Europe

The ECB cut its deposit rate to 2.75%, as was widely anticipated. President Christine Lagarde did not provide any fireworks, but the Governing Council’s message was clear: Policy is restrictive, and inflation will fall further. As a result, if we combine our economic forecasts for the Eurozone with Frankfurt’s data dependency, we continue to expect the ECB’s deposit rate to settle below 2%. Consequently, German bond yields have downside, and the euro has yet to bottomed.

Global risk assets are engulfed in a wave of euphoria, which is pulling Europe higher along the way. However, risks still abound. How should investors adjust their allocation to Europe under these highly uncertain conditions?
 

President Trump is about to be inaugurated. Investors often assume all his policies will hurt Europe, but the reality is more nuanced.

This month, our Here, There, And Everywhere chartpack reiterates our main thesis for 2025: the three main narratives driving markets today – fiscal profligacy, trade war, and geopolitical conflict – will peak at some point in 2025. Why does this matter? All three have been tailwinds to US assets, and their peak should help usher in the peak in US outperformance relative to RoW. We conclude with some slides on our bullish Europe thesis.

UK and German bonds are victims of the global bond market riots. Will European yields continue to move higher and will the euro and the pound find a floor anytime soon?