Europe's rebound is "pathetic", says Hugo Dixon on Reuters.com. Growth is set to reach just 1% this year. There are bright spots, such as "a moderate recovery" in Spain, now enjoying the fruits of a "root-and-branch overhaul of its labour market and banking system". But France, slow to embrace reforms, is falling behind.
And a key business confidence indicator in Germany, which accounts for around 30% of eurozone GDP, has now slipped for three months in a row.
So it's just as well that listed eurozone firms make plenty of money outside Europe. In Germany's Dax index, for instance, the 30 constituents make over 70% of their sales abroad. Similarly, France's CAC-40 is dominated by blue-chips with an international footprint.
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Europe remains the key export market for most listed eurozone firms, but emerging markets are catching up quickly. Along with the very gradual recovery on the continent, this helps explain why the earnings outlook has improved.
Morgan Stanley notes that the results seen so far for the second quarter show that companies have "finally returned to positive earnings growth", after three years of steady declines.
There's another reason for improved profits: the softening euro, which makes exports cheaper. It has only declined marginally against the dollar in recent weeks, but could well now be "entering the early stages of a broad-based sustained move lower", reckons Morgan Stanley.
So fundamentals have improved of late but even if they take another turn for the worse, there is still reason to be bullish. Europe is in danger of slipping into deflation, which will increase its debt burden even further.
European banks are sitting on major losses and are reluctant to lend. So it looks as though the European Central Bank will have to print money before too long, which always lights a fire under stocks and weakens currencies.
Valuations are no longer especially cheap, but equities are certainly more appealing than bonds. As Bank of America Merrill Lynch points out, eurozone blue chips are yielding more than Portuguese government debt. Europe's rally has further to go.
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