The move comes less than two months after its own bank completed on a £7billion capital rise.
European banks were dropped to “underweight” from “benchmark” this week, the bottom of the three tiered system used for rating stock.
In a note to clients, strategists said the banks are “among the sectors most sensitive to swings in Euro area PMI momentum and tend to underperform when it turns negative”.
However, Deutsche Bank noted that composite PMI new orders index at 55.5 – consistent with an annual economic growth of three per cent.
The rate is significantly higher than economists economic growth forecast for the year of just 1.8 per cent.
The bank said: “If PMIs fade back to the levels consistent with our economists’ projections (at around 53), this would imply PMI momentum (i.e. the six-month change in PMIs) turning negative over the coming months.”
And Deutsche’s experts also said they expect “PMI momentum to trough later in the year”.
The bank said: “At which point we will be looking to turn more positive on banks, especially given that our sector analysts see upside for the sector over the next 12 months”.
However until then, Deutsche Bank suggests buying energy and construction material stocks after it bumped up the sector to “overweight”.
The sector has been the worst-performing so far this year, underperforming the market by 12 per cent.
A statement from Deutsche bank said: “Following the recent correction, energy is around 5 per cent cheap on our short-term fair-value model based on oil and sterling (the largest upside in four years).
“It also ranks as the cheapest sector on our European sector valuation scorecard.
“The relationship between the oil price and the USD points to near-term upside for oil, given the recent USD weakness.
“Lastly, oil speculative positions have fallen sharply from a six-year peak in February, pointing to a more balanced market sentiment.”
Construction materials were upgraded to ‘overweight’ from ‘underweight’ and the bank downgraded the technology sector and airlines to “benchmark” from “overweight”.
Consumer durables such as luxury goods have also been cut to “underweight” from “benchmark”- with the bank claiming they are not yet priced for fading global macro momentum.