Welcome to Thoughts on the Market. I'm Graham Sekker, head of Mungsanis European and

UK Equity Strategy Team. Along with my colleagues bringing you a variety of perspectives, I'll

be talking about our latest thoughts on European equities, and while we are not concerned about

their recent underperformance versus the US. It's Monday, July the 12th, at 2pm in London.

After performing strongly for much of this year, European stocks have traded sideways over the

last month, underperforming the US, but still outperforming EM and Japan. However,

this recent underperformance versus US stocks is causing some investors to question whether

the best of Europe's run is now behind us. We think not, and remain optimistic for the remainder

of the year. A key part of our argument is the observation that the underlying fundamentals

behind the European equity market remain strong, with the region currently seeing a faster

pace of earning upgrades than anywhere else. From an economic perspective, the data also continues

to come in better than expected, with the Eurozone enjoying the best economic surprise

index of any major global country or region. Most eye-catching of all the recent data releases

is arguably the European Commission's economic sentiment indicator. This rose to its

second highest level in June, and this is based on data going back 35 years.

Interestingly, the latest reading was boosted by strong bounce in both the consumer and

services components that are previously lagged, suggesting that the optimism is high across

all parts of the economy, and not just manufacturing. Fitting with the strong macro data coming

out of the region, Eurozone inflation expectations have remained towards the top of their recent

range, and have not followed the drop we have seen in the US since the last federal reserve

meeting in mid-June. Against this backdrop, we think it is hard to argue that the recent

underperformance of European equities is due to fundamental growth concerns. Instead, we think

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