European assets set up for rebound, but euro could hit parity first, Amundi says

9:20 am Tuesday, November 19th, 2024

By Naomi Rovnick and Alun John

LONDON (Reuters) – The euro could fall to the key $1 mark in the next month before rebounding, potentially alongside other Europe assets given how negatively investors view the region, the chief investment office of Europe’s biggest asset manager Amundi said on Tuesday.

U.S. stocks, and the dollar have surged after Donald Trump’s victory in the Presidential election earlier this month, while stocks outside the U.S. have struggled, as investors balance the implications of higher U.S. growth with the implications of possible tariffs.

The euro has been among the biggest victims of the dollar’s surge, falling back to around $1.05, from above $1.08 at the start of November.

“We could even see parity for the euro to the dollar in the next month, but it is very mechanical, there is a lot of demand for dollars linked to the surge in U.S. assets,” said Vincent Mortier, chief investment officer at Amundi, which oversees almost 2.2 trillion euros of client funds.

“But then next year we believe the euro will strengthen again,” he said. Amundi forecasts the common currency at $1.16 by the end of 2025.

The euro last traded below $1 in late 2022.

Mortier said extreme negative sentiment towards Europe also set the region’s stocks up for a sharp rally on good news, similar to that seen in China earlier this year, when hopes of major package of stimulus measures sent investors rushing to snap up unloved stocks.

“Catalysts for a European market recovery would be Germany responding to tariff risks with fiscal stimulus or Russia pulling back from Ukraine”, he said.

Germany is due to hold elections in the coming months after the implosion of its ruling coalition earlier in November. There is a possibility that a new government could reform its constitutionally enshrined debt break, which critics say contributed to its current economic decline.

There was still value in European government bonds, Mortier added, and said Amundi was also buying 10-year U.S. Treasuries in the expectation yields would fall from here, as so-called Trump trades may have run too far, but expected short term volatility in government bond markets.

Mortier said U.S. stock valuations boosted by excitement over artificial intelligence were unusually high and volatility unusually low.

“The last thing you want is to be betting on only five or ten U.S. equity names,” he said. “We need to be very agile.”

(Reporting by Alun John and Naomi Rovnick, editing by Dhara Ranasinghe)