncertain. Markets raised the probability of a March rate increase.



  Date: Event
Feb. 21 Eurozone, Japan and U.S. Purchasing Managers' Index (PMIs)
Feb. 22 Eurozone inflation (final release); Fed meeting minutes
Feb. 24 U.S. new home sales

February’s PMI data are expected to moderate from the very strong levels reached in recent months, underpinning the global reflation picture.

Richard Turnill
Managing Director, is Global Chief Investment Strategist for BlackRock
Richard Turnill is Global Chief Investment Strategist for BlackRock. He was previously Chief Investment Strategist for BlackRock’s Fixed Income and active Equities business ...

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