A snapshot of the closing levels:
- STOXX 600 +1.0%
- German DAX +1.0%
- Frances CAC +0.8%
- UK FTSE 100 +1.1%
- Spain’s IBEX +1.3%
- Italy’s FTSE MIB +1.1%
There as a nice turnaround in European stocks today, which traded in lockstep with the improvement in US futures and equity markets. The early poor mood carried over from Friday but slowly turned.
In the end, the STOXX 600 closed at the best levels of the day and a record high.
The STOXX is up 33% since the bottom last April and has been accelerating since the turn of the year. I get the sense that European assets are returning home as governments in the core switch to higher deficit spending. Some of that could also be money fleeing the US as the dollar has substantially underperformed in this same period.
Finally, US tech has been a driving force behind US outperformance but there is growing unease about the AI trade and lofty valuations. There’s a good argument that AI productivity improvements will have a larger impact in the real economy and that could lead to a re-rate in European stocks, which also have a certain amount of embedded government protection in many industries, along with minimal risk of disruption due to a lack of startups.
At the end of the day though, this is mostly about valuations and starting points. Europe is cheaper than the US, by a lot. That’s happened because of serially disappointing European growth and ineffective governance. Lately, there is a renewal of pragmatism over idealism in European governing, led by Germany, and that’s a better formula for business.
Eyes will be on how European growth develops from here. The European car industry remains under an existential threat from Chinese autos and that’s going to be a painful issue to navigate.
This article was written by Adam Button at investinglive.com.