NDR: Cyclical sectors bias in European equities

Global bond markets face heightened risks as yields rise, reflecting varied macroeconomic pressures. In Europe, fears of stagflation have driven U.K. 10-year yields to 2008 levels, challenging the government's fiscal strategy. Political instability in France has further strained confidence, with rising spreads on French bonds surpassing those of Greece. However, European yields remain highly correlated with U.S. movements, where bond pessimism echoes prior lows, suggesting much of the bad news may already be priced in. This correlation indicates potential for stabilization if U.S. yields reverse course.

The broader global economy remains resilient, offering some support for global equities. Rising yields driven by growth expectations, rather than stagflation fears, are less harmful. Cyclical sectors, tied to economic sensitivity, continue to outperform, though slowing momentum in leading indicators could signal a neutral outlook.

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