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We think the recent outperformance of euro-zone equities over US ones has run its course. The eight-day winning streak in the S&P 500 may break today, after the market opened down over 1% on news that the US economy unexpectedly contracted in Q1 , on …
30th April 2025
Policymakers at the ECB appear to agree with us that risks to growth and inflation are increasingly skewed to the downside, supporting our view that the 10-year German Bund yield will stay around its current level and that the euro will give back some of …
17th April 2025
While the dust from the market sell-off continues to settle, there are few signs that the turmoil in equity and sovereign bond markets has sparked broader instability or a self-reinforcing downward cycle. Our base case is that market conditions will …
15th April 2025
While the recent outperformance of euro-zone stocks relative to US ones may have a bit further to run, we doubt European equities would hold up in absolute terms if US stocks fell much further. The renewed sell-off in the US stock market has added to its …
31st March 2025
The UK may have one of the most shielded economies against US tariffs. But stagflation and fiscal risks at home provide strong headwinds for its bond market. The UK is likely to get to the other side of US tariffs unscathed compared to other economies . …
28th March 2025
Over the past month or so, economic data have generally surprised to the downside in the US, whereas they have done the opposite in the euro-zone. This may be one reason for the intervening shift in the performance of their stock markets. Admittedly, much …
24th March 2025
The prospect of looser fiscal policy in Germany isn’t the only significant reason MSCI’s Europe Index has outperformed its USA Index since Donald Trump returned to the White House. The ‘big-tech’ sectors’ fall from grace in the US has also been very …
21st March 2025
News that Turkey’s main opposition leader has been arrested today raises concerns over a potential return to unorthodox economic policy in Turkey. While the risks to our relatively upbeat view on Turkey’s financial markets have plainly increased, we think …
19th March 2025
A big spending plan nears in Germany, but that might not mean higher yields or a stronger euro. Germany’s Bundestag, the federal parliament, has agreed today to reform the “debt brake”, the strict constitutional fiscal rule that notably prevents the …
18th March 2025
The shift in the ECB’s tone today to acknowledge the increased uncertainty surrounding the outlook has pushed euro-zone bond yields up slightly, extending their surge over the past few days. Given recent developments, we have raised our forecasts for the …
6th March 2025
While the prospect of more defence spending in Europe is pushing up government bond yields there, we still expect Bund yields to fall back. Meanwhile, even if defence stocks in Europe kept outpacing those in the US, we doubt that would prevent the overall …
3rd March 2025
This week’s pull-back in the US stock market and the unravelling of US exceptionalism in equities since Donald Trump returned to the White House on 20 th January have been driven by growing concerns about two key risks that we highlighted here to our …
28th February 2025
Judging by the muted market reaction, investors don’t seem too bothered about the German f ederal election , which took place on Sunday. Notwithstanding the risk-off mood in global markets since the US open, which left Germany’s markets more or less …
24th February 2025
Increased defence spending in Europe would in our view point not only to higher bond yields but also to wider spreads with German bonds. While industrial equities would presumably benefit, they might not keep outpacing their US peers. For decades, defence …
17th February 2025
President Trump’s push for a peace agreement in the Russia-Ukraine war would affect major financial markets mainly through lowering energy prices, especially in Europe. In turn, that would be a boost for equities and currencies in the region. But, unlike …
13th February 2025
We expect the Bank of England to cut faster and further than investors expect, pushing Gilt yields down and in turn weighing on the pound. The Bank of England (BoE) cut its Bank Rate by 25bp to 4.5% today, as widely expected. Even so, the tone of the …
6th February 2025
Even though we forecast the 10-year Treasury yield to end 2025 close to its current level, we anticipate that the 10-year Bund yield will fall over the rest of the year as the ECB, unlike the Fed, cuts policy rates further than currently discounted in the …
30th January 2025
While there has not been much market reaction to the speech that UK Chancellor Rachel Reeves delivered today on how to “kickstart economic growth” , we are still quite optimistic about the long-term prospects for UK equities. Some of the key announcements …
29th January 2025
Equities in Europe have done well so far this year, but we expect them to trail those in the US over the rest of 2025, as the US imposes universal tariffs and enthusiasm about AI returns. This would also mean “big-tech” sectors returning to the front of …
17th January 2025
UK Gilts have not only been embroiled in a global government bond sell-off, but they have fared worse than others. However, we think that bonds will recover before long, with yields in the UK falling particularly sharply by the end of this year. The …
9th January 2025
UK equities have kept up with other non-US ones in recent months despite a string of weak domestic activity data and stubborn inflation pressure. We think they will outperform most non-US markets in 2025, with the FTSE 100 hitting 9,000 by end-2025. The …
18th December 2024
We think corporate credit spreads in the euro-zone will widen only slightly next year, despite dim economic prospects. Corporate credit spreads, as captured by the option-adjusted spreads (OAS) of ICE BofA Corporate Investment grade (IG) and High Yield …
17th December 2024
While equities in Germany have managed to ride out weak growth and political uncertainty this year, those in France have not. We suspect that they will all fare poorly next year, as those adverse conditions remain and a trade war takes a toll. Today …
16th December 2024
Given our dovish view of ECB policy, we expect German Bund yields to fall back in 2025, and to diverge further from US Treasury yields. Unlike the Bank of Canada (BoC) and the Swiss National Bank (SNB), the European Central Bank (ECB) cut its policy rates …
12th December 2024
The probable imminent collapse of the French government is not having much impact on bond markets elsewhere in the euro-zone. And we think contagion risks will remain limited, as long as the monetary union itself is not called into question. One of the …
