Live Markets: Institutional selling seen next as energy shock threatens Europe earnings - UBS

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20/04/2026 11:31

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INSTITUTIONAL SELLING UP NEXT AS ENERGY SHOCK THREATENS EUROPEAN EARNINGS - UBS

Analysts are likely to start downgrading earnings soon - particularly in Europe - amid a war-driven spike in energy prices, according to UBS's Gerry Fowler who said long-only investors are waiting on the sidelines til then.

Europe's STOXX 600 is now just 2% below pre-war levels after falling as much as 11% in March.

Fowler said this "big rip down and rip back up" was largely driven by fast money - like CTAs, hedge funds and vol control funds.

"Now everybody's just waiting to see whether the institutional investors move as well. I suspect this time they will," he said.

Investors will need to start selling some of their disinflation beneficiaries, but Fowler said they are hesitating.

"It's almost like there's this reluctance of anyone to move first in case they're wrong. But the alpha is going to come from moving first in this instance."

The economic implications of the closure of the Strait of Hormuz are starting to ramp up and were already clear in euro zone PMIs earlier this month, said Fowler.

"The analysts have yet to materially downgrade any earnings. But they'll have to start downgrading earnings for higher energy costs, particularly in Europe," said Fowler.

This will be even more important given Europe is no longer benefiting from extra flows away from the U.S., as it had been earlier this year, with investors turning back to U.S. stocks.

So-called "disinflation beneficiaries" - will be the first in the firing line - and this will be heavy on the consumer side.

Fowler mentioned retailers, hotels and airlines as particularly vulnerable to downgrades due to higher input costs.

(Lucy Raitano)

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FOR MONDAY'S OTHER LIVE MARKETS POSTS:

MORE VOLATILITY (AND OPPORTUNITIES) AHEAD FOR EUROPE'S SOFTWARE SECTOR CLICK HERE

AIRLINES SKID, OIL STOCKS RALLY AS TRADERS MULL MIDEAST DEVELOPMENTS CLICK HERE

EUROPE BEFORE THE BELL: FUTURES SLIP AS IRAN CEASEFIRE NERVES RESURFACE CLICK HERE

MARKETS LIGHT ON VOLUME AND HIGH ON HOPES CLICK HERE

Crude oil prices https://reut.rs/3PtajyU