Navigating Uncertainty: Insights on European Markets from Gordon Kerr

Gordon Kerr is the European Macro Strategist for KBRA. In a recent interview, he offered his perspective on the state of European markets today, emphasizing the continued volatility and uncertainty. His main message is that uncertainty fosters volatility, but that Europe is well placed to emerge from these storms.

A far greater number of European companies have already gone above and beyond to fortify their fiscal position. Having been forced to repair their balance sheets, source better financing, and find ways around their margins in the wake of recent economic disasters, they are battle-tested. Consequently, corporate default rates are historically low, and European banks are in excellent condition.

Kerr points out the strong stick-to-itiveness of European consumers. They’ve demonstrated incredible resilience even with pervasive inflation and escalating interest rates. This remarkably robust consumer strength underpins the stability of European markets and is a key pillar supporting the remarkable overall economic outperformance.

Yet Kerr is equally quick to recognize the outside, non-market forces causing a surge in volatility. He expects that efforts by the US administration to reposition the global trading environment will likely keep financial markets in flux. Meanwhile, credit spreads have widened to their five-year historical average levels, showing signs of market fear.

On top of these dynamics, European markets are riding a wave created by government spending plans to improve and expand defense and infrastructure. This massive fiscal stimulus is poised to provide a ton of momentum for the mobility and smart city sectors within the larger European economy.

The automotive and pharmaceutical industries particularly emerge as the most vulnerable, immersed in US-dependent trade. If tariff disputes do occur, they are likely to affect European growth more adversely. In fact, European stock markets have been beating US equities’ returns since the beginning of the year. This upward trend is a positive signal of investor confidence in the region’s economic future, even in the face of lingering concerns.