The pace of profit downgrades in Europe may be easing, according to Garry Evans at HSBC Holdings Plc. Analysts' forecasts for Euro Stoxx 50 earnings in 2012 have fallen less than 0.1 percent in July, according to Bloomberg data. That would be the smallest monthly reduction this year.

“We think we are now through the worst of the European downgrade cycle,” Evans, a Hong Kong-based strategist at HSBC, wrote in a report distributed July 3. “A combination of a shallow European recession and slowing, but still decent, global growth suggest that our target for European EPS growth of zero to 5 percent is in the right ballpark.”

SKF said June 13 it will cut 400 jobs amid weaker demand for products and services in western Europe and Asia in the second quarter, sending shares of the Gothenburg, Sweden-based company down 7.3 percent. Six days later, Paris-based Danone, the world's biggest yogurt maker, cut its profitability forecast after Spanish consumers switched to less-expensive products and raw-material costs rose. The stock fell the most in three years.

Eoin Treacy's view Following the best start to a year for global stock markets in more than a decade, spirits were running high and some disappointment was inevitable. Negative earnings surprises have weighed on sentiment while the underperformance of the banking sector has been a thorn in the side of those seeking a bullish outcome. Commodity price inflation has been a particular concern for Europe because the weakness of the Euro has exacerbated the impact of volatility in raw material pricing.

The Continuous Commodity Index has rallied back to test the region of the 200-day MA, unwinding its oversold condition in the process. It will need to sustain a move above this trend mean to suggest a return to demand dominance beyond the short term. When redenominated to Euro, the Index had less of a decline and has rallied more over the last month. A clear downward dynamic will be required to check momentum. These two charts demonstrate the fact that the fall in commodity prices has been of more benefit for US Dollar buyers and that commodity prices are still a significant headwind for European companies.

Against this background, valuations for the Euro Stoxx Index (P/E 21.81) have been under pressure. The yield of 4.2% is competitive relative to its global counterparts but the P/E is considerably higher than even the Europe Stoxx 600 which trades at a P/E of 15.56. The Euro Stoxx Index has found support in the region of 200 on three occasions since September. It has held a progression of higher reaction lows since the most recent in early June and a sustained move below 220 would be required to question potential for continued higher to lateral ranging.