Investing.com -- Investors should hold off on buying the Euro Stoxx 50 until it trades below a key threshold, according to BCA Research.
Despite the recent cut in U.S. tariffs on the EU, European equities still face major headwinds tied to weak growth prospects.
“Consequently, the Euro Stoxx 50 suffers a downside from here, even if the tariff relief could briefly lift the index to 5100. This would be a countertrend move,” said BCA’s Chief European Strategist Mathieu Savary.
Thus, Savary recommends waiting until the index drops below 4400 before turning more constructive on European stocks.
The call comes as the region contends with elevated economic uncertainty, a key risk flagged by the strategists.
While the halving of U.S. tariffs to 10% has removed some pressure, it still represents a major increase versus the start of the year. Automotive exports remain under a 25% tariff, and the threat of further escalation in U.S. duties persists.
“The odds of a short and shallow recession remain elevated. Yes, the tariff rate on the European Union has been halved to 10%—a significant relief compared to what could have been—but it still marks a nine-fold increase versus January 1st,” the strategist said.
China’s deteriorating trade position could also compound problems for Europe. With Chinese goods now facing U.S. tariffs as high as 145%, BCA expects Beijing to redirect exports toward Europe.
That move risks “displacing local producers and importing a powerful deflationary impulse,” Savary noted.
Financial conditions aren’t offering much support either. The euro has appreciated 9.2% year-to-date, and German yields remain elevated, failing to cushion the economic drag.
At the same time, further depreciation in China’s yuan could undermine European competitiveness even more.
Against this backdrop, Savary expects more policy easing. Markets are already pricing in rate cuts from the European Central Bank, while fiscal measures are likely to expand beyond Germany.
But argue that until growth concerns ease, the strategist urges investors to stay defensive.