3rd December 2024
The spread between 10-year French and German government bond yields has risen again, and we forecast that it will continue to trend up next year. The spread between the yields of 10-year French OATs and German Bunds has surged in recent days, reaching a …
29th November 2024
National inflation data for November released today suggest that euro-zone inflation has edged up this month, but we think this is just a blip. We still expect inflation to drop below target next year and the ECB to cut interest rates by more than …
28th November 2024
November’s weaker-than-expected Flash PMIs for the euro-zone prompted investors to lower their policy rate expectations. Even so, we still expect more easing than implied in money markets, so we think Bund yields will fall a bit further. The euro-zone …
22nd November 2024
The euro has suffered more than most in the wake of Trump’s victory and we doubt that will let up anytime soon. Given our view that tariffs will be imposed next year and the ECB will ease by more than investors expect, we forecast the euro to slide to …
11th November 2024
The sell-off in the Gilt market after today’s budget announcement in the UK probably reflects concerns that the Chancellor’s fiscal plans will result in an increased a supply of bonds and less monetary easing. We will be reviewing our forecast for Bank …
30th October 2024
We think a pick-up in global growth and the further inflation of a US equity bubble mean prospects for euro-zone equities are generally promising, despite sluggish economic growth in the region. European equities have risen, on net, so far today, more so …
24th October 2024
The dovish tone at today’s ECB monetary policy meeting supports our view that the ECB will cut by 25bp at the December meeting. However, the risks to our policy rate forecasts are increasingly skewed to the downside. What’s more, we doubt that the easing …
17th October 2024
We think that the larger rise in yields in the UK than elsewhere over the past month is due to expectations that the Budget will boost demand rather than fiscal fears. That said, there is some upside risk from the Budget to our forecast for gilt yields to …
11th October 2024
The British pound fell sharply today, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning. Sterling has dropped by …
3rd October 2024
Brent crude oil has jumped by around 4% to ~$74.5pb at the time of writing, following reports that Iran is preparing a ballistic missile strike against Israel. Much remains uncertain. A key issue – if an attack materialises – will be its size and whether …
1st October 2024
We don’t see compelling reasons for policymakers in the US or the euro-zone to lower policy rates as much as market pricing suggests, so we expect long-dated bond yields there to edge up before long. That would probably be a wash for the euro. Today’s …
27th September 2024
We expect equities in Germany to continue rising even though the economy there appears to be in another ‘technical’ recession. But we expect them to lag those elsewhere over the coming year or so. It looks fairly certain that Germany’s economy is in …
25th September 2024
We think government bond yields in the euro-zone will rebound a bit, particularly in those countries, like France, where public finances are concerning. The September PMIs released today for the euro-zone and its two largest economies painted a very bleak …
23rd September 2024
Today’s decision by the ECB to cut the deposit rate by 25bp was widely anticipated, and even the press conference provided little new information. We stand by our view that too much easing is now discounted in money markets, which is why we think …
12th September 2024
US and euro-zone inflation data released today did little to change our view that both the Fed and the ECB will cut interest rates by 25bp in September, as investors seem to expect. But we think both central banks will ultimately cut rates by a bit less …
30th August 2024
Bond yields have fallen in the US and the UK after the Fed signalled an imminent rate cut and the Bank of England delivered one. But only in the UK do we see more room down for yields. US Treasury yields have fallen further following the Fed meeting …
1st August 2024
Today’s release of inflation and activity data for the euro-zone has in our view slightly reduced the chances of a cut from the ECB at its next meeting. However, the bigger picture is that the data released over the past month still suggest to us that a …
30th July 2024
The lack of much reaction on net in markets to today’s statement by the UK’s new Chancellor suggests to us that investors remain confident in the Labour Party’s commitment to fiscal discipline. But the disputed ‘revelation’ that the country’s public …
29th July 2024
Investors’ expectations for ECB rate cuts have not changed much over recent months and today’s meeting did little to change that. Instead, euro-zone assets have been influenced more by French politics of late; and while contagion concerns have eased, we …
18th July 2024
We think that corporate bonds will continue to underperform equities, as credit spreads are already low, economic growth moderates, and equities benefit more from enthusiasm about AI. After spiking in the first two weeks of June, credit spreads have …
10th July 2024
In the wake of the political tumult in France contrasting with newfound stability in the UK, the outlook for the exchange rate between the euro and sterling has come into spotlight. We think that yield differentials will play a much more important role …
9th July 2024
The surprising results of the French legislative elections have not triggered much of a market reaction. While investors appear to have been relieved by the far-right National Rally (RN)’s failure to be in a position to govern, the strong showing of the …
8th July 2024
Investors have welcomed the broadly unsurprising results of the first round of the French legislative elections, but the discount on French financial assets is still there and, in our view, likely to stay. The final results of the election’s first round …
1st July 2024
Weaker-than-expected euro-zone PMIs in June leave us confident in our view that bund yields will edge down over the coming months, while we doubt spreads will fall back much in France or Italy. This also supports our view that the euro will remain on the …
21st June 2024
French government bonds and equities have sold off this week, and the euro has weakened. A lot of bad news now seems priced in, but we suspect the discount on French assets is here to stay. Investors have now had some time to digest French President …
14th June 2024
