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
| Downside Risks to the Dollar |
MFS PERSPECTIVE
|
| 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 |
|
| 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.
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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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