European companies priced for recession investors
STOXX at 11.6 x forward earnings vs SP 500 at 17.8 x
European earnings seen dropping 11.4 in Q3

LONDON, Oct 17 Reuters The outlook for European equities isn39;t pretty as an earnings recession looks likely along with a prolonged period of high interest rates, but investors say much of the bad economic news is priced in and could in some cases even provide support.

War in the Middle East has prompted a rush into safehaven assets, but central bankers39; signals that they may not raise interest rates again have pushed the panEuropean STOXX 600 index close to threeweek highs.

After a long period of scepticism towards European equities, some investors and analysts are finding cause for optimism.

A mix of high interest rates, fraught geopolitics and a weakening economy is not usually favourable for stocks, Jefferies said on Monday. But in the current environment where surging bond yields have been drawing funds away from equities it could be that bad news is good news.

Any signs of weakness in the economy would lead to lower real yields and help risky assets, strategist Mohit Kumar said.

Deutsche Bank is recommending an overweight position, saying weaker growth, earnings misses and a reluctance among central banks to cut rates are largely priced in, leaving upside potential from positive surprises.

European companies are expected to enter their first earnings recession two consecutive quarters of falling…