CoreMacro

Europe has 99 problems, but the paucity of bearish views about the Old Continent is not one of them! And yet, somewhat shockingly, European assets have outperformed US assets over the past two years. Sure, markets make mistakes. But the macro graveyards are littered with investors who thought they were smarter than the markets. In this report, we suggest that Europe is on a cusp of significant structural reforms that will unlock value in its services sector. And that while many of the challenges are real, they’re either well understood or priced in.

Forced selling may be approaching a pause, but France’s fiscal and political adjustment has barely begun. Maintain an underweight in OATs and use relief rallies to reduce exposure. Contained contagion is reassuring for Europe; it is not a buy signal for France.

Special Report

China shock 2.0 threatens Europe’s industrial core, but it is also forcing a long-overdue response. China stands to lose more than the EU from the coming confrontation. Beijing cannot afford to alienate Europe while its domestic demand remains weak. Europe, meanwhile, can turn protectionism into a stronger fiscal multiplier and an industrial revival.

The ECB is winning, and almost nobody's pricing it in. A flatter Phillips curve, a shrinking term premium, a euro built to shrug off France, credibility is the trade.

Special Report

Europe’s earnings recovery is increasingly difficult to dismiss. Margins, ROE, ROIC, and capital efficiency have all improved, while banks have re-emerged as an earnings engine. Cyclical conditions remain supportive, and the structural picture continues to improve: higher investment, improving productivity, and EU reforms could give the recovery staying power.

Special Report

Poland’s near-term growth story remains compelling: surging EU investment should cushion European weakness and support equity outperformance. But the clock is ticking. Demographics, skills shortages, and fiscal deterioration will increasingly constrain convergence. Favor Polish equities and the belly of the curve; expect further near-term zloty weakness against the euro.

The war in Iran and the energy shock are driving a reversal of Nordic fortunes: Sweden’s recovery is faltering just as Norway receives a welcome energy windfall. Favor Norwegian over Swedish equities and buy NOK/SEK. In rates, fade aggressive Riksbank hike expectations and downgrade Norwegian government bonds to neutral.

Europe faces a difficult macro backdrop, but whether it slips into recession remains finely balanced. We present two perspectives before translating them into investment implications.

We wish all our French clients Bonne Fête Nationale! The rest of the world knows the holiday by its other name, Bastille Day. It is fitting, therefore, that we publish today GeoMacro Beta report on the coming political earthquake in France.

The UK economy is becoming increasingly fragile, but the investment outlook is improving. Slower growth and a more dovish BoE will support gilts, while UK equities will likely benefit from a favorable sector mix and a weaker pound.