Deutsche Bank sees pull-back ahead for European equities, overweights UK

European equities might be ripe for a pull-back, strategists at Deutsche Bank said, as economic growth stops accelerating.

Gauges of companies' new orders from composite purchasing managers' indices had begun to decline around the world, meaning that by June 2017 the six-month rate of change in PMI's would turn negative.

That would be consistent with European equities following right behind, with a "moderate" pull-back ensuing.

A drop in the number of positive 'macro-surprises' globally to a three-month low after February's seven-year high validated that forecast, Deutsche Bank said.

"With global equities continuing to track macro surprises closely, this would again point to some scope for a pull-back in equities."

In parallel, earnings momentum was beginning to soften, with the three-month rate of change in upwards revisions to analysts' earnings forecasts for European firms 12-months forward retreating from 6% in February to 2%.

Deutsche Bank said European companies' 12-month forward EPS would still rise by another 5% by year-end, for 9% growth overall in 2017, which would be the most supportive profits backdrop since 2010.

Nonetheless, that would still imply a 1% drop for the Stoxx 600 by year-end, with the broker targeting a level for the benchmark of 375.

By geographies, Deutsche was 'Overweight' the UK, Switzerland and Italy, but 'Underweight' Germany and France.

"European defensives have marginally outperformed cyclicals since late January. We see further upside for this trade, on the back of the fade in global growth momentum and attractive relative valuations."