BlackRock says it’s warming up to Europe, which it says may outgrow the U.S. in second half of the year

Fund management giant BlackRock said it is warming up to the European response to the coronavirus outbreak, saying an “impressive array” of fiscal and monetary measures will bridge the economy through the response.

The fund manager is maintaining its overweight in European peripheral government bonds and is considering an upgrade to European equities, according to Elga Bartsch, head of macro research at BlackRock Investment Institute. Europe may outgrow the U.S. in the second half of the year.

While lockdowns started earlier than in the U.S. and were more severe, mobility in Europe is now roughly the same, Bartsch said, citing Google

Additional spending measures announced recently by Germany and France, combined with European Central Bank actions, are broadly sufficient to match the income shortfall on a euro-area level. The new €750-billion European recovery plan is a crucial turning point for Europe’s economy and financial markets, and will also, for the first time, create a jointly issued European “safe” asset of a meaningful size. Bartsch did concede the step wasn’t Europe’s “Hamiltonian” movement (referring to the policies held by 18th-century American statesman Alexander Hamilton, stressing a strong central government and protective tariffs), as more work will be needed to move the euro area toward a fully-fledged fiscal union.

On the downside, there is the risk of a ‘hard Brexit’ where the EU and U.K. do not agree a future trade deal, but Bartsch said at least some of that is priced into markets.

The Stoxx Europe 600
has dropped 12% this year, compared with the 4% fall for the S&P 500
The euro
has fallen 0.3% against the dollar.

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