European equities are flailing, and currency expert warns the worst is yet to come

Weak economic data and uncertainty in Italy have put European markets on track for their first weekly decline since March. One market watcher says investors should be wary here.

"The flashing light is still very much yellow and investors should take caution as far as European equities go," Boris Schlossberg, managing director of FX Strategy at BK Asset Management, told CNBC's "Trading Nation" on Wednesday.

A key metric on the euro zone economy, the region's PMI index, declined to an 18-month low in May, while growth in Germany's private sector came in at its slowest rate in 20 months. On top of that, Italy's new prime minister and populist government have raised the risk of conflict with the European Union over sovereign debt and immigration issues.

"All of this stuff I think is making investors incredibly uneasy about this situation in Europe," said Schlossberg.

The Europe Stoxx 600 was lower Thursday. A day earlier, disappointing data and continued unease over political change in Italy prompted a larger sell-off in European equities and the Europe Stoxx 600 index closed with its worst drop in two months.

Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors, has a sunnier outlook on the European economy and equities.

"They had the best economic growth in a decade last year and that hasn't gone away," Bapis said on Wednesday's "Trading Nation." "It's a global economy, the profits in the U.S. have shot up like a rocket ship, and we think European profits are going to follow."

The euro zone economy rose by 2.5 percent in 2017, according to FactSet data. The U.S. economy grew by 2.3 percent last year.

Companies in the Europe Stoxx 600 index are expected to post nearly 10 percent earnings growth this year, while S&P 500 companies are forecast for more than 20 percent growth, according to FactSet estimates.

"We would buy on this dip," said Bapis. "It's down significantly from the highs and so we would own it, we would allocate to it and longer term the U.S. rotation will happen and we'll move towards Europe."

The Stoxx 600 index is up 0.4 percent for the year so far, while the S&P 500 has risen 1.7 percent.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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