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
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Economy & Markets
Economy & Markets
Downside Risks to the Dollar MFS PERSPECTIVE
- In 2025, the dollar struggled against both advanced and emerging market currencies.
- In 2026, the dollar may weaken more gradually against the euro but remain soft versus emerging markets.
- Continued dollar weakness, tied to doubts about US policy, may boost emerging market returns.
The Global Growth Outlook Remains Solid MFS PERSPECTIVE
- The data suggest that growth is not slowing, consistent with resilient but moderating expansion.
- Improving signals reflect solid economic activity and sustained AI‑led investment, particularly in the US and Europe.
- However, risks remain, including technology de‑rating, inflation, and trade and geopolitical tensions.
Divergent Central Bank Policy May Drive Return Differentials MFS PERSPECTIVE
- After several years of a globally-synchronized rate cycle, central bank policy stances are diverging as policymakers focus on their own domestic conditions.
- Active fixed income managers can utilize this divergence to avoid frothy rate markets and invest where the duration outlook is favorable.
Global Earnings Expectations Are Broadening Out MFS PERSPECTIVE
- The earnings growth gap between megacap technology companies and the rest of the global market is narrowing.
- Improving breadth of earnings is positive for performance breadth.
- Increasing capex from the hyperscalers may further narrow price performance as cash is utilized for AI spending rather than share repurchases.
- In 2025, the dollar struggled against both advanced and emerging market currencies.
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Global Developed Equity
Global Developed Equity - US
Euro basedUS
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
- We have increased our rating as the environment remains constructive, supported by earnings and a potential reacceleration of economic growth in 2026.
- Valuations reflect high expectations, so strong corporate earnings will continue to be the primary return driver moving forward.
- The monetary and fiscal policy backdrop remains supportive.
- We favor large and mid-cap stocks over small caps, as well as value over growth.
MFS CONSIDERATIONS LARGE CAP - High valuations remain a risk, but megacap tech leadership has been supported by outsized earnings.
- Broadening earnings and increased economic activity may catalyze continued rotation into cyclical and value stocks.
SMALL/MID CAP - A strong US consumer provides support for SMIDs, which tend to derive revenue from domestic sources.
- Valuations remain discounted relative to large caps.
- SMIDs tend to have higher sensitivity to borrowing costs and should perform well in a declining rate environment.
GROWTH - Relative earnings growth between the megacap technology names and the rest of the index is expected to narrow in 2026.
- Growth valuations remain stretched and will likely rely on strong earnings to continue performing well.
VALUE - Reaccelerating economic growth could be a catalyst for cyclical value stocks to outperform moving forward.
- The valuation discount between growth and value persists, making value appear relatively attractive.
Global Developed Equity - Ex US
Euro based• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
EUROPE EX UK
- Europe stays in expansionary territory as growth firms, with the focus on the German fiscal rollout.
- Lower rates are lifting sentiment and are reflected in improving PMIs.
- Earnings are set for a meaningful recovery in 2026.
MFS CONSIDERATIONS
- Combined fiscal support and easier monetary policy should aid the earnings recovery.
- Markets have re‑rated; beta returns are now more likely to track underlying earnings trends.
- Focus on fundamentals and selective opportunities, avoid risks from intensified competition with China.
UK
- UK growth remains subdued, with a softening labor market weighing on the domestic outlook while fiscal constraints limit policy flexibility.
- Despite this, the FTSE offers broad exposure to global structural themes.
MFS CONSIDERATIONS
- UK banks remain well positioned, even after recent outperformance, supported by strong capital and balance sheets.
- The FTSE provides access to leading materials, defense, and staples names, reinforcing the UK as a stockpicker’s market.
JAPAN
- Japan is supported by a constructive global backdrop, expectations of positive real wage growth, and expansionary fiscal policy.
- Risks remain, including Japan‑China tensions and fiscal sustainability concerns.
MFS CONSIDERATIONS
- Governance and ROE reforms continue to drive buybacks, M&A, and shareholder returns.
- Earnings upgrades remain strong and valuations undemanding, but remain cautious over rising rates.
- Foreign inflows are returning as sentiment improves.
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Emerging Markets
Emerging Markets
Euro based• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
EM EQUITY
- A détente between China and the US provides some near-term relief as both sides buy time.
- Recent USD strength has been a headwind, though we continue to believe the USD will weaken over time.
MFS CONSIDERATIONS - Emerging markets offer opportunities in the growth of the AI and tech ecosystem, as well as strategic raw materials.
- Position portfolios to capture structural growth themes while mitigating currency and liquidity risks.
EM DEBT - HARD CURRENCY
- Fund flows have been positive, supporting tight valuations.
