Goldman Sachs cuts forecasts for European, UK equity indices

Goldman Sachs now expects 2016 European earnings per share to decline 2% compared with a previous forecast for 4% growth, but the bank lifted its 2017 growth estimate to 15% from 10% as it expects financials to recover, benefiting from rising inflation and interest rates.

The bank said the EPS downgrade came on the back of a weaker global outlook, a more Dovish Fed, a stronger euro, lower inflation and weaker-than-forecast commodity prices.

As a consequence, it cut its 3-, 6- and 12-month price targets for the Stoxx Europe 600 to 335, 340 and 345 from 355, 360 and 380.

It also cuts its 3-, 6- and 12-month forecasts for the Euro Stoxx 50, to 2970, 3020 and 3070 from 3200, 3250 and 3500.

Goldman said this implies slightly higher returns than for the Stoxx Europe 600 given the Euro Stoxx 50 has a higher beta.

The bank kept its 3- and 6-month targets for the FTSE 100 unchanged at 6150 and 6200, respectively, but downgraded the 12-month target to 6300 from 6550.

It pointed out that the FTSE 100 is the best performing of the major European indices in local currency year-to-date.

Goldman Sachs said the recovery it expects next year is small in a historical context. “We do not expect earnings to get close to the 2007 peak before 2018.”