Market Outlook - The market is expected to experience a period of clarity and normalization in 2026, following a foggy and uncertain 2025, which is reflected in current market highs [2][6] - The administration's policies, particularly regarding tariffs, have positively influenced GDP and market performance, contradicting previous doomsday scenarios [4][6] Risks and Challenges - Policy risks remain a concern, but the focus is shifting towards unforeseen risks that could impact market optimism [3][4] - Potential inflationary pressures from tariffs are anticipated in the first quarter, but they are considered manageable within a strong economy [5][6] Monetary Policy - There is ongoing discussion about the appropriateness of cutting rates next year, especially with current GDP levels, as the Fed is on a trajectory to lower rates [7][9] - The administration is exploring innovative fiscal reforms, which may influence future monetary policy and economic conditions [8][9] Economic Innovations - The potential for transformative technologies such as longevity, AI, and power is highlighted, suggesting that these innovations could lead to a robust economy and possibly higher interest rates in the future [9]

Core Viewpoint - Global investors are skeptical about a European equity rally, awaiting Germany's commitment to significant fiscal reforms [1][2] Group 1: Investor Sentiment - Investors are concerned that Europe is lagging behind other regions, particularly the US and China, in terms of economic momentum [2] - A recent survey indicated a decline in allocation to European equities, although fund managers do not expect declines exceeding 5% [4] - Despite skepticism regarding Germany's spending plans, these proposals provide a fiscal anchor, alleviating fears of extreme downside scenarios for the region [4] Group 2: Market Performance - The Stoxx 600 Index had previously outperformed US indices in dollar terms during the first quarter, driven by Germany's pledge of hundreds of billions of euros for defense and infrastructure [2] - Recently, the Stoxx 600 has lost its lead as investors return to US assets, with the S&P 500 rising 12% to a record this year, while the Stoxx 600 is up 8.6% but below its March peak [3] Group 3: Germany's Fiscal Plans - Germany plans to spend hundreds of billions of euros on modernizing infrastructure and defense, which is expected to boost economic output [5] - There are concerns about the timing of these investments translating into company profits, with some critics suggesting that funds may replace state budgets rather than stimulate new investments [5] Group 4: Interest Rate Outlook - There is a prevailing sentiment among clients that the likelihood of negative interest rates in Europe over the next decade is very low, which is seen as positive for banks [6] - While fiscal support is recognized, investors remain hesitant to invest based on overly optimistic scenarios [6]

Romania’s coalition government is under renewed strain after Prime Minister Ilie Bolojan warned that disagreements over a public administration overhaul risk derailing a wider fiscal reform package https://t.co/QI6p1776Ph ...