The market has underestimated Europe's ability to cut interest rates relative to the United States
BCA believes that Trump's tariffs will lead to inflation in the United States, but will cause deflation in Europe. Currently, the interest rate market expects the European Central Bank's rate cuts over the next 12 months to be lower than those of the Federal Reserve. Compared to these expectations, the European Central Bank's ability to cut rates relative to the Federal Reserve is significantly underestimated. For the stock market, one should also maintain an overweight position in Europe relative to the United States—until the valuation premium of the United States over Europe, which is still too high at 50%, falls back to a "fair value" of 25%
BCA believes that Trump's tariffs will lead to inflation in the United States, but will cause deflation in Europe.
Currently, the interest rate market expects the European Central Bank's rate cuts over the next 12 months to be lower than those of the Federal Reserve. Compared to these expectations, the European Central Bank's ability to cut rates relative to the Federal Reserve is significantly underestimated.
For the stock market, one should also maintain an overweight position in Europe relative to the United States—until the valuation premium of the United States relative to Europe falls from the still excessively high 50% to a "fair value" of 25%.
