Global Market Pulse (EURO)
Leveraging expertise from the MFS Market Insights team to provide timely perspectives on economic and market dynamics that are top of mind for clients.
Market Insights Team
KEY TAKEAWAYS
|
Economy & Markets
| Oil Shocks Fade, Duration Matters, Opportunity Endures |
MFS PERSPECTIVE
|
| Geopolitical Volatility Rarely Lasts |
MFS PERSPECTIVE
|
| Central Banks Brace for Inflation Shock From Iran War |
MFS PERSPECTIVE
|
| Cyclical Value Stocks Outperform as Megacap Technology Names Lag |
MFS PERSPECTIVE
|
Global Developed Equity - US
Euro based
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
|
| SMALL/MID CAP |
|
| GROWTH |
|
| VALUE |
|
Global Developed Equity - Ex US
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EUROPE EX UK |
- Europe faces near‑term headwinds as higher energy prices impact the region more than the US.
- ECB scenarios show stronger second‑round inflation with limited GDP impact.
- The length of the Iran conflict matters most.
| MFS CONSIDERATIONS |
- A higher‑rate regime in Europe points to a higher cost of capital.
- Offsetting this, a weaker euro is typically positive for earnings.
- To navigate the challenges ahead, focus on pricing power, profitability, and strong balance sheets.
| UK |
- Labor slack is emerging, but higher minimum wages are pressuring domestic margins.
- Fiscal headroom is shrinking as higher yields limit spending, reinforcing a lower-growth, higher-volatility backdrop.
| MFS CONSIDERATIONS |
- In a higher energy and interest rate world, UK equities are potentially defensive.
- Returns are likely to be narrow and stock specific, not index‑wide.
- Banks and energy provide partial offsets to margin pressure elsewhere.
| JAPAN |
- Higher energy costs lift inflation and squeeze domestic margins, keeping the growth outlook modest.
- BoJ tightening marks a regime shift: rising inflation keeps rate hikes on track, driving equity dispersion.
| MFS CONSIDERATIONS |
- Higher energy costs strain auto and technology supply chains, while industrial policy prioritizes securing strategic resources.
- Continued corporate governance reforms are improving capital discipline and remain supportive of shareholder returns.
Emerging Markets
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EM EQUITY |
- The effects of the Iran war differ based on countries’ access to energy supplies.
- As energy importers, Asian countries face growth challenges.
- US dollar strength is a near‑term earnings headwind.
| MFS CONSIDERATIONS |
- Contained supply disruption could allow EMs to perform relatively well.
- Support comes from supply‑chain reshuffling, AI demand and credible macro frameworks.
- The AI‑led capex and datacenter build out remains a key support for North Asia.
| EM DEBT - HARD CURRENCY |
- Despite global risks, DM‑style fiscal/monetary policy shifts leave the asset class better positioned to absorb potential fallout from Iran.
- Spreads are contained, and valuations remain attractive on a total‑yield basis.
| MFS CONSIDERATIONS |
- Contrary to initial concerns, EM debt has shown remarkable resilience since Trump’s election.
- Fund flows have been positive, supporting tight valuations.
- However, given significant risks, country selection is key
| EM DEBT - LOCAL CURRENCY |
- Iran-driven EM currency weakness is a setback to otherwise strong recent returns.
- The room for EM currencies to appreciate against the EUR is fairly limited, in our view.
| MFS CONSIDERATIONS |
- A more tactical asset class by nature, swings in global risk sentiment can provide periods of challenge and opportunity.
- Watch any longer-term impacts to global inflation expectations, which could alter the duration backdrop.
BLANK
Global Fixed Income
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| USD DURATION |
- In response to the Iran war, the markets have priced out Fed rate cuts.
- Though the US seems insulated from energy shocks, depending on the war’s duration, already-sticky inflation could worsen.
| MFS CONSIDERATIONS |
- The Fed may initially look through a supply shock but over time must balance inflation risks against demand destruction.
- A finely-balanced labor market will heavily shape future rate decisions.
| US IG CORP |
- Solid fundamentals are aided by margin and free cash flow improvement and steady leverage.
- Spreads are wider but remain constrained and offer little compensation for global risks.
- Escalating issuance to fund the AI buildout could challenge technicals.
| MFS CONSIDERATIONS |
- With spreads tight everywhere, we remain favorable toward US IG, preferring higher-quality asset classes.
- IG corporate yields remain above their 10-year average, which should continue to support investor demand.
| EURO IG CORP |
- Energy risks blur inflation and growth. The near term is manageable, but prolonged conflict would add strain.
- Fundamentals remain strong, but spreads have risen and still do not compensate for the current risk backdrop.
| MFS CONSIDERATIONS |
- A higher-inflation and lower-growth environment could pose challenges for credit returns, favoring managers with strong security selection and risk management.
| EURO DURATION* |
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Europe faces greater energy supply risks, and markets have priced in rate hikes due to potential inflationary effects of the war in Iran.
| MFS CONSIDERATIONS |
- Reflecting a worsening inflationary outlook, we have lowered our rating.
- A significant growth slowdown could limit future rate hikes.
| US HIGH YIELD |
- Spreads, while off their lows, remain very tight relative to history.
- Although fundamentals remain solid, with leverage, margin, and free cash flow all near historical averages, YTD defaults are higher than last year’s pace.
| MFS CONSIDERATIONS |
- With spreads richly valued, the risk/return proposition leaves us underweight.
- We prefer sectors such as financials while steering away from secularlychallenged industries.
- Dispersion is low, so security selection is key.
| EURO HIGH YIELD |
- Iran-related energy supply concerns have contributed to YTD outflows and wider credit spreads.
- While defaults and distressed ratios remain contained, a long conflict could pose challenges for high yield.
| MFS CONSIDERATIONS |
- Fundamentals have softened, but from a strong base.
- We still prefer “up in quality” for credit.
- We prefer US high yield over Europe given a larger idiosyncratic opportunity set.
BLANK
The views expressed herein are those of the MFS Strategy and Insights Group within the MFS distribution unit and may differ from those of MFS portfolio managers and research analysts. These views are subject to change at any time and should not be construed as MFS’ investment advice, as portfolio positioning, as securities recommendations, or as an indication of trading intent on behalf of MFS.
The Global Market Pulse leverages the firm’s intellectual capital to provide perspective on broad market dynamics that are top of mind for asset allocators. We celebrate the rich diversity of opinion within our investment team and are proud to have talented investors who may implement portfolio positions and express different or nuanced views to those contained here, which are aligned to their specific investment philosophy, risk budget and entrusted duty to allocate our client’s capital responsibly.
Index data source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.
Frank Russell Company ("Russell") is the source and owner of the Russell Index data contained or reflected in this material and all trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell's express written consent. Russell does not promote, sponsor or endorse the content of this communication.
“Standard & Poor’s®” and S&P “S&P®” are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and have been licensed for use by S&P Dow Jones Indices LLC and sublicensed for certain purposes by MFS. The S&P 500® is a product of S&P Dow Jones Indices LLC, and has been licensed for use by MFS. MFS’ Products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or their respective affiliates, and neither S&P Dow Jones Indices LLC, Dow Jones, S&P, their respective affiliates make any representation regarding the advisability of investing in such products. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Bloomberg neither approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith The views expressed are subject to change at any time.
These views should not be relied upon as investment advice, as portfolio positioning, as securities, recommendations or as an indication of trading intent on behalf of the advisor. No forecasts can be guaranteed.