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Bank of America Merrill Lynch is recommending investors buy European airlines.
European stocks on Tuesday struggled for direction, as a key brokerage expects an upturn in the economy that will lift equities in the region.
The Stoxx Europe 600 SXXP, -0.29% dropped 0.03% to 393.04. Defensive stocks like food maker Nestle NESN, -1.35% and drugmaker Roche ROG, -0.34% declined.
The German DAX DAX, -0.09% rose 0.11% to 12442.12, the French CAC 40 PX1, -0.16% gained 0.09% to 5682.88 and the U.K. FTSE 100 UKX, -0.25% weakened 0.12% to 7399.39.
U.S. stock futures ES00, +0.20% were higher after a 96-point gain for the Dow industrials DJIA, +0.36% on Monday.
Data released Tuesday showed the final reading of eurozone manufacturing PMI in September at its lowest level in seven years. Inflation also unexpectedly declined, to just 0.9% year-over-year, more than a full point below the European Central Bank’s target.
Strategists at Bank of America Merrill Lynch say the Stoxx 600 can reach 415 by March, and that it expects cyclicals to outperform defenses by 5%.
It expects eurozone PMI momentum — defined as the six-month change in the new orders component of manufacturing and services data — to return to positive territory in the near term and remain there.
Like J.P. Morgan on Monday, the strategists noted the rise in eurozone money supply, and the Bank of America team also the risk of a U.S. recession remain low.
The Bank of America strategists say European airlines 156977, +1.41% in particular are priced for an outright eurozone recession.
Ryanair RY4C, +3.27% climbed 4% and Air France-KLM AF, +2.48% rose 2.5%.