As the U.S. flirts with recession, the Fed is set to stop tightening, leaving ECB boss Christine Lagarde as the West’s most hawkish policymaker. The transatlantic split is an opportunity for traders, write guerreraf72 and BenWinck
for households, plus the speedy reopening of its key Chinese export market, have reduced the odds of a recession in 2023.
Diverging economic and monetary paths mean this “everything rally” is unlikely to last. The most natural winner will be the euro. The day before the ECB started hiking last July the interest-rate gap between the two blocs – a key driver of foreign exchange rates – was 225 basis points. By November it could be down to 150 basis points.
European stocks are also cheaper. Companies in the STOXX Europe 600 Index trade at 13 times expected earnings for the next 12 months, well below the 18 times of the S&P 500 Index, according to Goldman Sachs. That discount is nearly a quarter larger than the long-term median.
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