- Yields, like fundamentals, have weakened but remain attractive relative to longer-term history.
MFS CONSIDERATIONS
- EM is more exposed to global risks, making sovereign credit selection paramount.
- However, EM has been resilient in the face of heightened geopolitical risks and trade uncertainty. There are still attractive opportunities within the asset class.
EM DEBT - LOCAL CURRENCY
- Real yields remain elevated in EM, creating room for additional cuts.
- EM fundamentals remain sound, while DM countries’ fiscal situations have deteriorated recently
MFS CONSIDERATIONS
- A more tactical asset class by nature given its higher volatility, mainly reflecting the currency risk.
- Given this, euro appreciation against EM FX has left us neutral for now.
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Global Fixed Income
Global Fixed Income
Euro based• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
USD DURATION
- Slower economic growth and concerns around a weakening labor market are offset by forecasts of weaker inflation.
- However, the impact of tariffs may put pressure on core goods and the Fed’s mandate.
- Bias is skewed towards modest further easing from here.
MFS CONSIDERATIONS - Staying neutral as the macro backdrop is tilted towards being duration supportive.
- Amid increased focus on labor data, payrolls and jobless claims will be key data points to monitor.
US IG CORP
- Fundamentals remain respectable due to recent margin and free cash flow improvements.
- Spreads remain near historical tights.
- Robust fund flows help support rich valuation.
MFS CONSIDERATIONS - With monetary policy tilted towards additional rate cuts, we remain favorable on US IG.
- Relative to high yield, IG credit’s higher duration will benefit from any rate cuts.
- With spreads tight, we have an up-in-quality bias.
EURO IG CORP
- Sound fundamentals and robust technicals are supportive of tight valuations.
- European fiscal expansion should benefit sectors such as defense and utilities.
- Spread valuations have compressed to near record tights.
MFS CONSIDERATIONS - Yield valuations remain compelling despite time spreads.
- The macro outlook of modest growth but low inflation is a healthy environment for IG credit returns.
- Favorable on the defensive nature of IG vs. high yield, given valuations.
EURO DURATION*
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Enthusiasm for fiscal spending packages in some countries is being offset by budget battles in others.
- Defense and infrastructure-related spending should be a tailwind to growth.
MFS CONSIDERATIONS - Reduced our rating, mainly reflecting mixed macro data and relative valuation to the US.
- If growth slows meaningfully, we believe the ECB will resume cutting, supporting duration.
US HIGH YIELD
- Fundamentals are robust; leverage and interest coverage remain near long-term averages.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
- However, spreads are currently at their tightest levels since 2007.
MFS CONSIDERATIONS - The risk-return proposition with spreads richly valued leaves us neutral.
- Preference for sectors such as financials while steering away from secularly challenged industries.
- Dispersion is low, so security selection is key.
EURO HIGH YIELD
- Fundamentals have softened, but from a strong base.
- Looser monetary policy should help offset further fundamental deterioration.
- Increasing European credit growth is a tailwind for sticky spread valuations.
MFS CONSIDERATIONS - Strong technicals and modest fundamentals are offset by tight spreads.
- Continued preference for up-in-credit-quality like other asset classes.
- Preference for US high yield vs. Europe, given a larger idiosyncratic opportunity set.
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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.
Economy & Markets
| Downside Risks to the Dollar |
MFS PERSPECTIVE
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| The Global Growth Outlook Remains Solid |
MFS PERSPECTIVE
|
| Divergent Central Bank Policy May Drive Return Differentials |
MFS PERSPECTIVE
|
| Global Earnings Expectations Are Broadening Out |
MFS PERSPECTIVE
|
Global Developed Equity - US
Euro based
| US |
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
|
| MFS CONSIDERATIONS |
| LARGE CAP |
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| SMALL/MID CAP |
|
| GROWTH |
|
| VALUE |
|
Global Developed Equity - Ex US
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EUROPE EX UK |
- Europe stays in expansionary territory as growth firms, with the focus on the German fiscal rollout.
- Lower rates are lifting sentiment and are reflected in improving PMIs.
- Earnings are set for a meaningful recovery in 2026.
| MFS CONSIDERATIONS |
- Combined fiscal support and easier monetary policy should aid the earnings recovery.
- Markets have re‑rated; beta returns are now more likely to track underlying earnings trends.
- Focus on fundamentals and selective opportunities, avoid risks from intensified competition with China.
| UK |
- UK growth remains subdued, with a softening labor market weighing on the domestic outlook while fiscal constraints limit policy flexibility.
- Despite this, the FTSE offers broad exposure to global structural themes.
| MFS CONSIDERATIONS |
- UK banks remain well positioned, even after recent outperformance, supported by strong capital and balance sheets.
