Interest
rates
in
Europe
are
the
lowest
across
major
western
markets,
while
the
US
economy
has
eclipsed
the
region.
This
divide
matters
greatly
for
investors:
expectations
remain
low
for
growth
in
Europe,
so
stimulus
in
the
form
of
interest
rate
cuts
could
go
a
long
way
to
improving
the
macroeconomic
picture.
The
region
is
now
a
far
more
attractive
place
for
investment
than
it
has
been
for
the
last
couple
of
years.
Still,
elections
in
the
UK
and
France
add
an
element
of
uncertainty
for
investors.
Does
this
mean
European
markets
are
cheap?
At
current
levels
Europe
is
trading
exactly
in-line
with
our
bottom-up
fair
value
estimate
for
the
region,
which
means
that
although
it
is
not
expensive,
it
is
also
not
excessively
cheap
on
an
absolute
basis.
But
relative
to
other
regions
such
as
North
America,
which
is
currently
trading
at
a
10%
premium
to
our
fair
value
estimate,
Europe
is
looking
more
attractive.
With
the
potential
catalyst
for
interest
rate
cuts,
European
firms
might
be
looking
rosier
relative
to
other
regions
in
which
central
banks
are
operating
with
more
restrictive
monetary
policies.
Elections
in
the
UK
and
France
in
early
July
will
have
an
impact
on
stocks.
In
the
UK
the
housebuilding
sector
could
benefit
from
a
new
government,
while
in
France
the
potential
victory
of
National
Rally
has
shaken
up
some
sectors,
banks
in
particular.
Homebuilder
Stocks
Boosted
by
Labour
Win
UK
homebuilders
have
not
been
an
attractive
place
for
investors
for
the
last
few
years.
Fundamentals
have
been
negative,
with
construction
waning
as
high
interest
rates
dampened
demand
from
wannabe
homeowners.
Inflation
too
has
materially
increased
the
cost
of
homebuilding,
disincentivsing
homebuilders
further
from
increasing
new
construction.
Fundamentals
are
once
again
showing
signs
of
improvement.
Mortgage
approvals
are
recovering
from
their
lows,
inflation
is
coming
back
under
control,
and
new
construction
activity
is
steadying.
Still,
this
is
far
from
a
signal
that
the
recovery
in
homebuilder
earnings,
and
indeed
share
prices,
will
be
quick.
The
new
Labour
government
could
be
another
further
catalyst
for
growth
and
share
prices
rose
after
the
election
news.
The
party
has
made
housing
as
one
of
its
key
areas
of
focus,
with
a
plan
to
build
1.5
million
homes
over
their
term,
essentially
a
target
of
300,000
homes
per
year.
This
is
an
ambitious
target,
representing
a
level
of
homebuilding
not
seen
since
the
1970s,
a
time
when
the
UK
had
a
far
smaller
population.
Whether
these
targets
are
met
or
not,
this
level
of
homebuilding
would
require
a
significant
step-up
from
the
large
UK
homebuilders,
which
would
mean
significant
revenue
growth
over
the
next
five
years.
French
Elections
–
Uncertainty
and
Opportunities
French
stocks
fell
after
President
Macron
called
a
snap
election.
Markets
are
right
to
be
concerned,
with
Rassemblement
National/National
Rally
coming
out
on
top
in
the
first
round
of
elections,
albeit
faring
slightly
worse
than
market
expectations.
The
second
round
of
voting
is
at
the
weekend.
The
far-right
party’s
programme
to
run
up
fiscal
debt
at
a
time
when
the
country
should
be
going
in
the
opposite
direction
is
clearly
a
dangerous
strategy.
However,
many
of
the
sectors
and
shares
that
have
been
hit
as
a
result
of
the
election
are
far
less
exposed
to
potential
policy
changes
than
investors
may
believe.
French
banks
have
seen
some
extreme
share
price
reaction,
with
BNP
Paribas
being
hit
in
a
material
way.
There
are
genuine
concerns
here
about
increasing
funding
costs
as
French
credit
spreads
widen.
However,
the
retail
exposure
that
BNP
has
to
the
French
market
is
limited,
and
if
anything,
increased
perceived
risk
in
European
markets
could
create
more
business
for
BNP
as
its
clients
look
to
hedge
these
risks
on
rates
and
currency.
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