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It is probably not his intention, however Donald Trump is making European markets nice once more.
Since election day in November, the benchmark US shares index, the S&P 500, has smashed its manner above 6,000 for the primary time, with a achieve of 6 per cent. US firms and international buyers clearly like parts of the president’s agenda, particularly the impulse to chop crimson tape (let’s see what horrors emerge from that later) and slash taxes. Thus far, a lot American exceptionalism.
However Europe’s market efficiency has been none too shabby both. The pan-continental Euro Stoxx 600 index has matched its US counterpart with a 6.2 per cent achieve over the identical interval. Within the supposed financial wasteland of Germany, shares are up by practically 14 per cent, hitting report excessive after report excessive. Even European financial institution shares are on a tear, up by greater than 11 per cent this yr thus far.
Within the UK, the home targeted FTSE 250 index of mid-cap shares stays the place the place enjoyable goes to die, however the FTSE 100 has additionally damaged information and gained by roughly the identical diploma as its US cousin.
Can the US president actually be answerable for all this? In his personal manner, partly.
For one factor, Trump has not, no less than for now, gone in exhausting with commerce tariffs on Europe. He nonetheless has time, after all, however within the run-up to reprising his place within the White Home, and in his first virtually two weeks within the job, he has targeted his tariff efforts on Mexico, Canada, Colombia (briefly) and, to a surprisingly lesser extent, China. Apart from unsettling Denmark by flagging expansionary designs on the autonomous territory of Greenland, Trump has not banged the drum on Europe as exhausting as feared.
In its newest investor survey, Financial institution of America notes that issue, mixed with cheap ranges of stability in bond markets, has meant fund managers have been in a position to keep a risk-seeking stance, permitting “lagging” dangerous belongings to “play catch-up”. The financial institution mentioned the change out of US shares and in to the EU within the month to the January survey has been the most important in no less than 25 years.
“The absence of US tariffs on Europe has probably helped,” say analysts at RBC. “This is not to say that this might not come at a point in the future but it does not appear the most pressing concern.”
One other factor is the worth of the euro, sterling and different European currencies in relation to the greenback. The greenback is just not ripping greater as shortly or easily as Trump Commerce true believers had hoped — a black eye for a extremely popular wager, particularly amongst hedge funds. However the worth of the greenback clearly rose forcefully forward of Trump’s election win and inauguration, after which calmed down afterwards — a traditional case of “buy the rumour, sell the fact”.
So, the euro as an illustration has picked up since mid-January, however remains to be some 7 per cent under the place it stood in late September — roughly the purpose at which buyers shifted to the view that Trump would win the election. That’s useful for European exports.
In the meantime, as we noticed this week, the European Central Financial institution stays squarely in rate-cutting mode, slicing one other quarter-point off the benchmark charge on Thursday, with extra prone to come. In distinction, the Fed is caught, with markets pencilling in few if any extra cuts over the course of this calendar yr. Once more, it is a recipe for the euro to no less than keep comparatively weak, even when it doesn’t collapse in the way in which some Trump Commerce adherents have anticipated.
What’s extra, Europe’s well-known lack of shiny tech shares, which has lengthy been seen as a weak spot, is wanting like one thing extra of a profit for the reason that shock delivered to markets this week by the emergence of low cost and seemingly good high quality synthetic intelligence instruments from China.
This helps Europe in a few methods: One is that if China can do it, Europe may beef up its AI recreation too, as France’s Mistral and others have already tried. One other is that it underlines how US tariffs are a possible personal objective which may find yourself as a boon for different main economies.
At an occasion this week, Invesco’s Paul Jackson sketched out the way in which US import restrictions may find yourself holding the nation again in the long run. “Companies in the US have less competition, so you are ending up with a higher price level for the same quantity of goods,” he mentioned, and with poorer innovation besides.
Angela Zhang, creator of Excessive Wire: How China Regulates Huge Tech and Governs Its Economic system, made an identical level within the pages of the Monetary Occasions within the week earlier than China’s DeepSeek unsettled international markets, stating that commerce restrictions have compelled China to work more durable and smarter to maintain up with the US. The broader lesson right here is that it’s too quickly to essentially declare the US to be the winner within the tech race. Europe and Asia can catch up.
This all provides as much as a cloudier imaginative and prescient of the American exceptionalism theme that has dominated the outlook for this yr from each banks and buyers. Knocking up some blue and gold MEGA hats (made in China after all) could also be a good suggestion.
katie.martin@ft.com
