The last month on the financial markets was, without a doubt, very lively: on the one hand, we witnessed a decisive Correction of US shareholders’ coursesin particular it, media, consumer and magnificent seven, and a Discount of the rates on the Treasurywith the decades that went down to 4.15%in the area; On the other hand, we have seen a strong rise in European government rates, with the 10 -year German bund rate that has touched 3%, and European bags that have performed better than the US ones and boast a return from the beginning of the year even more than 10%.
What caused this divergence? The factors that influenced the trend of the equity and bond markets have been analyzed by the experts of General Investment and offer new indications on the future asset allocation.
The weakness of the US market
The downward movement on the US equity market – explain the experts – was led by two main factors. First, the escalation of the duties warwith the new administration engaged first in the duties and only at a later time in the tax support and deregulation measures (the least favorable scenario). The other factor that weighed on the US price lists was the deterioration of macroeconomic datawith a decisive discounted revision of growth estimates.
The comeback of the Eurozone
As for theEurozoneand specifically to Germanythe outcome of the federal elections German Cancelliere Merz (CDU) recommended to the future to accelerate the times on constitutional reforms, with the aim of relaxing the rigor in public accounts e increase public spending for infrastructure and defense. The prospect of a strong increase in spending in Germany has Violently pushed European government ratesas investors have feared both a greater issue of securities (which would saturate the question), and a inflationary impact on the economy, which would question the need for future cuts by the ECB. Uncertainty unprecedented on commercial duties has created downward voltages on the equity price lists, but it was compensated from the perspective of More expenses public in Germany (and Eurozone), which has helped the shareholder European.
Monetary policy
As regards monetary policies, recent subdued dynamics in the USA and the German tax level have Reduced the gap on rates expectations monetary policy of Fed and ECB. In USAthe weak macroeconomic data and the uncertainties related to the duties policies have translated into A little more accommodating forecasts For the current year, with the market estimate for rates at the end of the year in the area 3.75% (and therefore which implies 2.5 cuts in the coming months). As for the ECBthe outlook for the rest of 2025 has become more prudent As for the possibility of further cuts. The market has therefore adjusted its expectations, and in fact she now sees the rate on deposits in the 2% area at the end of the yearupwards of about 20 basis points compared to estimates of a month ago (still two cuts during the year).
Financial markets and prospects
Looking forward, acceleration on duties policies And the lack of novelty on the plan of tax cuts by the Trump Administration is certainly a negative factor for risky assetsin particular the equity. But it must be said that there are numerous positive elements to support the equity markets. In the USA, negative news and uncertainty about duties appears to a large extent obvious by investors, while Europe benefits from Perspectives of tax stimulia very important factor for the economic growth and profitability of businesses.
As for the stock marketGenerali analysts maintain a selective attitude on the various countries:
- United States more convenient after the recent correction and with a very high profitability of companies;
- Europe Favored by prospects of expansive tax policies, a key factor for economic growth and profitability of companies.
Among the issues – the experts say – we reiterate exposure to banking sector world (high profitability), ai Auriferous titles (Price of the gold above $ 3000 per ounce) and to the securities of the defense sector in Europe, which will see a structural demand given the increase in defense expenditure in the coming years.
On the plane bondthe high level of real rates is a key element in support of future returns. Even in these cases volatility can persist, especially on the European part, but Generali’s experts believe that these levels of rates in Europe are consistent with the maintenance of one Long Duration position. Among the government bonds, i Bund rates they could find a New balance in area 2.7%-2.9% and rise movements can be used as a purchase opportunity, while For the Treasury there is a neutral attitude. Interest also in European Inflation-Linked titlesalbeit in a less marked extent than last month. Constructive attitude on Italian BTPswith the stable spread in the area 110 basis points compared to the same German titles.
As for the creditthe European spreads have remained stable in recent weeks, with a slight increase in the High Yield sector. However, it must be said that the absolute level of returns has risen, in accordance with the rise in European rates. This makes this Interesting assets class.
