Hot US jobs data stoke yield fire, scold stocks

If the reaction in US stocks, bonds and the dollar to Friday’s sizzling US employment report is any guide, Asian markets are in for a bumpy ride on Monday, rocked by another whoosh higher in bond yields and inflation fears.

The US economy created over a quarter of a million net new jobs and the unemployment rate fell last month, reflecting a robust labor market. That’s good news. But the bad news for asset markets, especially in emerging and Asian economies, is the impact on borrowing costs and the dollar.

Treasury yields surged to the highest in over a year, the dollar hit a two-year peak, and traders are now only predicting one quarter-point rate cut from the Fed this year, in September.

The S&P 500 fell to its lowest since November 5, the day of the US presidential election, and it looks like soaring bond yields could crush investors’ appetite for risky assets like stocks.

Japanese futures are pointing to a fall of more than 1% at the open in Tokyo on Monday, and it will be a similar story around the continent.

Sentiment is already fragile, as the explosive rise in long-term bond yields has tightened financial conditions everywhere. According to Goldman Sachs, aggregate emerging market financial conditions are the tightest since late 2023.

Uncertainty over the potential hit to growth in Asia – especially China – from the incoming Trump administration’s ‘America First’ trade policies is another reason to be cautious if not outright bearish.

Trade figures from China on Monday are unlikely to lift the gloom. Economists polled by Reuters expect export growth accelerated in December while imports contracted for a third straight month.

December’s import figures are likely to garner more attention as they reflect the strength of domestic demand, and can therefore perhaps be seen as an early sign of how successful Beijing’s stimulus efforts have been.

The trade figures are the first clutch of top-tier indicators from China this week which include house prices, retail sales, industrial production, investment, unemployment and culminate on Friday with fourth-quarter and full-year GDP.

Investors will also assess the People’s Bank of China’s announcement on Friday that it has suspended treasury bond purchases, spurring speculation it is stepping up defense of the yuan. Will this be enough to put a floor under yields and the yuan?

The annual Asian Economic Forum opens in Hong Kong, and among the speakers on Monday are Hong Kong Monetary Authority Chief Executive Eddie Yue, China Investment Corp’s CIO Liu Haoling, and European Central Bank board member Philip Lane.

Meanwhile, Indian inflation on Monday is expected to show that the annual rate cooled slightly in December to 5.3% from 5.5% in November.

Here are key developments that could provide more direction to markets on Monday:

– China trade (December)

– India CPI inflation (December)

– Asia Economic Forum

(Reporting by Jamie McGeever; Editing by Diane Craft)

Yields dip as Trump policies stay in focus

NEW YORK – Treasury yields eased on Thursday following a sharp selloff that sent 10-year yields to a more than eight-month high on Wednesday as traders evaluated the likely economic impact of policies proposed by the incoming administration of President-elect Donald Trump.

Business deregulation and tax cuts are likely to boost US growth while a crackdown on illegal immigration and tariffs is seen as potentially fanning inflation. The Federal Reserve, meanwhile, is expected to be more cautious in cutting interest rates as it watches the economic impact of the changes.

With considerable uncertainty over what policies exactly Trump will introduce, traders are pricing in much stronger growth as the default option, said Thomas Simons, US economist at Jefferies in New York.

“We can’t predict how it’s going to go wrong,” he said. “So you’re left with this only path forward that is – well, I guess it means we’re going to have more growth, it means we’re going to have more inflation, it means that the Fed is probably not going to cut as much.”

The US government is also expected to increase debt auction sizes this year if the budget deficit continues to worsen, as is widely expected for the foreseeable future, and as it balances its debt maturity profile to rely less on shorter-dated bills.

Fed Governor Michelle Bowman and Boston Fed President
Susan Collins on Thursday both expressed taking a cautious approach to further rate cuts.

Kansas City Fed President Jeff Schmid also signaled a reluctance to cut interest rates again while Philadelphia Fed President Patrick Harker said he still expects the US central bank to cut interest rates, but added that any sort of imminent move down isn’t needed.

Thursday’s pause in the bond selloff came before jobs data on Friday, which is expected to show that employers added 160,000 jobs during the month.

Trading volumes were also light as the US bond market closed early in honor of former President Jimmy Carter.

Interest rate-sensitive two-year note yields fell 2.3 basis points on the day to 4.268%.

Benchmark 10-year yields fell 0.2 basis points to 4.691%. They peaked at 4.73% on Wednesday, the highest since April 25.

