JP Morgan on EZ Equity Strategy: stays cautious on the region and expects defensive sectors to trade better into year-end

Within Europe:

• JPM have tactical positive calls on commodity equities and energy (Overweight) as well as mining (Neutral), with the latter "there is a better relative value proposition, especially as iron ore is holding up."
• JPM is more cautious on consumer and corporate stocks that have performed well in H1 - i.e. Autos, Semis, Capital Goods and Luxury.
• JPM stays cautious on Chemicals.
• JPM believes defensives will trade better into year-end; i.e. Telecoms, Healthcare, Utilities and Staple
• JPM advises closing shorts on Real Estate (Underweight).
• JPM is "not excited" by EZ banks (Neutral) and prefer Japanese banks, and says Insurance vs Banks is appealing - "we continue the pair trade of long Japanese vs Eurozone Banks  - started in April, on the expectation of further move up in Japanese bond  yields vs Eurozone bond yield"

Broader Europe:

• Euro equities are trading better than the macro outturns would suggest. "We reiterate our downgrade to UW, made in May, staying cautious on the region, expecting it to have another leg of underperformance in the global context."
• Eurozone equities are looking quite cheap at present after notably lagging vs the US since May.
• "Renewed FX weakness stands to support the region’s topline, at least in relative terms, and one could argue that the relative growth. Renewed FX weakness stands to support the region’s topline, at least in relative terms, and one could argue that the relative growth."
• That being said, "the absolute Growth-Policy tradeoff is still challenging  for Eurozone, in our view".
• Eurozone EPS revisions are poised to turn sharply negative after holding up well so far this year.