(Bloomberg) -- Shares of European exporters stand to gain as long as diverging policy rates between the Federal Reserve and European Central Bank continue to weaken the euro, according to strategists at Barclays Plc.
“We think that amid an anaemic domestic demand backdrop in Europe, a relatively more dovish ECB is one silver lining for the region,” wrote strategists led by Emmanuel Cau in a note on Friday.
The ECB reduced borrowing costs on Thursday for the fourth time this year and markets expect at least another percentage point of cuts in 2025, double the amount seen for the Fed. With the euro already near a two-year low, lower rates should keep the pressure on the currency and help European earnings, especially for exporters selling in dollars, they write.
That may be little comfort for investors in European equities overall, given many strategists see the region heading for another year in the shadow of the US market amid the threat of President-elect Donald Trump’s tariff plans. Political instability in Germany and France, coupled with sluggish growth this year, have left the Stoxx Europe 600 Index heading for one of its worst annual performances against the S&P 500 on record.
The Barclays strategists say US tariffs may not end up as bad as feared, which would give another boost to sentiment. They also see more stimulus in China that would further support European exporters. China this week signaled more public borrowing and spending in 2025, with a shift of policy focus to consumption.
Only 40% of the Stoxx Europe 600’s revenues are generated within the region, with the majority coming from the rest of the world, including 26% from North America and 19% from Asia Pacific, according to Goldman Sachs Group Inc. research.
--With assistance from Michael Msika.
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