Market Overview - Major European markets closed lower due to geopolitical tensions and uncertainty surrounding French budget negotiations, with investors taking profits from recent gains [1][2] - The pan-European Stoxx 600 edged down 0.03%, with the U.K.'s FTSE 100 down 0.04%, Germany's DAX down 0.22%, and France's CAC 40 down 0.65% [3] Company Performance - In the UK market, BAE Systems, Natwest Group, Smiths Group, Schroders, National Grid, Standard Chartered, British Land Company, and The Sage Group gained between 1.4% to 2.3% [4] - Conversely, Pearson, Metlen Energy & Metals, Entain, Antofagasta, Endeavour Mining, Glencore, Anglo American Plc., and Pershing Square Holdings lost between 2% to 4% [4] - Daimler Truck Holding reported a decline in 2025 sales, contributing to its stock decline [5] - Siemens Energy saw a significant increase of over 5%, while Zalando, RWE, and Fresenius Medical Care gained between 1.5% to 1.7% [6] Notable Transactions - Kloeckner & Co shares soared over 28% following Worthington Steel's announcement of a $2.4 billion acquisition of the German steel processor [6] French Market Insights - In the French market, Kering and Essilor closed down by 4.7% and 4%, respectively, while LVMH, Stellantis, TP, and Renault lost between 2.7% to 3.1% [6][7]

Investment Rating - UBS maintains a bearish outlook on the dollar, forecasting significant further weakness by year-end, with EUR/USD expected to reach 1.23 and JPY/USD at 130 [2][17]. Core Insights - The report identifies both cyclical and structural reasons for the continued weakness of the dollar, including high US net foreign debt, over-ownership of the dollar in global reserves, and potential policy actions that could further devalue the dollar [4][21][33]. - A weaker dollar is generally seen as positive for global equities, easing financial conditions and leading to earnings upgrades [5][74]. Summary by Sections Why Should the Dollar Continue to Weaken? - The dollar is expected to remain in a bear market due to long-term cycles and structural issues, including US net foreign debt nearing 90% of GDP and significant unhedged dollar positions held by foreign investors [4][21][23][33]. Tactical Factors Pointing to a Weaker Dollar - UBS forecasts US GDP growth to slow from 1.7% YoY in Q2 to 0.9% YoY in Q4, with expectations of four rate cuts by year-end, which contrasts with market expectations of only two [3][42][46]. Investment Implications - A weaker dollar is projected to positively impact global equities, with a 10% decline in the dollar potentially adding approximately 2% to MSCI AC EPS growth [5][79]. - Emerging markets are expected to be the clear winners from a weaker dollar, with significant relative performance improvements [6][83][90]. Regional Insights - Emerging markets and the Eurozone are expected to outperform in unhedged terms when the dollar weakens, while the US is likely to underperform [6][84][90]. - In local currency terms, Japan and the UK are projected to be the worst performers, while emerging markets are anticipated to be the best [84][90]. Sector and Stock Recommendations - In Europe and the UK, sectors such as retailing and budget airlines are expected to benefit from a stronger Euro, while pharma is seen as an underperformer [12]. - In the US, sectors like software, telecoms, and household products are expected to perform well if the dollar weakens [14]. Emerging Market Opportunities - Specific companies in emerging markets, such as Cathay and CTBC, are rated as buys and are expected to benefit significantly from a weaker dollar [13][121].