The yield curve between two-year and 10-year notes steepened two basis points to 42.1 basis points, after reaching 42.9 basis points on Wednesday, the steepest since May 2022.

Thirty-year Treasury yields were flat at 4.932%, after reaching 4.968% on Wednesday, the highest since November 2023.

(Reporting by Karen Brettell; Editing by Bernadette Baum and Deepa Babington)

Oil settles up 1% as cold weather in US, Europe drives winter fuel demand

HOUSTON – Oil prices rose more than 1% on Thursday as cold weather gripped parts of the United States and Europe, boosting winter fuel demand.

Brent crude futures settled up 76 cents, or 1%, at USD 76.92 a barrel. US West Texas Intermediate crude futures settled up 60 cents, or 0.82%, to USD 73.92.

On Wednesday, both benchmarks fell more than 1%.

Thursday’s rise is “definitely winter fuel demand kicking in here in the US,” said John Kilduff, partner at Again Capital in New York.

Parts of east Texas up to west Virginia were under a winter storm warning on Thursday, according to the National Weather Service, covering large swathes of Arkansas, Tennessee and Kentucky.

Ultra-low sulfur diesel futures were trading at around USD 2.38 a gallon, their highest since Oct. 8, according to data from LSEG.

JP Morgan analysts estimate that for the United States, Europe and Japan, for every degree Fahrenheit the temperature drops below its 10-year average, there is an increase of 113,000 barrels per day (bpd) in demand for heating oil and propane “as teeth-chattering temperatures prompt consumers to crank up their heat.”

Extreme winter conditions can lead to disruptions in oil supplies as freezing temperatures may cause temporary freeze-offs and production cuts, JP Morgan analysts said.

“Right now it appears that the ice will stay north of refinery row along the US Gulf Coast, but power outages will be a concern as heavy rain and wind comes along for the ride,” TACenergy’s trading desk wrote on Thursday.

Meanwhile, the market structure in Brent futures is indicating that traders are becoming more concerned about supply tightening at the same time demand is increasing.

The premium of the front-month Brent contract over the six-month contract reached its widest since August on Wednesday. A widening of this backwardation, when futures for prompt delivery are higher than for later delivery, typically indicates that supply is declining or demand is increasing.

US President Joe Biden is expected to announce new sanctions targeting Russia’s economy this week, according to a US official. The administration is trying to bolster Ukraine’s war effort against Russia before President-elect Donald Trump takes office on Jan. 20. A key target of sanctions so far has been Russia’s oil industry.

The dollar strengthened further on Thursday.

Looking ahead, WTI crude oil is expected to oscillate within a range of USD 67.55 to USD 77.95 into February as the market awaits more clarity on Trump’s planned policies and fiscal stimulus from China, OANDA senior market analyst Kelvin Wong said.

(Reporting by Georgina McCartney in Houston, Paul Carsten in London, Yuka Obayashi, and Trixie Yap; Editing by David Goodman, Frances Kerry, David Gregorio, and Mark Porter)

Dollar climbs for 3rd straight session, sterling weakness continues

NEW YORK – The US dollar strengthened for a third straight session on Thursday as Treasury yields dipped but held at elevated levels on concerns over tariffs under the incoming Trump administration, while sterling’s recent weakness persisted.

US Treasury yields have been on an uptrend, with the benchmark 10-year note hitting an 8-1/2 month high of 4.73% on Wednesday as a resilient economy and likely tariffs have rekindled inflation concerns and heightened expectations the Federal Reserve will take a slower path of interest rate cuts.

Recent economic data has shown a labor market on a solid footing and minutes from the Fed’s December meeting showed that policymakers raised new inflation concerns suggesting the new administration’s plans may slow economic growth and increase unemployment.

Investors will eye Friday’s key government payrolls report to gauge how aggressive the central bank will be in cutting interest rates.

“Most of the economic readings that have come in have been a little stronger than expected so if we get a non-farm payrolls tomorrow that is stronger than what’s expected that’s another indicator that the economy is not cooling off and that inflation is going to get more pressures,” said Joseph Trevisani, senior analyst at FX Street in New York.

“We’re also going to get the Trump administration which is going to change all sorts of things,” Trevisani added.

The dollar index, which measures the greenback against a basket of currencies, rose 0.12% to 109.15, with the euro down 0.16% at USD 1.0301.

Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty over the outlook calls for the central bank to move forward cautiously with future rate cuts while Philadelphia Federal Reserve President Patrick Harker said he still expects rate cuts, but any sort of imminent move down is not needed amid considerable uncertainty over the economic outlook.

