Report
The worst-case scenario for European equities: Long-term interest rates rise or corporate profit margins fall, geopolitical risk is priced in
The consensus outlook for European equities is positive , as investors in European equities: Believe long-term interest rates will remain low; Believe that corporate profit margins will not fall; Are not pric ing in geopolitical risk. First, we note that this favourable scenario is inconsistent: if profit margins remain stable, inflation will be fairly high (it will follow the rise in unit labour costs) and long-term interest rates will rise again. Conversely, if long-term interest rates are kept low, it is because profit margins are falling. Lastly, geopolitical risk should be priced in, in particular the consequences of the possible election of Donald Trump on NATO and US aid to Ukraine.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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