Europe: Sticky Inflation Favors Income

Summary

• We think improving euro area activity signals more rate hikes to come. We like short-term government bonds, high-quality credit and selected equity sectors.
• Data last week showed still-high euro area inflation and strong U.S. manufacturing activity. So we see central banks keeping rates higher for longer.
• This week’s U.S. jobs data will help gauge how tight the labor market remains, a key factor keeping core services inflation stubbornly high.

nito100

Transcript

European risk assets have outperformed this year. That’s partly because the energy crunch was milder than expected and export-oriented sectors including luxury goods look set to benefit from China’s restart.

But we don’t think this outperformance will