In addition, Kansas City Federal Reserve President Jeff Schmid said he believes rates are near the point where the economy needs “neither restriction nor support,” while Fed Governor Michelle Bowman said the incoming administration’s future policies should not be prejudged.

Sterling weakened 0.46% to USD 1.2306, on track for a third straight session of declines after hitting its lowest level since Nov. 13, 2023 with Britain’s finance minister under pressure as concerns over Trump’s policies have pushed the British government’s borrowing costs higher.

Bank of England Deputy Governor Sarah Breeden said a rate cut was supported by recent evidence, although it was difficult to know how quickly.

Erik Nelson, macro strategist at Wells Fargo sees a risk of continued underperformance in the pound while UK gilt yields begin to turn lower.

The Japanese yen strengthened 0.17% to 158.06 per dollar. Government data on Thursday showed Japan’s inflation-adjusted real wages fell for the fourth straight month in November, weighed down by higher prices even as base pay grew at the fastest pace in more than three decades.

Analysts at Goldman Sachs believe the discussions at the January branch managers meeting support their view of a January rate hike from the Bank of Japan.

The US stock market was closed on Thursday. US bond markets were set for an early close for former president Jimmy Carter’s funeral.

(Reporting by Chuck Mikolajczak; Editing by Alexander Smith and Diane Craft)

Treasury yields fall, dollar strengthens with investors weighing Fed moves

NEW YORK/LONDON – US Treasury yields retreated from an eight-month high on Thursday while the dollar strengthened against major currencies, as investors reevaluated the Federal Reserve’s interest rate policy for 2025 as the US economy shows signs of resilience.

The benchmark 10-year US Treasury yield fell 0.45 basis points to 4.689%. It had hit a peak of 4.73% on Wednesday, the highest since April 2024. The pound is headed for its biggest three-day drop in nearly two years.

A selloff in global bonds in recent weeks and worries about Britain’s economy has kept the pound under pressure and also has hit gilts especially hard, driving yields to 16-1/2-year highs.

On Friday, the closely watched US monthly payrolls report will provide clues on the Fed’s policy outlook. Markets are fully pricing in just one 25-basis-point US rate cut in 2025.

“Yields have come down a little bit heading into the payroll number on Friday and it’s indicative of where the level of concern is, which is that maybe the move in yields has been overdone,” said Drew Matus, chief market strategist at MetLife Investment Management in New Jersey.

Minutes of the Fed’s December policy meeting released on Wednesday showed officials were concerned President-elect Donald Trump’s proposed tariffs and immigration policies may prolong the fight against inflation.

A market selloff in Treasuries continued on Wednesday after a CNN report that Trump was considering declaring a national economic emergency to provide a legal justification for a series of universal levies on allies and adversaries.

US stock markets were closed on Thursday to mark the funeral of former US president Jimmy Carter. US bond markets closed early at 2 p.m. ET (1900 GMT).

“I put the fair value 10-year yield at 4.50% and yet we’re still at 4.66% heading into a report that will either show continuing strength in the labor market, in which case the rate cuts aren’t the right thing to be doing, or show labor weakness and will ratify the Fed’s view of the world against the backdrop of inflation that remains elevated and a high degree of uncertainty in policy and economic outcomes,” Matus said.

European shares finished higher after paring early losses. Gains in healthcare and basic materials stocks were partially offset by declines in retailers. The pan-European STOXX 600 closed up 0.42%.

The US dollar index traded just under 109.54, a level it hit last week for the first time since November 2022. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.12% to 109.15, with the euro down 0.18% at USD 1.0299.

Sterling was last down 0.44% at USD 1.2307, having touched its lowest since November 2023 earlier in the day.

China’s yuan steadied near a 16-month low against the dollar as the nation’s central bank announced a record amount of offshore yuan bill sales to support the currency.

Oil prices settled up more than 1% as cold weather gripped parts of the US and Europe, boosting winter fuel demand.

Brent crude futures settled up 1% at USD 76.92 a barrel. US West Texas Intermediate crude futures settled up 0.82% to USD 73.92.

Gold prices advanced to a near four-week high, backed by safe-haven demand. Spot gold rose 0.27% to USD 2,669.38 an ounce, trading near its highest level since mid-December. US gold futures rose 0.77% to USD 2,685.00 an ounce.

(Reporting by Nell Mackenzie in London and Chibuike Oguh in New York; Editing by Mark Potter, Chris Reese, Alexander Smith, and David Gregorio)

Global yield fever cools, but EM conditions tighten

Investors in Asia approach the end of a bumpy week hoping that the relative calm that descended on the dollar and a shortened US bond market session on Thursday can extend into the local session on Friday.

