US election clearing event for European equities, Barclays says

Investing.com -- Barclays analysts said in a note Wednesday that they view the U.S. election as a pivotal "clearing event" for European equities, noting that a Trump victory supports a reflation trade and provides relief for investors seeking resolution.

According to Barclays (LON:BARC ), markets were largely positioned for a Trump win, with U.S. yields, the dollar, and U.S. equities rising, while European markets lagged.

The outcome aligns with market expectations, given that betting odds had favored a Trump victory even as the gap narrowed in recent days.

With Republicans looking likely to retain control of the Senate, the so-called "Trump trade" is back in full force, according to the bank.

Barclays analysts note this trade is characterized by rising rates, a stronger dollar, and higher U.S. equity futures, which highlight relief in the market as investors settle into this familiar landscape.

However, European equities may see a relative disadvantage, especially if the U.S. government remains divided, as a Red Sweep could exacerbate tariff risks for Europe.

According to Barclays, tariffs remain "a key risk" for the European market, and a divided Congress could limit domestic fiscal measures while keeping international trade policies at the forefront.

For U.S. equities, Barclays considers a Red Sweep as the "most positive outcome," while the Trump-win-with-divided-Congress scenario is seen as "the most negative outcome" for European stocks, at least in relative terms.

Barclays expects potential "knee-jerk" reactions in the near term, with European equities vulnerable to U.S. fiscal and trade policy uncertainties, especially around tariffs.

Longer-term, however, they believe the Trump victory might stabilize market expectations, encouraging a renewed focus on growth-oriented sectors across U.S. and European markets alike.

Source: Investing.com