Citi: The Worst May Be Over for European Cyclicals, Autumn Presents a Buying Opportunity
nashnova research
Citi's European equity strategist Beata Manthey says European cyclicals offer an attractive entry point, calling autumn a strong window to get in; the eurozone's August composite PMI hit 52.1, a 9-month high, while manufacturing new orders grew at the fastest pace in 40 months.
Why does she say the worst is over?
The eurozone's August composite PMI — a gauge of overall economic activity, where anything above 50 signals expansion — came in at 52.1, beating the 51.7 consensus and marking a 9-month high.
Manufacturing PMI rose from 51.9 to 52.8, the highest since May 2022; manufacturing output hit 53.4, a 54-month peak.
This means → European factories are not just "less bad" — they are actively recovering. That is exactly the backdrop cyclical stocks need to re-price higher.
Where are the orders coming from?
Manufacturing new orders grew at the fastest pace in 40 months. Export orders returned to growth for the first time since February 2022.
Two drivers: a surge in AI-related tech-product demand and expanding European defence spending.
Germany's August manufacturing PMI jumped from 52.2 to 54.1, a 51-month high. In plain terms = Europe's manufacturing engine is accelerating on its own, not dragged up by smaller economies.
What to buy — and what to avoid?
Citi favours domestic-facing stocks over exporters and consumer names that rely heavily on international markets.
Manthey urges investors to at least unwind their underweight on cyclicals and take a selective approach.
This means → Citi is not calling a blanket bull case on cyclicals. The message is "stop being underweight" — a shift from defence to neutral-to-offence.
What policy support is in place?
Europe recently introduced a steel tariff modelled on the U.S. framework, pushing domestic steel prices higher and directly benefiting European steelmakers who can sidestep the levy.
Manthey pointed to autos and chemicals — sectors under the most pressure — as areas where policymakers are taking "meaningful steps" to protect.
Put simply = Europe is borrowing the U.S. playbook — using tariffs to keep demand onshore so domestic producers capture higher prices. Manthey calls it "a very good example of protectionism actually working in Europe's favour."
What is the biggest risk to this thesis?
Manthey herself flagged the key risk: the real tailwind for pressured industrial sectors is a sustained decline in energy prices.
So far, geopolitical tensions have prevented any meaningful drop in energy costs.
This means → if energy prices stay elevated, cost-side relief for manufacturers is capped — and the PMI recovery may not fully translate into profit recovery. Energy is the variable this thesis still needs to prove out.
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