Highlights:

• As the reporting season is close to 50%, positive surprises are appreciable. Indeed, expectations on quarterly growth were flat providing good positive revisions, given the upgrade of the economy in the last three months.
• Margins are on the rise as capacity utilization is increasing and unit labour costs are still under control.
• Such positive revisions ultimately increase the fair value of equities more rapidly than expected, with additional support coming from lingering low yields. We see total returns of 6% in 12 months for EMU and 4% for the US.
• That said, Q2 will represent the peak of the yearly earnings growth in this cycle. This is due to a less positive base effect in the quarters ahead, toppish economic acceleration and confidence indicators in addition to the peak in policy support.
• For this reason, we maintain a prudent OW in equities, with only a slight OW of EMU vs US and a more defensive sector allocation within Europe.

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