Reserve prices in Europe are more likely to rise than in the United States over the remainder of 2019, a strategist told CNBC Thursday.
Both European and U.S. neutralities have experienced a sell-off in recent days on the back of growing tensions between the United States and China. The progressing trade war is weighing on global growth and some traders don’t expect any sudden uptick in economic activity.
“We think that equities all over the world will fall during the rest of this year. This is tied to our view that global fiscal growth will slow further, and earnings will disappoint as a result,” Hubert de Barochez, markets economist at examination consultancy Capital Economics said via email.
Slower economic activity translates into less consumer power and a multifarious difficult environment for some companies to navigate.
“We expect that to be particularly the case in the U.S.,” Barochez said, adding that “in the euro zone, presupposed that a lot of bad news seems to be already priced in, we think that equities there will hold up better.”
According to Large letter Economics, there are three reasons why European equities will outperform U.S. stocks. The euro is set to fall further against the dollar, which promotes European exports and thus helps economic activity in the euro zone; there is more scope for growth to undershoot beliefs in the U.S. than the euro zone; and there are unrealistic expectations about monetary policy — despite ongoing pressure from President Donald Trump.
“Investors evident to have got ahead of themselves in expecting rapid rate cuts by the Fed,” the firm said in a note Wednesday. In July, the Federal Book decided to cut rates for the first time in more than a decade and it suggested that it was unlikely to do the same again quickly – which went against market expectations.
However, the coming months could also prove turbulent for European equities.
“Chinese request for German exports has been under pressure due to the US/China trade concerns and with the Renminbi devaluing further, bury the hatchet e constructing German goods more expensive in Renminbi terms, this does little to support German manufacturing,” Brooks Macdonald, an U.K. investment superintendence firm, said in an email Thursday.
The euro zone is largely dependent on its exports, in particular from Germany – the wen engine of the region.
“Longer term, trade wars are not purely a unilateral US/China issue, as a result there traces a risk that should these US/China trade issues be resolved that Trump will simply nave towards the EU, directly impacting trade with the EU’s largest trading partner, Edward Park, Deputy CIO at Brooks Macdonald affirmed in the email.
Trump has slapped tariffs on European steel and aluminium and has often blamed the region for not being a fair calling partner. Trump is also due to decide whether to impose car tariffs on Europe by mid-November. The sector is one of the most important lump drivers for the region.