- The FTSE provides access to leading materials, defense, and staples names, reinforcing the UK as a stockpicker’s market.
| JAPAN |
- Japan is supported by a constructive global backdrop, expectations of positive real wage growth, and expansionary fiscal policy.
- Risks remain, including Japan‑China tensions and fiscal sustainability concerns.
| MFS CONSIDERATIONS |
- Governance and ROE reforms continue to drive buybacks, M&A, and shareholder returns.
- Earnings upgrades remain strong and valuations undemanding, but remain cautious over rising rates.
- Foreign inflows are returning as sentiment improves.
Emerging Markets
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| EM EQUITY |
- A détente between China and the US provides some near-term relief as both sides buy time.
- Recent USD strength has been a headwind, though we continue to believe the USD will weaken over time.
| MFS CONSIDERATIONS |
- Emerging markets offer opportunities in the growth of the AI and tech ecosystem, as well as strategic raw materials.
- Position portfolios to capture structural growth themes while mitigating currency and liquidity risks.
| EM DEBT - HARD CURRENCY |
- Fund flows have been positive, supporting tight valuations.
- Yields, like fundamentals, have weakened but remain attractive relative to longer-term history.
| MFS CONSIDERATIONS |
- EM is more exposed to global risks, making sovereign credit selection paramount.
- However, EM has been resilient in the face of heightened geopolitical risks and trade uncertainty. There are still attractive opportunities within the asset class.
| EM DEBT - LOCAL CURRENCY |
- Real yields remain elevated in EM, creating room for additional cuts.
- EM fundamentals remain sound, while DM countries’ fiscal situations have deteriorated recently
| MFS CONSIDERATIONS |
- A more tactical asset class by nature given its higher volatility, mainly reflecting the currency risk.
- Given this, euro appreciation against EM FX has left us neutral for now.
BLANK
Global Fixed Income
Euro based
• UNDERWEIGHT • NEUTRAL • OVERWEIGHT
| USD DURATION |
- Slower economic growth and concerns around a weakening labor market are offset by forecasts of weaker inflation.
- However, the impact of tariffs may put pressure on core goods and the Fed’s mandate.
- Bias is skewed towards modest further easing from here.
| MFS CONSIDERATIONS |
- Staying neutral as the macro backdrop is tilted towards being duration supportive.
- Amid increased focus on labor data, payrolls and jobless claims will be key data points to monitor.
| US IG CORP |
- Fundamentals remain respectable due to recent margin and free cash flow improvements.
- Spreads remain near historical tights.
- Robust fund flows help support rich valuation.
| MFS CONSIDERATIONS |
- With monetary policy tilted towards additional rate cuts, we remain favorable on US IG.
- Relative to high yield, IG credit’s higher duration will benefit from any rate cuts.
- With spreads tight, we have an up-in-quality bias.
| EURO IG CORP |
- Sound fundamentals and robust technicals are supportive of tight valuations.
- European fiscal expansion should benefit sectors such as defense and utilities.
- Spread valuations have compressed to near record tights.
| MFS CONSIDERATIONS |
- Yield valuations remain compelling despite time spreads.
- The macro outlook of modest growth but low inflation is a healthy environment for IG credit returns.
- Favorable on the defensive nature of IG vs. high yield, given valuations.
| EURO DURATION* |
- The ECB has completed its cutting cycle, leaving current valuations uncompelling.
- Enthusiasm for fiscal spending packages in some countries is being offset by budget battles in others.
- Defense and infrastructure-related spending should be a tailwind to growth.
| MFS CONSIDERATIONS |
- Reduced our rating, mainly reflecting mixed macro data and relative valuation to the US.
- If growth slows meaningfully, we believe the ECB will resume cutting, supporting duration.
| US HIGH YIELD |
- Fundamentals are robust; leverage and interest coverage remain near long-term averages.
- Other positive drivers include low default rate projections, strong fund flows and a supportive macro outlook.
- However, spreads are currently at their tightest levels since 2007.
| MFS CONSIDERATIONS |
- The risk-return proposition with spreads richly valued leaves us neutral.
- Preference for sectors such as financials while steering away from secularly challenged industries.
- Dispersion is low, so security selection is key.
| EURO HIGH YIELD |
- Fundamentals have softened, but from a strong base.
- Looser monetary policy should help offset further fundamental deterioration.
- Increasing European credit growth is a tailwind for sticky spread valuations.
| MFS CONSIDERATIONS |
- Strong technicals and modest fundamentals are offset by tight spreads.
- Continued preference for up-in-credit-quality like other asset classes.
- Preference for US high yield vs. 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.