With the December US employment report looming large and markets still feeling the whiplash from the surge in global long-term bond yields this week, trading in Asia may end up fairly range-bound and subdued.

Nikkei futures are pointing to a flat open for Japanese stocks. The Nikkei is on track for a decline of around 0.7% on the week, underperforming the wider MSCI Asia ex-Japan index, which goes into Friday’s session flat on the week.

Chinese stocks are also looking to end the week unchanged and unscathed. That can be interpreted two ways, however. It’s welcome news, given the doom and gloom that continues to surround the outlook for China in the eyes of many investors.

On the other hand, Chinese stocks tumbled more than 5% the week before, their worst week in more than two years. In that light, failure to stage even a modest rebound the following week is a pretty ominous sign.

It’s been a difficult start to the year for China bulls. Stocks are significantly lagging their regional and global peers, the bond yield collapse has been alarming, and uncertainty around a possible trade war with the US is cutting deep.

According to Goldman Sachs, financial conditions in China are the tightest since last April. Across emerging markets more broadly they are the tightest since November 2023.

China’s latest inflation figures on Thursday weren’t particularly encouraging either. Consumer and producer prices for December were broadly in line with forecasts, cementing the view that deflationary pressures are not lifting any time soon.

Economists at Barclays slashed their already weak 2025 CPI forecast to 0.4% from 0.8%, and they expect PPI inflation to remain in deflation throughout 2025. That would mark more than three years of falling factory gate prices.

And it could get even worse if the incoming Trump administration in Washington follows through with its aggressive tariff threats.

“We think a new trade war between China and the US would, on balance, have a deflationary effect, given the downward pressure on exports would exacerbate the overcapacity issues in China,” they warned.

The regional calendar is light on Friday, with the latest Japanese household spending figures most likely to move markets. Investors will be looking for early signs that recent wage agreements in Japan – the highest in decades – are beginning to lift consumer spending.

The Bank of Japan said on Thursday that wage hikes are broadening across the country, suggesting that conditions for a near-term interest rate hike may be in place.

Here are key developments that could provide more direction to markets on Friday:

– Japan’s household consumption (November)

– India industrial production (November)

– Malaysia industrial production (November)

(Reporting by Jamie McGeever; Editing by Diane Craft)

Rising Treasury yields caps global stocks; traders weigh tariffs, Fed rate cuts

NEW YORK/LONDON – A selloff in global bonds continued on Wednesday, pressuring Wall Street stocks and boosting the dollar as signs of continuing strength in the US economy dimmed expectations for aggressive near-term interest rate cuts.

The benchmark 10-year US Treasury yield rose as high as 4.73%, a peak since April 2024, building on Tuesday’s 7 basis point rise. It was last up 0.2 basis points to 4.687%.

On Wall Street, benchmark S&P 500 traded lower for much of the session but finished higher. The Dow also closed higher, while the Nasdaq ended lower. Stocks in healthcare, materials, consumer staples, real estate, and industrials drove gains. Communication services and energy were the biggest losers.

The selloff in bonds on Wednesday accelerated after a CNN report that US President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries.

“Ever since Trump became president-elect, rates just keep going higher,” said Bill Strazzullo, chief market strategist at Bell Curve Trading in Boston. “The issue that got him in the White House is inflation and when you look at all his policies, whether it’s the tariffs, tax cuts or deportations, they are all inflationary.”

The Dow Jones Industrial Average rose 0.25% to 42,635.20, the S&P 500 rose 0.16% to 5,918.25 and the Nasdaq Composite fell 0.06% to 19,478.88.

European shares dipped, with the pan-European STOXX 600 finishing down 0.2%, with most regional bourses also in the red. MSCI’s gauge of stocks across the globe fell 0.12% to 845.95.

European government bond yields surged, with those on German benchmark 10-year notes hitting their highest in about six months. The British 10-year gilt yield rose over 11 basis points to 4.82%, the highest since 2008.

Strong US economic data have weighed on US Treasuries in recent weeks, with investors scaling back expectations for Federal Reserve rate cuts.

Markets are only fully pricing in one 25-basis-point rate cut in 2025, and see around a 60% chance of a second.

Investors will watch Friday’s more comprehensive non-farm payrolls data after data on Wednesday showed a lower than expected increase in private payrolls and jobless claims.

