Geopolitical risk deflates
209 Monday, 30 June 2025 22:00
Divergent Opinions in External Articles - The opinions expressed in articles from external sources do not necessarily reflect the views of Renalco SA and are shared for informational purposes only.
A single word is enough to stop the wind. Market sentiment is prone to flip-flops, much like the US administration. The pace at which the news flow has changed is impressive. Just a week ago, we were deeply concerned about an escalation in the Middle East and considering hedging geopolitical risk with crude oil. But the story has changed, just like concerns over section 899 of the US fiscal bill, whose controversial revenge tax was scrapped at the end of last week.
In the near term, we believe that US equity markets will test new highs. The earnings season is about to start, expectations are low, and the US administration is likely to announce trade deals ahead of the July 9 deadline. Meanwhile, July is historically one of the best-performing months before adverse seasonality starts in August/September.
In Europe, the German cabinet approved last week a draft budget for 2025 and a budget framework for 2026. An important headline around this budget draft was the announcement of record investments to revive the economy and a strong commitment to defence spending. The drafts include investments of 116bn EUR in 2025 and 124bn EUR in 2026, which marks a 55% increase from 75bn EUR in 2024. By 2029, the federal government’s investments are planned to remain at a level of ca 120bn EUR a year. These investments are split between the core budget (mainly defence), the Infrastructure and Climate Neutrality Special Fund (the famous 500bn EUR package) and the Climate and Transformation Fund (KTF).
How to play it? In the report, we provide an update of Kepler Cheuvreux’s German stimulus and German midcap equity baskets which are particularly appealing in this context. The defence theme also pushed higher in recent days amid NATO’s members commitment to increase defence spending to 5% of GDP. Considering the stellar performance of European defence stocks, we advocate for a global approach to the theme, with US, Asian and European names.
Week ahead: A spate of data releases on the US labour market will shed light on a potential slowdown of the US economy (job openings for May, non-farm payrolls for June. The ISM business survey will also be released. In the euro area, the June CPI is expected to have stabilized at 1.9% yoy. In Japan, the Tankan survey will help towards anticipating the next steps for the BoJ which is likely to end its rate hike cycle in H2-2025. In China, the PMIs will provide insights into a potential improvement in growth dynamics.
This week's graphic
Copyright © 2024 Kepler Cheuvreux. All rights reserved.
This document is produced by Kepler Cheuvreux, an investment firm authorized by the ACPR under number 14441 and regulated by the Autorité des Marchés Financiers, incorporated in France under number RCS 413 064 841 at the following address: 112 Avenue Kleber, 75116 Paris, France (www.keplercheuvreux.com).
This document does not constitute a prospectus/regulatory document or other offering document, nor does it constitute an offer or solicitation to purchase securities or other investments. It should not be construed as an offer to sell or a proposal to buy any securities in any jurisdiction in which such an offer or proposal would be unlawful. We are not soliciting any action on the basis of this document, which is provided to our clients for general information purposes. It does not constitute an investment recommendation or a personalized recommendation, and does not take into account the investment objectives, financial situation and needs of each client. Before acting on the contents of this document, we advise you to check whether it is suitable for your particular situation and, if necessary, to seek professional advice.
The figures relating to past performances refer or relate to past periods and are not a reliable indicator of future results.
The accuracy, completeness or timeliness of information from external sources is not guaranteed, although it was obtained from sources reasonably believed to be reliable. Kepler Cheuvreux assumes no responsibility in this regard.
Information provided in this document concerning market data is retrieved from databases at a precise period of time and is subject to variations.
