Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- European companies kick off their first-quarter reporting season this week against a backdrop that strategists see as challenging, with rising input costs, a weaker dollar, and geopolitical uncertainty complicating what was supposed to be a year of profit recovery.
Consensus is pricing in earnings per share (EPS) growth of more than 10% for European equities in 2026, a target Deutsche Bank and UBS strategists view as too optimistic.
UBS puts its own estimate at around 7%, while Deutsche Bank has trimmed its full-year forecast to 8-10%, down from a prior 10-12%, citing the impact of the Middle East conflict and broader macro uncertainty.
For the first quarter specifically, Deutsche projects aggregate earnings growth of around 3% year-over-year, slightly above the 2% consensus expects, but well below the long-term average beat rate.
"Our estimate implies a beat of less than 1% to consensus, clearly below the long-term average beat rate of 4%," the bank’s strategists said.
They point to a weaker dollar — down 11% against the euro year-over-year in Q1, its steepest annual decline since 2018 — as a meaningful drag, particularly for sectors with heavy U.S. revenue exposure such as health care.
UBS strategists echo the cautious tone, arguing that "the risk heading into results is asymmetric: delivery needs to be very strong to justify current expectations, while even modest margin disappointments could matter for valuations."
"European equities enter the 1Q earnings season with consensus expectations that are increasingly difficult to reconcile with the operating backdrop. Markets are still pricing a robust profit recovery in 2026, yet leading indicators now point to renewed cost pressure, softening demand and limited pricing power," they wrote.
Both banks flag margins as the central concern. UBS notes that PMI data show input prices across manufacturing sectors rose roughly 15-20 points between December and March, while output prices moved up only modestly, a combination it calls "a textbook signal of margin compression."
Deutsche Bank similarly warns that higher energy costs will start biting more visibly from the second quarter onward, as hedging protections for many companies expire.
Energy is a clear bright spot for both houses, with Deutsche upgrading its sector earnings growth forecast to 20% based on an assumed average oil price of $80 this year.
Semiconductors and defence-linked names are also better positioned, with UBS strategists saying that structural demand from AI and cloud infrastructure is "proving far less sensitive to energy prices or short-term macro noise."
Financials are expected to deliver solid growth in the mid-to-high single digits, supported by disciplined cost control and rates remaining structurally higher than the pre-2022 era.
On the other end, autos, chemicals, and consumer discretionary face the steepest headwinds. Deutsche flags travel and leisure as particularly exposed given the conflict in Iran, while UBS points to Airbus (EPA:AIR), BASF (ETR:BASFN), and Novo Nordisk (CSE:NOVOb) as names with a "higher bar to impress investors and see their negative 2026 revisions stabilise or improve."