• Investing
  • Stock
  • Editor’s Pick
  • Economy
The Significant Deals
Stock

How has USD strength impacted European equities?

by January 18, 2025
written by January 18, 2025

Investing.com — The US dollar’s surge to record highs has had marked implications for European equities.

Since September, the broad USD trade-weighted index has risen by 7%, driving the EUR/USD exchange rate near parity.

This strength in the greenback has led to European equities outperforming global equities by 3% since late December, following a challenging second half of last year.

Software (ETR:SOWGn) has been the best-performing sector since September, outperforming the wider market by 15%, which marks a notable overshoot relative to its USD-implied trajectory.

Pharmaceuticals, which have a 40% exposure to US sales, have underperformed their historical USD sensitivities, likely due to adverse stock-specific news flow.

Capital goods, a sector typically negatively correlated with USD strength, has also defied expectations. According to BofA, this sector “has also been overshooting the trajectory implied by USD strength since September, boosted by the 10%+ outperformance of defense stocks in response to expectations for increased European defense spending.”

A stronger dollar generally leads to negative global macroeconomic surprises, usually manifesting after a delay of about two months. This lag occurs as the tighter financial conditions associated with a stronger USD begin to impact macroeconomic indicators.

“Global macro surprises have recently turned negative again, with the signal from the recent USD strength suggesting a fade further into negative territory over the coming weeks,” the report states.

Despite a negative stance on European equities overall, BofA maintains a tactical Overweight on Europe relative to global equities. The analysts project downside risks for the Stoxx 600, with expectations of a 9% drop to 470 by the second quarter of 2025. However, a mild upside in Euro area PMIs could support relative outperformance.

Defensive sectors like food and beverages, along with pharma, are highlighted as key overweight positions.

BofA notes that both sectors “have underperformed in response to the continued compression in risk premia to multi-decade lows but should benefit once risk premia start to widen again.”

Meanwhile, banks and capital goods are key cyclical underweights at BofA, due to potential pressures from a possible pullback in bond yields amid fading global macro surprises.

Moreover, analysts anticipate lower bond yields to provide approximately 20% outperformance for the real estate sector, alongside a 12% decline for European value stocks compared to growth stocks.

The semiconductor sector remains Overweight, as BofA expects it to rebound further from last year’s underperformance relative to global growth trends. Similarly, luxury goods are also overweight; however, following a 15% gain since November, further price gains are projected to be minimal.

This post appeared first on investing.com
0 comment
0
FacebookTwitterPinterestEmail

previous post
How sustainable is the rise in global bond yields?
next post
With a 226% gain in the bag, these our AI’s top global picks for 2025 

You may also like

BASF results down on impairments, restructuring

January 27, 2025

European chipmakers slump as traders gauge DeepSeek AI...

January 27, 2025

Nasdaq futures tumble as China’s AI push rattles...

January 27, 2025

China Vanke’s CEO, chairman resign amid growing liquidity...

January 27, 2025

Fuji Media, rocked by sexual misconduct allegations, says...

January 27, 2025

Italy’s MPS shares fall ahead of Mediobanca board...

January 27, 2025

British Land stock drops following stake sale

January 27, 2025

UMG shares rally after new multi-year pact with...

January 27, 2025

BASF shares indicated 3% lower as impairments drag...

January 27, 2025

Ryanair cuts 2026 traffic forecast amid ongoing Boeing...

January 27, 2025
Fill Out & Get More Relevant News








    Stay ahead of the market and unlock exclusive trading insights & timely news. We value your privacy - your information is secure, and you can unsubscribe anytime. Gain an edge with hand-picked trading opportunities, stay informed with market-moving updates, and learn from expert tips & strategies.

    Recent Posts

    • Divided Fed proposes rule to ease capital requirements for big Wall Street banks

      June 26, 2025
    • Women’s Tennis Association extends media rights deal with Tennis Channel through 2032

      June 26, 2025
    • Bumble shares jump 26% as dating company plans to axe 30% of workforce

      June 26, 2025
    • Small-business AI use is lagging, but one firm is channeling Sherlock Holmes and knocking out ‘grunt work’

      June 25, 2025

    Categories

    • Economy (245)
    • Editor's Pick (3,646)
    • Investing (534)
    • Stock (6,426)

    Latest News

    • Divided Fed proposes rule to ease capital requirements for big Wall Street banks
    • Women’s Tennis Association extends media rights deal with Tennis Channel through 2032

    Popular News

    • Fed’s Kugler makes case for more rate cuts if inflation keeps easing
    • Bank of Canada likely to reduce interest rate by 50bps

    About The Significant deals

    • Privacy Policy
    • Terms & Conditions

    Copyright © 2025 thesignificantdeals.com | All Rights Reserved

    The Significant Deals
    • Investing
    • Stock
    • Editor’s Pick
    • Economy