“One thing I’m worried about is, this bonfire of yields going higher tends to reinforce each other, particularly at times like this,” said Michael Purves, CEO and founder of Tallbacken Capital Advisors. “I’m concerned about is if you can buy a 10-year Treasury at 5% with zero risk and that’s a higher yield than on the S&P 500 that’s going to beg a lot of asset allocation questions.”

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.29% to 109.02, with the euro down 0.23% at USD 1.0315.

Oil prices were pressured by a stronger dollar and large builds in US fuel inventories last week. Brent crude settled down 89 cents, or 1.16%, to USD 76.23 a barrel. US West Texas Intermediate crude fell 93 cents, or 1.25%, to USD 73.32.

Gold prices advanced. Spot gold rose 0.51% to USD 2,662.90 an ounce. US gold futures settled 0.3% higher at USD 2,672.40.

“Going into this first quarter that we’re in right now, aside from earnings, I think a big risk for equities is if bond yields do get to 5%,” said Mark Malek, chief investment officer at SiebertNXT in New York. “Buyers are going to be a little bit more reticent. So the people that were powering the market higher, the bid is going to weaken.”

(Reporting by Chibuike Oguh in New York; Additional reporting by Ankur Bannerjee in Singapore and Harry Robertson in London, and David Gaffen in New York. Editing by Mark Potter, David Gregorio, and Diane Craft)

10-year yields hit highest since April on inflation fears

NEW YORK – Benchmark 10-year yields hit a more than eight-month high on Wednesday on concerns that policies introduced by the Donald Trump administration could reignite inflation in addition to boosting growth, leading to fewer Federal Reserve rate cuts.

A CNN report that Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries added to concerns about rising price pressures on Wednesday.

“With the new administration coming in, there is some potential fear of that typical Q1 upturn in inflation,” said Michael Lorizio, head of US rates trading at Manulife Investment Management.

Under Trump, there are also considerable uncertainties over what policies exactly will be implemented by the new government and what economic impact they will have, which is making investors wary of buying longer-dated debt, said Lorizio.

“When the range of potential outcomes widens in the US economy that’s when duration really suffers and you begin to see some apprehension in terms of buying interest further out the curve.”

Interest rate-sensitive two-year note yields were last down 1 basis point on the day at 4.285%.

Benchmark 10-year yields rose 0.8 basis points to 4.693% and peaked at 4.73%, the highest since April 25.

The yield curve between two-year and 10-year notes steepened one basis point to 40.2 basis points and earlier reached 42.9 basis points, the steepest since May 2022.

Thirty-year Treasury yields rose 2.1 basis points to 4.933% and reached 4.968%, the highest since Nov. 2023.

Minutes from the Fed’s December meeting released on Wednesday showed that Fed officials agreed that inflation is likely to continue to slow this year, but also saw a rising risk that price pressures may remain sticky as policymakers began wrestling with the impact of policies expected from the incoming Trump administration.

Fed Governor Christopher Waller said on Wednesday that inflation should continue falling in 2025 and allow the US Federal Reserve to further reduce interest rates, though
at an uncertain pace.

Data on Wednesday showed that the number of Americans filing new applications for unemployment benefits unexpectedly fell last week.

The ADP National Employment Report showed that employers added 122,000 jobs last month.

The US government’s jobs report on Friday is expected to show that employers added 160,000 jobs in December.

The Treasury Department saw good demand for a USD 22 billion auction of 30-year bonds on Wednesday, the final sale of USD 119 billion in coupon-bearing debt issuance this week.

The bonds sold at a high yield of 4.913%, around a basis point below where they had traded before the sale. Demand was 2.52 times the amount of debt on offer, the highest since November.

The US government saw average interest for a USD 39 billion auction of 10-year notes on Tuesday and soft demand for a USD 58 billion sale of three-year notes on Monday.

(Reporting By Karen Brettell; Editing by Tomasz Janowski and Nick Zieminski)

Oil prices down on US fuel stocks build, dollar strength

NEW YORK – Oil prices fell more than 1% on Wednesday as a stronger dollar and large builds in US fuel inventories last week pressured prices, reversing earlier gains driven by tightening supplies from Russia and other OPEC members.

Brent crude settled down 89 cents, or 1.16%, to USD 76.23 a barrel. US West Texas Intermediate crude fell 93 cents, or 1.25%, to USD 73.32.

Both benchmarks had risen more than 1% earlier in the session.

“The oil market is being weighed down by the significant increases in gasoline and diesel inventories that we’ve seen over the last couple of weeks,” said Andrew Lipow, president of Lipow Oil Associates. Fuel inventories swelled as refiners continued ramping up production, he added.

