Oil Price Shock Fades as JPMorgan, Barclays, and Deutsche Bank Turn Bullish on European Equities
0xBroomberg
With the US-Iran memorandum set to be signed this Friday, oil prices have pulled back sharply. JPMorgan, Barclays, and Deutsche Bank all upgraded their European equity stance this week — the three firms see peak stagflation risk behind us and an earnings inflection point approaching.
Why did three major banks flip at the same time?
The trigger is the US-Iran memorandum signing this Friday. Lower energy prices mean Europe's "high oil + high inflation" stagflation shock is fading fast.
JPMorgan strategist Hugh Gimber said "it feels like we're approaching an inflection point." Barclays closed its underweight on the STOXX 600. Deutsche Bank closed a tactical switching strategy.
This means → the three calls are not coincidental. They share one logic chain: oil comes down → stagflation pressure eases → Europe's risk-reward resets.
How is the earnings gap between Europe and the US changing?
Deutsche Bank strategist Uleer noted European earnings growth is expected to accelerate from 7% in Q1 to 13% in Q2.
The US-Europe earnings-growth gap is projected to narrow from 18 percentage points to 8 over the same period.
In plain terms = US stocks still earn more, but Europe is catching up fast — the gap has been cut by more than half in a single quarter.
Bank of America derivatives strategists added that as "the fog of war lifts," investors may rotate into cheaper, under-owned European equities to diversify away from crowded AI trades.
What does Barclays mean by "since March it's been an oil-versus-tech bet"?
Barclays strategist Cau argued the EU-vs-US trade "has essentially been a bet on oil prices versus tech stocks since March."
This means → in March, high oil prices dragged Europe (energy costs ate into margins) while a tech rally lifted the US — a two-sided squeeze that left European stocks behind.
Now oil has fallen sharply from March highs and rate expectations have peaked. That logic has flipped: Europe's cost pressure is easing, and the US tech premium is loosening.
Which sectors are in focus?
Banks: JPMorgan's Gimber is bullish. A steepening yield curve — the spread between long and short rates is widening — means banks earn more on their core "borrow short, lend long" model.
Chemicals: an energy-intensive sector (production consumes large amounts of oil and gas). Lower oil prices cut costs directly, creating high profit leverage.
Luxury goods: Barclays moved to overweight. Cau's team flagged short-squeeze potential — many fund managers are underweight, and a trend reversal would force them to cover. Earnings momentum has started to turn up, yet the sector is still in negative year-to-date returns, meaning room for re-rating remains.
Barclays also raised consumer discretionary from underweight to equal-weight and trimmed defensive healthcare exposure.
Why does JPMorgan say ECB rate hikes are "overpriced"?
Gimber argued the market's pricing of how much the ECB needs to raise rates "looks too aggressive."
In plain terms = the market is betting on steep further hikes, but Gimber thinks actual hikes will fall short of expectations.
This reflects a deeper call: oil down → inflation pressure eases → the ECB doesn't need to hike as much → rates may peak sooner than the market expects.
What does this collective bullishness ultimately need to prove?
Deutsche Bank's prior tactical-switch strategy was closed after delivering 5% outperformance — the last call paid off, and now a new judgment cycle begins.
Gimber said "if 2025 was the year of embracing global diversification, I see no reason not to continue that trend."
This means → after the consensus has formed, the real test is singular: can the European earnings inflection point actually deliver? If Q2's projected 13% earnings growth misses, this collective bullish call gets invalidated.
Content is for reference only, not financial advice.