European stocks have high Trump premium priced in - Barclays
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EUROPEAN STOCKS HAVE HIGH TRUMP PREMIUM PRICED IN - BARCLAYS
The U.S. election is two weeks away, and polls are tight. According to Barclays equity strategists a high "Trump risk premium" is already priced into European equities.
There are recent signs that investors are incorporating a high probability of a reflationary scenario coming from a Trump win and the Republican party winning the House and the Senate in a "Red sweep", Barclays says, a factor that has pushed U.S. markets higher.
Other parts of the stock market though have lagged, Europe in particular.
This suggests European stocks "may be perceived as the losers from a second Trump presidency."
Bolstering this view is the fact that Barclays' tarrifs and China-exposed European baskets are underperforming the most. Indeed, the S&P 500 .SPX is up 22.6% this year versus an 8% rise for the STOXX 600 .STOXX.
"In the event of a full-blown trade war, we could see up to a high single-digit drag on EPS growth with Germany, Italy, Cap Goods, Autos, Beverages, Tech, Chemicals most at risk," the strategists write in a note.
If Harris wins, this tariff-risk premium could be unwound and their trade and China exposed baskets could benefit, while bond proxies may also see a relief post the latest pullback.
"Similarly, clean energy/renewables have also been weighed down by rising Trump odds and hence could see a lift if results favour Harris," writes Barclays.
If Trump wins, a positive catalyst for Europe would be if he ends up bringing a ceasefire in Ukraine as he has proclaimed - "a possible tailwind for EU Cyclicals/DAX", says Barclays.
(Lucy Raitano)
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