Will Trump’s tariffs make Europe great again?

Katie Martin (0:06)

Pushkin. So you know the script, right? This year in markets is all about American exceptionalism and nowhere else gets a look in. So you might be a little surprised to hear that UK stocks have been hitting record highs. Same goes for Germany. In fact, you could argue that in his own little way, Donald Trump is making Europe great again. This is a little bit odd, given that Trump could still slap taxes on European exports to the US at any moment. So today on the show, we're asking, what's this all about? Are other markets around the world on the up because of Trump or in spite of him? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in London. And once again, I'm joined by the New York based Unhedged newsletter scribe, Aiden Reiter, who's here in London with me. And where I'm going to call it, Aiden, there is a tiny note of spring in the air.

Aiden Reiter (1:05)

It was beautiful out today. I actually sat outside for lunch without a jacket.

Katie Martin (1:09)

Everything has got better since you got here.

Aiden Reiter (1:11)

Well, I can't take all the credit. You have to give some of that to Andrew Bailey.

Katie Martin (1:15)

Governor of the Bank of England. We will come on to that in a minute. So, look, over in the States, you talk to lots of investors. Like, do people even care about Europe at all? Do they bring us up in conversation?

Aiden Reiter (1:26)

I mean, unless we bring it up, it doesn't come up naturally, if that's fair, right? S&P 500 has been the source of all the growth in the world and all the high valuations for the past couple years. So it's all USA, USA. USA, USA. And so much so that owning other forms of assets, whether they be foreign equities, foreign fixed incomes, emerging markets, just isn't in the vogue anymore.

Katie Martin (1:47)

Yeah, yeah. I was talking to a US wealth manager the other day, and he was saying that a lot of his clients now are starting to question, like, why do I need to diversify at all? Why don't I just put everything in the US? That feels a little bit unhealthy. It's called putting all your eggs in one basket, listeners.

Aiden Reiter (2:05)

But there's so many notes that we get every day. And while there's been a lot more banks and a lot more asset managers saying, hey, maybe you should diversify. I haven't seen a lot of diversification notes about diversifying out of the US. It's just other asset classes as opposed to just S&P 500

Katie Martin (2:22)

Right. That said, I'm sure you are also a regular reader of this. I read the fund manager survey that comes out of Bank of America every month. And they were saying in the last report, so about a week or so ago, they were saying that they've been the biggest switch among fund managers out of US and into Europe for 25 years. Like there is money coming into Europe.

Aiden Reiter (2:48)

And the stocks are showing it.

Katie Martin (2:49)

Yep. Stocks are showing it. So, DAX, the German index, that's up over 9% so far this year.

Aiden Reiter (2:57)

Pretty good.

Katie Martin (2:58)

It's February, there's something or other. That's not bad. The FTSE 100 is also a record high. It's up about 7%. So the stock 600 index, which is like all across Europe, that's also up about 7%.

Now the FTSE 250, which is an index of more mid cap UK stocks, ignore that one.

Aiden Reiter (3:19)

Is it down?

Katie Martin (3:20)

It's not down, but it remains the place where fun goes to die. It's up by like about 2%. So that's not doing so well. But it just strikes me as really odd that people are not making a noise about Europe.

Aiden Reiter (3:32)

Yeah. I mean, again, the story, whether that be the politics story, the geopolitics story or the market story, has just been Donald Trump and the United States for so long.

Katie Martin (3:41)

Yeah. He's cutting taxes. He's very focused on domestic growth. He's cutting regulation. And that's all got to be good for the bottom line of US companies.

Aiden Reiter (3:50)

It sounded like you were going to say he's very focused on de Mexico. And that's true too, right? He's talking about tariffs on America's neighbors, Canada, Mexico, which has huge implications for the S&P 500 So not only does money just overwhelmingly flow to the United States, all of our collective attention does too.