Gasoline stocks rose by 6.3 million barrels last week to 237.7 million barrels, compared with analysts’ expectations in a Reuters poll for a 1.5 million-barrel build, according to data released on Wednesday from the US Energy Information Administration.

Distillate stockpiles rose by 6.1 million barrels in the week to 128.9 million barrels, versus expectations for a 600,000-barrel rise.

“I would be concerned if we saw more substantial products builds over the next few weeks. And in the meantime, the cold snap could constrain crude oil supply and increase heating oil demand,” said Josh Young, chief investment officer at Bison Interests.

Crude inventories fell by 959,000 barrels to 414.6 million barrels in the week, compared with analysts’ expectations for a 184,000-barrel draw.

A stronger dollar also pressured prices by making oil more expensive for holders of other currencies.

Limiting the losses, oil output from the Organization of the Petroleum Exporting Countries fell in December after two months of increases as field maintenance in the United Arab Emirates offset a Nigerian output hike and gains elsewhere in the group.

In Russia, oil output averaged 8.971 million barrels a day in December, below the country’s target, Bloomberg reported, citing the energy ministry.

Analysts expect oil prices to be down on average this year from 2024 due in part to production increases from non-OPEC countries.

“We are holding to our forecast for Brent crude to average USD 76/bbl in 2025, down from an average of USD 80/bbl in 2024,” BMI, a division of Fitch Group, said in a client note.

(Reporting by Nicole Jao in New York, Katya Golubkova in Tokyo, Jeslyn Lerh in Singapore, and Arunima Kumar in Bengaluru; Editing by Elaine Hardcastle, Nick Zieminski, and Nia Williams)

Beaten-down European stocks lure investors back as Trump trades wobble

LONDON – Beaten-down European stocks are luring investors back after a record underperformance versus Wall Street in 2024, as fears about US economic shocks under incoming President Donald Trump boost the appeal of international markets.

Amundi, Europe’s largest investor, said on Wednesday it had “turned constructive on Europe” because the effect of trade war fears on valuations was exaggerated.

Funds that invest in European equities have also just recorded their first weekly net inflow since October, Lipper data showed, after several big banks this week tipped the market for a 2025 turnaround.

The STOXX 600 index of blue-chip European shares has lost 0.7% this month but outperformed the US S&P 500 .SPX, which has dropped nearly 3% on fading hopes for US interest rate cuts and policy uncertainty.

Barclays on Wednesday said the European market’s “risk-reward” profile was improving, citing “emerging anxiety around Trumponomics”.

Deutsche Bank and Citi this week forecast double-digit returns for the STOXX this year, while Goldman Sachs said the market’s lowly-valued companies were likely takeover targets.

The STOXX 600 ended 2024 at its biggest discount to the S&P on record, LSEG data showed, as investors flocked to so-called “Trump trades” that bet his policies will lift most US assets.

“There’s room to take the other side of that trade and one of the main beneficiaries will be international markets,” Baird strategist Ross Mayfield said, arguing policy shocks would weaken the dollar and boost US investors’ interest in euro-denominated assets.

Investors are growing increasingly concerned about tariffs refueling US inflation and prompting the Federal Reserve to hike rates, Bank of America said following its most recent survey of global fund managers.

Conflicting reports about Trump’s tariff plans drove the US currency sharply lower on Monday and left investors braced for more US market swings.

“I’ve moved from really disliking international markets to saying I think there is a diversification benefit,” Raymond James Investment Management chief market strategist Matt Orton said.

Cheaply-valued European banks, he said, were now “very attractive”, while he also favoured the region’s aerospace and defence stocks.

The revival in interest in European stocks follows months of gloom as French and German politics plunged into chaos and tariff threats pressure eurozone exporters.

The eurozone economy remains weak, but after four European Central Bank rate cuts last year a long-term decline in eurozone business activity has eased.

“We should have (had) the trough in the eurozone,” Edmond de Rothschild Asset Management portfolio manager Marie de Leyssac said.

A European market rebound in 2025 was likely given last year’s “extreme underperformance”, she added.

Janus Henderson multi-asset fund manager Oliver Blackbourn said he was not yet buying into European stocks, but had also become nervous about heady Wall Street valuations.

“If we do see more improvements in European economic data then we’d get more positive pretty quickly,” he said

(Reporting by Naomi Rovnick in London. Additional reporting by Siddarth S. in Bengaluru. Editing by Mark Potter)

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