UniCredit Macro & Markets Weekly - European equities to outperform their US counterparts

  • Macro: The Ifo index is likely to increase further, driven by more optimistic services providers (due on Tuesday). In the US, the PCE core deflator (due on Friday) probably rose markedly in April but less strongly than the already published core CPI.
  • FI: The increase in breakeven rates in the US over the past few weeks leaves our year-end target for 10Y UST yields at 2% on track. Barring temporary spikes, we expect 10Y US breakeven rates to end the year around current levels, while real yields will likely increase in the remainder of the year.
  • FX: The FOMC minutes offered the greenback only minor relief. In fact, investors have already brought back the idea of a weaker USD scenario ahead. In EM, higher interest rates could keep the CZK and the HUF on bid.
  • Equities: We see higher potential for the European equity market than for US equities due to Europe’s high share of cyclical and value stocks, as well as its lower valuations.
  • Credit: Strong new-bond issuance from high-yield corporates is weighing on credit spreads from a technical perspective. However, primary-market activity is likely to decelerate, paving the way for tighter spreads in 2H. New-bond issuance has positive medium-to-long-term ramifications for the European high-yield market.

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