Global Market Pulse (EURO)
Leveraging expertise from the MFS Market Insights team to provide timely perspectives on economic and market dynamics that are top of mind for clients.
Market Insights Team
KEY TAKEAWAYS
|
Economy & Markets
| Measures of volatility lower than pre-war levels |
MFS PERSPECTIVE
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| Consumer-led growth transitioning to corporate growth |
MFS PERSPECTIVE
|
| Stronger earnings outlook supporting equities |
MFS PERSPECTIVE
|
| Broader return divergence reinforces need for selective positioning |
MFS PERSPECTIVE
|
Global Developed Equity - US
Euro based
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
|
| SMALL/MID CAP |
|
| GROWTH |
|
| VALUE |
|
Global Developed Equity - Ex US
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EUROPE EX UK |
- Earnings are holding up, but markets continue to slowly de-rate.
- Europe remains hostage to Iran risk, squeezing growth and keeping inflation sticky.
- Limited AI exposure may leave Europe behind if leadership stays narrow.
| MFS CONSIDERATIONS |
- German fiscal support should offer a modest tailwind.
- Energy pressure may create a more challenging backdrop for demand and margins.
- When tensions ease, Europe could be well placed to see sentiment improve.
| UK |
- Faces slower growth and margin pressure.
- Returns are being led by banks, energy and materials.
- Consumer and health care exposure remain less supportive.
- Markets are reacting more to policy than earnings.
| MFS CONSIDERATIONS |
- Sector leadership may help cushion a softer economic backdrop.
- The UK is increasingly trading as a policy and rates story, not just an earnings story.
- If confidence in policy settings improves, sentiment could follow.
| JAPAN |
- Higher rates and reflation support earnings, but returns are uneven.
- Corporate reform and shareholder payouts remain supportive.
- Earnings growth remains intact, led by global demand and domestic capex.
| MFS CONSIDERATIONS |
- As dispersion widens, we favor companies with pricing power and durable earnings.
- Higher rates may continue to underpin financials and other domestic cyclicals.
- Policy support, capital spending and shareholder returns remain key supports.
Emerging Markets
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EM EQUITY |
- The opportunity is broad, but less uniform.
- Taiwan and South Korea have overtaken China as AI capex lifts semiconductor leaders.
- Dispersion is widening between markets with energy access and those facing shortages.
| MFS CONSIDERATIONS |
- EM still offers growth but expect more volatility.
- Balance growth with countries that can absorb higher energy costs.
- AI leadership may support returns, but it can also narrow diversification across portfolios.
| EM DEBT - HARD CURRENCY |
- EM’s increasingly developed fiscal and monetary frameworks leave it better able to absorb Iran war shocks.
- Spreads remain tight but valuations are attractive on a total-yield basis.
| MFS CONSIDERATIONS |
- EM debt has shown remarkable resilience amid ongoing geopolitical shocks.
- Fundamentals are sound and fund flows positive, supporting tight valuations.
- However, country selection is key given the idiosyncratic nature of the asset class.
| EM DEBT - LOCAL CURRENCY |
- Iran-driven EM currency weakness is a setback to otherwise strong recent returns.
- The room for EM currencies to appreciate against the EUR is limited, in our view.
| MFS CONSIDERATIONS |
- A more tactical asset class by nature, swings in global risk sentiment can provide periods of challenge and opportunity.
- Watch any longer-term impacts to global inflation expectations, which could alter the duration backdrop.
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Global Fixed Income
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| USD DURATION |
- In response to the Iran war, the markets have priced out Fed rate cuts.
- Although the US is more insulated from energy shocks, already sticky inflation is likely to remain elevated and could see more upward pressure.
| MFS CONSIDERATIONS |
- The Fed may initially look through a supply shock but over time must balance inflation risks against demand destruction.
- A finely-balanced labor market will heavily shape future rate decisions.
| US IG CORP |
- Corporate fundamentals remain strong, with elevated margins, rising free cash flow and steady leverage.
- Earnings beats have outpaced misses despite uncertainty.
- Spreads remain tight, but support US IG well versus purely rate-driven asset classes.
| MFS CONSIDERATIONS |
- With spreads tight everywhere, we remain favorable toward US IG, preferring higher-quality asset classes.
- IG corporate yields remain above their 10-year average, which should continue to support investor demand.
| EURO IG CORP |
- The energy shock hurts inflation and growth. The near term is manageable, but higher prolonged oil prices will strain business and consumers.
- Fundamentals remain strong and will cushion some of the impact, but tight spreads do not compensate for the current risk backdrop.
| MFS CONSIDERATIONS |
- A higher-inflation and lower-growth environment could pose challenges for credit returns, favoring managers with strong security selection and risk management.
| EURO DURATION* |
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Europe faces greater energy supply risks, and markets have priced in rate hikes due to the inflationary effects of the closure of the Strait of Hormuz.
| MFS CONSIDERATIONS |
- While the inflation outlook has weakened, the market-implied pricing of future tightening may be excessive.
- A significant growth slowdown could limit future rate hikes.
| US HIGH YIELD |
- Geopolitical uncertainty has hurt sentiment, driving negative fund flows.
- After early widening, spreads are now tighter than pre-conflict levels.
- Fundamentals remain sound, with leverage, margin and free cash flow near historical averages.
| MFS CONSIDERATIONS |
- With valuations rich and technicals weak, we favor IG over HY.
- We prefer sectors such as financials while steering away from secularly challenged industries.
- Dispersion is low, so security selection is key.
| EURO HIGH YIELD |
- Iran-related energy supply concerns have contributed to YTD outflows and marginally wider credit spreads.
- While defaults and distressed ratios remain contained, elevated-for-longer energy and commodity prices could pose challenges for high yield.
| MFS CONSIDERATIONS |
- Fundamentals have softened, but from a strong base.
- We still prefer “up in quality” for credit given the current macro and geopolitical landscape.
- We favor US high yield over Europe given a larger opportunity set.
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