The two Trump scenarios that could set European equities' fate
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TRUMP CONSTRAINTS COULD DECIDE EUROPEAN EQUITIES' FATE
UBS equity strategists are mulling two scenarios when it comes to European stocks' performance post-U.S. election, and it all depends on Trump's ability to corral support in the House and Senate.
The Republicans won the presidential election with a sweeping majority, and won control of the U.S. Senate. Control of the House is still to be finalised.
UBS's two different outcomes relevant to European equities are a 'Trump-constrained' scenario and a 'Trump-unconstrained' scenario."
Spoiler alert: Europe looks set to be a relative loser in both, adding insult to injury given the STOXX 600 is up only 5.8% this year, whiles the S&P 500 .SPX is up 24.30%
"'Trump-constrained' is the scenario where European equities still provide positive returns but less than the US and more than emerging markets", says UBS, adding this is what the market is currently pricing.
This situation would see Trump potentially able to implement trade policy actions, but he could be constrained on global tariffs. While this could be a headwind for European economic growth, UBS thinks European companies will still benefit from some of his growth-oriented policies.
And what about unconstrained?
That would see European equities perform much more poorly into 2025/2026 with only a very slow recovery according to UBS.
"In this scenario, we assume that Europe is much more directly impacted with the market pricing materially lower real yields, inflation and growth expectations alongside higher credit spreads. This may look a lot like typical market pricing behaviour in recessions."
They say that while markets are currently showing confidence in a "Trump constrained" scenario, there is risk that the market switches to concern over the other.
"...this scenario could potentially see macro drivers cause a sharp decline in equity markets with cyclicals and particularly European banks underperforming."
(Lucy Raitano)
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FOR THURSDAY'S OTHER LIVE MARKETS POSTS
EUROPE RISES ON STRONGER MINING, AUTOS, BUT EARNINGS DRAG CLICK HERE
EUROPE BEFORE THE BELL: FUTURES RISE AHEAD OF JAMPACKED DAY CLICK HERE
GERMAN POLITICAL DRAMA ADDS TO TRUMP RISKS FOR EUROPE CLICK HERE
Europe's flagging GDP growth rates https://reut.rs/4ecEaCw
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