As the first two months of the new year come to a close, most of the investor community has been surprised by the outperformance of European equity markets. The Euro Stoxx 600 index is up by almost 9% in the last two months, similar to its performance in November and December 2023.
The bond and currency markets have not replicated the same as higher borrowing estimates and stronger dollar keep the concerns upfront. The important question is whether this performance continues.
Certain triggers might be necessary for sustainability. First, from the economic perspective, while interest rates move down, it is important for economic growth to move higher, especially in the automotive sector. This is facing another threat from USA auto tariffs, which are one of the biggest export destinations.
Second, from a geopolitical pers, there are concerns relating to the USA-Russia, talks but yesterday, the French President said a ceasefire is possible within weeks. This would ease energy, prices giving a big relief to the local industries.
Given these triggers in addition to announcements of stable German government and higher defence spending. Will make upcoming months crucial for the trend to continue for some more time.
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