Europe

Bank failures are another ‘canary in the coal mine’ warning that a US recession is imminent, yet stocks, bonds, and the oil price are still a long way from fully pricing it.

The UK economy is more resilient than was feared last year. While this will not help UK stocks, the Footsie’s long term prospects are appealing.

The development of trading blocs and the rise of economic warfare will lead to the inefficient allocation of resources. Higher fiscal outlays and tight commodity supplies will feed into energy prices driving headline inflation. It also will drive demand for inventories as hedges against supply volatility globally higher. We remain long equity exposure via ETFs to oil and gas producers, and metals miners. We also retain our exposure to commodities via the COMT ETF.

The combination of collapsing energy inflation and cooling wage inflation means that euro area core inflation will slump later this year. We discuss the consequences.

In this week’s report, we speculate on the evolution of euro trading in light of the near-term hiccups, but tremendous value that can be unlocked for longer-term investors.