Paradigm Shift in Europe Sends Regional Equities and Bond Yields Sharply Higher

Fiscal promises out of Germany send European yields and equities higher

Highlights

• Fiscal promises out of Germany send European yields and equities higher

• U.S. equities rebound on news of Trump delaying tariffs on autos

• Elevated uncertainty poses a threat to growth

• Recent string of macro data is hinting at a Q1 contraction

Key Takeaways

• Headline-Driven Market Risks: This is a headline-driven market, which makes it a dangerous market. All it took was an announcement of a one-month tariff “reprieve” for the auto sector (see below) to elicit a +1.1% rebound in the Dow and S&P 500. That paled next to the +3.4% surge in Germany’s DAX, which propelled the European equity market back near an all-time high — on a different headline about the looming “whatever it takes” fiscal boom coming in Germany (adding infrastructure stocks to the buy list).

• Bonds Crushed by Global Fiscal Surge: Bonds are being crushed with this move afoot in Europe and China to release fiscal bazookas — the 10-year yield is up a further +8 basis points in Germany (2.87%) and France (3.57%), while gilts have risen +5 basis points to 4.74%. Expectations that the BoJ will be hiking policy more assertively have sent 10-year JGB yields soaring +10 basis points to 1.53%. The 10-year Treasury note yield has risen a further +4 basis points to 4.32%.