The stability at the top of the EU institutions created by the EU Parliamentary election will be undone by the black hole of the French national election, which will empower the extremists, as well as by German political paralysis.
As a result, the Seven Major PIllars of EU reform needed to reverse Europe's decline will not happen. This matters to all but also to investors.
French bonds spreads to Bunds will double. But German yields will converge with US ones.
EU equities will underperform the US. The current bout of European equity out-performance is unsustainable. US equities are a pyramid of AI hope versus reality. But hope may be better than nihilism. When the US bubble blows up, we know it will recover. When Europe blows up, we don’t! So, we are cutting out EU equity overweighting.
The Euro will ultimately be the casualty of Europe’s political morass and the ECB’s use of every tool in the box, including TPI (The Transmission Protection Instrument), to limit the financial market fallout. The USD will remain the strong. The Euro will sink below parity and stay there within a year or two.