Equities

Trump’s tariff shock will push Europe into recession — but it’s also triggering a powerful integration response. In this report, we lay out the tactical case for staying defensive and the structural case for going long European assets when the dust settles.

The stimulus measures driving the post-COVID expansion were beginning to wane after five years and pointing the economy in the direction of an organically occurring recession. Now that DOGE and the multi-front trade war have sped up the timetable, we reiterate our risk-off recommendations.

This week, our three screeners cover: Equity plays in Low Vol & Low Beta outside the US; Chinese stocks; and stocks that are buys according to the PEG ratio. 

The US High Quality (USHQ) portfolio outperformed its benchmark in March, despite realizing a negative return. USHQ returned -2.6%, whilst its SPY benchmark returned -3.9%. Over a trailing-quarter basis, USHQ posted meaningful outperformance vs. benchmark, generating +230bps of excess return, while also exhibiting lower volatility and a smaller drawdown. 

Tariffs will make a difficult job almost impossible. Hitting and sustaining a precise 2 percent inflation target is more about luck than judgement. It requires both the starting point for inflation expectations and any inflation/deflation shock to combine perfectly to 2 percent. While structural inflation expectations in the euro area and Japan could be close to 2 percent, those in the US and the UK will be stuck uncomfortably above 2 percent. We discuss the investment implications for rates and FX. Plus: gold is vulnerable to a tactical reversal.