The Bottom Line
- Economic data from the Eurozone continues to beat expectations, while data from the U.S. has been coming in softer than anticipated over the past several weeks.
- That’s reflected in the Citi economic surprise indexes for the US and Eurozone, which measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected; a negative reading signals the opposite.
- Some of the divergence in the two indexes is likely due to residual pessimism about Europe, which can make beating expectations easier—and conversely, the surge in U.S. confidence measures in the months following the presidential election raised the bar for future reports to exceed expectations.
- Given that, the wide gap in the two indexes doesn’t necessarily reflect a huge divergence in real economic activity.
- Yet after years of underperforming, European growth does appear to be picking up steam, both in general and also relative to the U.S.
- Investors are taking notice. Fund flows into European equities have reportedly picked up over the past several weeks, reflecting increased investor interest.
- If data continues to inspire, interest could continue to grow as well—past underperformance led many investors to underweight the region, and now that might begin to reverse.
- But that doesn’t mean all European equities represent the same investment opportunity; some are more attractively valued than others, which could play to the strengths of active managers focused on the fundamentals of individual companies.