Analysis-Europe Inc earnings season a test for market optimism

By Joice Alves LONDON (Reuters) - Europe's upcoming corporate earnings season is likely to show whether the renewed optimism about the economy that has buoyed equities

in recent weeks is grounded in reality. The pan-European STOXX index is up 6% since the start of the year, hitting its highest since April after better-than-expected

economic data and improved German investor sentiment. The STOXX 600 index is on course for its best January since 2019. In a sign analysts were unprepared for such

optimism, Citi's economic surprise indicator for the euro zone jumped last week to its highest since July 2021. Recent signs inflation could be softening, improved supply

chains, revised global growth forecasts and the sudden easing of three years of COVID-19 restrictions in China have raised hopes the corporate downturn may not be as severe as

feared just a few weeks ago. Falls in gas, oil, and other commodity prices over recent months have also eased some of the pressure on companies' costs. But Europe Inc

isn't out of the woods yet. "Companies are telling us that it's going to be harder to pass on rising costs to customers in 2023 as economic growth slows," said Nigel Bolton,

co-chief investment officer of BlackRock Fundamental Equities. "We have already seen job cuts and a renewed focus on profitability in the technology sector, and we expect

that theme to spread across sectors this year." On Friday, Ericsson said it would reduce headcount as the Swedish telecom equipment maker aims to slash expenditure.

(Graphic: Citi economic surprise index jumps, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdkleayvo/citi.PNG)