Europe Strikes Back

Is stability back?

The global economy is increasingly showing what investors call a "steady hand": ZKB's global leading indicator reaches its highest level in over a year - and not thanks to a single country, but to improved data from almost all regions. Citi confirms the picture: global data surprises have been rising for months, most recently to the highest level since April 2024.

While some comment that central banks have "won the battle against inflation", the reality is more sober - but with positive trends. ZKB documents that five times more interest rate cuts than interest rate hikes were made worldwide in 2025. Deutsche Bank specifies the decisive background to this: eurozone inflation is now at 2.1%, the unemployment rate is a solid 6.4%, while wages are rising by almost 5%, thus ensuring stable domestic demand. The Fed, always keen not to appear too relaxed, lowered its key interest rate to four percent in October.

Although the temporary US data freeze caused short-term nervousness, Citi confirms that the markets were entertained rather than unsettled. The structural message remains: The economy is stabilizing and monetary policy has decided to at least no longer slow down this stabilization. This is rarely bad news for equities.

USA reliable, Europe suddenly convincing, Asia strategically indispensable

The United States remains the backbone of the global equity markets - not because of eccentric central bank rhetoric, but because of solid business realities. ZKB shows that S&P 500 earnings rose by over thirteen percent in the third quarter, rather than the expected eight percent. Deutsche Bank adds that the S&P 500 gained 2.3 percent in October and the NASDAQ just under five percent. Citi observes that despite volatile interest rate fantasies, investors react more strongly to real corporate figures than to political or statistical distractions. Even capacity utilization remains stable above 75 percent - no sign of recession, and a sign that the economy is more resilient than some forecasts.

Europe is suddenly presenting itself as a market that is no longer talked about out of sheer politeness. UBS had classified the region as attractive early on, but this assessment is now receiving unusually prominent support. ZKB points to the significant rise in purchasing managers' indices. The composite PMI for the eurozone has been climbing for months and is now back above the 51-point threshold - which corresponds exactly to the level that correlated closely with positive returns on European equities in the past. The valuation argument can no longer be ignored either: ZKB speaks of the most attractive valuation compared to the major economic blocs, with robust earnings prospects at the same time.

Deutsche Bank brings in the macroeconomic component: With 2.1% inflation, 6.4%unemployment and stable government bond yields, Europe is experiencing an environment that rarely occurs at the same time - and which is already visible in share prices. Risk premiums in the periphery have been shrinking significantly since 2022, which has noticeably eased financing costs for companies. Finally, Citi shows why Europe is benefiting particularly strongly from the global environment: Global trade is growing by more than three percent despite geopolitical noise, and European industrial groups traditionally respond to this momentum with a mixture of operational leverage and - forgive the expression - pleasantly price-stable demand.

China remains a market that is irritating in the short term, but strategically convincing in the long term. Citi points out that the MSCI China has shifted significantly towards technology-oriented business models over the last ten years: The tech share has risen from 13 to 25% . Earnings revisions in IT, communication services and financials have been improving for months - a leading indicator that professional investors are following closely. UBS continues to see Chinese technology stocks as "Most Attractive", and the capital inflows of almost USD 50 billion into China-focused emerging market funds underline the fact that institutional investors have by no means written off the region. Strong trends are evident in Asia as a whole: Deutsche Bank notes that the MSCI Asia ex Japan has gained over 30% in USD and 18% in CHF this year - driven by the semiconductor industry, automation and the high regional momentum.

AI as a global supercycle and industry as an underestimated strength

The structural megatrend of artificial intelligence continues to dominate capital flows. ZKB expects Alphabet, Amazon, Meta and Microsoft alone to invest over 300 billion US dollars in AI infrastructure by 2025 - a level that was previously reserved for an entire industry rather than four companies. UBS assumes that global AI investments will reach around 1.3 trillion dollars annually by 2030 - a figure that commands the respect of even sophisticated investors.

Citi describes AI as a "productivity multiplier" that not only supports tech sectors, but is increasingly affecting industrial and logistics value chains. Interestingly, it is precisely Europe - not really known as a technology center - that is now benefiting from this. Industrial modernization, which according to Deutsche Bank is leading to increasing capacity utilization and higher production, is encountering precisely those AI and automation solutions that eliminate productivity deficits and create competitive advantages.

The energy industry remains tense, commodity markets are structurally tight and geopolitics are creating additional demand for security of supply. All of this is strengthening cyclical sectors that have been overshadowed for years.

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Rico Albericci, CEFA

_{Sources: MarketMap, Chefinvest, UBS, ZKB, Citi Wealth, Deutsche Bank}

_{Status:24.11.2025}