Europe Weekly Kickstart

The report highlights a historically strong negative correlation between European equities and bond yields, driven by high valuations and late-cycle dynamics. It advises shifting focus from rate-sensitive positioning to structural growth themes like AI and Defense.

Key Takeaways

• 1.European equities are displaying extreme negative correlation with bond yields, where a 10bp rise in German yields translates to a ~2% drop in the STOXX 600.
• 2.Traditional market regimes are blurring; Utilities are decoupling from yield sensitivity due to structural themes like AI and electrification, while Growth and Value styles are converging.
• 3.High equity valuations (75th percentile for STOXX 600) and low Equity Risk Premiums (ERP) are reducing the market's ability to absorb rate shocks.

Table of Contents

• Why are equities so sensitive to rates?
• Using rates as a guide—with caution.
• The regime is evolving.
• Balance sheets: a quiet source of resilience.
• Rates outlook: an atypical “bull steepening”.
• Earnings surprises — Equal-weighted
• Earnings surprises — Market cap-weighted
• Sales surprises — Equal-weighted
• Sales surprises — Market cap-weighted
• Snapshot of Global Performance Across Assets - Total Returns (€)
• Global Strategy Views: Indices and Asset Classes
• Earnings Expectations and Revisions
• STOXX Europe 600 Supersectors
• Style Performance
• Thematic Baskets – Price performance
• Sub-Sector Performance
• Thematic Baskets
• Thematic Basket Valuation
• Europe Sector Valuation
• European Indices Valuation
• Long-Term Valuation – Europe
• Flows from Global Investors into European Funds
• Volatility, Skew, Dispersion and Correlations
• Europe Indices Sales Exposure
• European Indices Sector Weights
• Sector Correlations
• Economics

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