BNY Strategist: European Stocks Keep Climbing — But the Euro Is Headed Lower

BNY senior market strategist Geoffrey Yu expects the positive momentum in European equities to continue, even as he sees further weakness ahead for the euro. In a Bloomberg Television interview, Yu pointed to fiscal support measures, broadening earnings revisions, and recent investor inflows as key drivers supporting European stocks. He noted that while the STOXX 600 has shown daily resilience amid mixed August performance, broader pressures from bond markets and oil prices have kept the index on track for a potential weekly decline. Despite near-term headwinds, Yu remains constructive on the outlook for selective European equity opportunities.

Yu’s view on the euro is more cautious. He anticipates the common currency could move lower, consistent with his earlier analysis that currency exposures have decoupled from underlying Eurozone asset ownership. Low hedge ratios among investors and shifts in European Central Bank policy have contributed to this dynamic, making the euro itself a less attractive risk-reward proposition compared with the underlying stocks. In practical terms, this means investors may find better opportunities in European equities than in holding unhedged euro exposure. The strategist’s assessment highlights a market environment where asset performance and currency performance are no longer moving in lockstep.

For market participants watching Europe, Yu’s outlook underscores the importance of selectivity. Fiscal stimulus and improving earnings trends can support stock gains even if the euro softens, creating potential opportunities for those focused on equity fundamentals rather than pure currency bets. As investors navigate mixed signals in August trading, the distinction between European stocks and the euro itself remains a central theme in Yu’s analysis. The coming weeks will test whether the momentum he expects in equities can persist against ongoing bond and commodity pressures.