Fragile transatlantic relationships begin to improve the markets

(Bloomberg) -European markets will get under control with an impending era of higher government spending, since the Transatlantic Alliance, which has been sounding for almost 70 years, begins to fight under the weight of Donald Trump's shift towards Russia and the US protectorism.

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Trump's politics forces the European nations to launch the most aggressive increase in defense spending since the Cold War. The result: Bonds of governments in the area of euros are below average, while investors are used due to a wall of the debt edition. A measuring device of the blocks of the block has risen to a record high and the euro increases compared to the dollar.

Union Bancaire Privée increases the return of the German 10-year federal government to 3%, possibly within three to six months, of 2.4% of the past week. In the meantime, Deutsche Bank AG has scraped its longstanding euro short recommendation and described European control as “high-quality”.

This may only be the beginning of a broader transformation across assets. Although the policy of the central bank will remain an essential driver for the prices at short notice, investors are now seeing a fundamental change in Europe, which will have an impact on portfolio allocations in the coming years.

“It's a new world,” said Gabriele Foa, portfolio manager at Algebris Investments. “The United States signals appetite to finally change things from a geopolitical perspective.”

After Trump's showdown on Friday, Ukrainian President Volodymyr Zelenskiy will be trained on Thursday at the European Union's defense summit. It is expected that the managers are asking the executive of the block to start the legislative changes that can release billions for defense spending.

This could possibly be paid with borrowed money, although the block may have to fight for buyers for his bonds, at a time when the global state grant is already in a record worldwide.

“Germany has to collect a lot of money – you will have no choice,” said Peter Kinsella, Global Head for FX Strategy at Union Bancaire Privée. “The EU must now consider the United States as an opponent. It indicates that many of the assumptions that we have always done about security, trade and everything else are now questionable. “

A measuring device of the attractiveness of German debts fell to the most negative in the prospect of more defense spending.

Many other EU members have also been invested in security for years. But countries such as France and Italy are already in great debt loads and put them in the crosshair of bond growth – a risk that restored the debate about the joint granting of the common bonds, a route that the EU hugged five years ago during the pandemic.

Before Trump returned to the White House, the former President of the European Central Bank, Mario Draghi, asked the EU in a report to invest up to € 800 billion (831 billion US dollars) per year and to commit to regular editions of joint bonds to make the block more competitive. He argued that a new era of expenses was essential to develop advanced technologies and to increase the defense and security of critical raw materials.

No wonder that the damage to the transatlantic alliance has felt in shares in shares of defense companies. A basket with European military company, which was compiled by Goldman Sachs Group Inc., has increased more than 60% this year to a new record high, led by Germany's Rheinmetall AG.

“You just have to see the performance of Rheinmetall in Germany. It looks like a tech shares, ”said Edmund Shing, Chief Investment Officer at BNP Paribas Wealth Management. “It was strong and will continue to be the case because we know that the European NATO countries essentially have to issue, including Germany now.”

While the European stock indices exceed the US market more generally this year, the prospect of higher bond returns and greater currencies can serve as delimitation of prices.

The euro was a mustache before parity with the dollar for the first month ago and acted almost $ 1.02. Now it has increased to almost 1.05 US dollars. At the same time, the Swedish Krona rose by $ 1.5% on Monday compared to the dollar in a bet on European reparation and exceeded G-10 colleagues.

Gold's record run was also moved by investors who sought a port from the increased geopolitical fragmentation. Amundi, Europe's largest asset manager, has expanded the commitment to the precaution and sees it as a “permanent component” of the assignment of assets, said Monica, head of the Amundi Investment Institute.

A ceasefire in Ukraine would bring a “warlike peace” in TS Lombard, according to strategists like Christopher Granville. It achieves further profits for European defense shares and gold because “Russia is left with the upper hand by an America First Washington”.

-with the support of Sujata Rao and Margaryta Kirakosian.

Fragile transatlantic relationships begin to improve the markets

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