Aurelia Butler

These factors, ranging from Germany’s budgetary concerns to Europe’s evolving energy strategy and sustainability investments, are critical in determining the region’s trajectory as it navigates through a complex global environment.One of the first areas under scrutiny is Germany’s fiscal policy. With the country facing challenges in its 2025 budget discussions, the question arises whether these fiscal constraints will hamper Germany’s energy transition efforts. Jefferies anticipates that the process of reaching an agreement on the budget could take longer than expected, leading to a spending freeze. Such delays in fiscal commitments might slow the pace of Germany’s green energy initiatives in the short term. However, with a potential reform of the debt brake and the expected arrival of more expansionary fiscal policies towards the end of 2025, there could be a turning point for energy transition funding.Another key factor Jefferies will be watching is the possibility of a “peace dividend” following the resolution of the ongoing war in Ukraine. While much depends on the political dynamics, particularly the outcome of the U.S. presidential elections and potential shifts in foreign policy, Jefferies notes that a ceasefire or peace agreement would likely create investment opportunities, especially in reconstruction efforts. The World Bank has already identified urgent needs in sectors like housing, transport, and energy. Should these efforts align with the EU’s climate and energy standards, it could boost demand for European low-carbon products and services, providing a unique opportunity for companies leading the transition to a green economy.The EU’s response to the U.S. Inflation Reduction Act remains another critical area of focus. After the EU’s Net-Zero Industry Act fell short, the upcoming EU Clean Industrial Deal, expected in the first quarter of 2025, is seen as a potential game changer. Jefferies will be tracking how the EU adapts its industrial policies to streamline rules around state aid and encourage domestic low-carbon industries. The UK, too, is making strides in decarbonisation, especially in carbon capture and storage and heat pump technologies, and how these efforts compare with EU policies will also be key.Jefferies is also paying close attention to investor behavior in Europe’s low-carbon sector. With policymakers poised to ramp up support for the region’s green innovators, Jefferies expects a wave of investment to flow toward European companies leading in fields like carbon capture, heat pumps, and wind power. European leadership in these technologies is underscored by strong patent data, particularly in carbon capture, which Jefferies sees as an area of high investor potential.Turning to ESG investments, Jefferies is cautiously optimistic. In 2024, European sustainability funds performed above expectations, with a growing number of Article 8 and Article 9 funds outperforming their benchmarks. If this positive performance continues into 2025, Jefferies expects a return of capital flows into Europe’s ESG funds, signaling renewed confidence in the region’s sustainability initiatives.Another development Jefferies is monitoring is the EU’s growing role in mergers and acquisitions within the energy sector. In an effort to protect European competitiveness, the EU may increase interventions in foreign investments and acquisitions of European companies. At the same time, the EU could facilitate greater cross-border M&A activity to build stronger regional champions, particularly in the green energy and technology sectors. This would likely reshape the competitive dynamics in Europe’s energy transition.Finally, Jefferies flag the upcoming disclosures under the EU’s Corporate Sustainability Reporting Directive, which will begin to surface in March 2025. Jefferies anticipates that these disclosures will prompt investors to reassess their approach to evaluating sustainability, potentially leading to shifts in investment strategies based on the emerging data. More

“The return of EZ political uncertainty has once again focussed markets on CHF as consummate hedging strategy,” Bank of America analysts noted in a recent report.As the Eurozone is Switzerland’s largest trading partner, an overly strong CHF relative to the euro tends to concern the SNB. But fresh political uncertainty in the Eurozone, courtesy of France – following moves from the left and far-right parties in the country to oust current Prime Minister Michel Barnier after he forced through budget cuts – hasn’t caused a meaningful enough jump in CHF against its G10 currency peers to trouble the SNB. “For the SNB, the key warning sign is whether CHF has significantly outperformed its G10 peers. This is not borne out by the evidence,” the analysts said. The grind lower in EUR/CHF is more likely driven by short CHF positioning rather than safe-haven flows. December seasonals are biased towards a weaker EUR/CHF, having fallen in seven out of the past 10 month.Safe-haven flows and sight deposits, which the SNB uses as a tool for currency intervention, both appear to “be lacking for now,” the analysts said, suggesting that there isn’t much sign that the Swiss central bank is eager to intervene.  More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

In the aftermath of the recent U.S. election, European defense stocks have seen a strong performance, outpacing their U.S. counterparts. Bernstein attributes this trend to investor optimism about increased European defense spending amidst heightened geopolitical tensions, coupled with sustained budgetary support in key European countries such as France, the UK, and Germany, despite fiscal challenges.The analysts emphasize that Trump’s return could amplify the urgency for European nations to bolster their defense capabilities, especially as Russia continues its aggression in Ukraine and tensions in the broader region escalate. Developments include North Korea’s military support for Russia and Ukraine’s use of advanced Western weaponry. Such dynamics highlight the sustained need for deterrence, which has prompted European nations to reconsider decades of defense underinvestment.France and the UK recently reaffirmed their defense budget commitments, signaling robust financial backing for the sector. Germany, too, could see an increase in defense investment if proposed reforms to its strict debt brake materialize following its upcoming federal elections. Company-specific developments further underline the sector’s promise. Firms like Rheinmetall (ETR:RHMG) and Leonardo have posted strong earnings and ambitious growth targets, with Rheinmetall planning to double revenue by 2027.Despite uncertainties, such as the potential impact of a ceasefire in Ukraine, Bernstein argues that the long-term trajectory for the European defense sector remains positive. The analysts suggest that even a negotiated settlement unfavorable to Ukraine could increase the need for European nations to take greater responsibility for regional security, given their reliance on U.S. support. This scenario would likely drive further investments into defense infrastructure and capabilities.While risks exist, including the potential for tariff impositions and fluctuations in defense spending levels, the structural shift towards heightened defense priorities in Europe suggests a bright outlook for the sector.  More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

MEXICO CITY (Reuters) -Mexico is doing everything it can to protect a regional trade agreement with the U.S. and Canada, the Latin American nation’s deputy economy minister said in an interview published on Friday.The three neighboring nations, and major partners in commerce, have entered a trade tussle after U.S. President-elect Donald Trump threatened to slap tariffs on the countries to the north and the south if they did not clamp down on drugs and migrants coming into the U.S.Mexico is working on both issues in order to “come to the table” to negotiate without obstacles, Luis Rosendo Gutierrez told outlet Inside U.S. Trade.Since Trump’s tariff threat, Mexico has launched an offense on contraband goods from Asia coming into the country, and officials seized a record amount of fentanyl. They have also detained thousands of migrants, vowing to prevent them from making it north.In a statement issued late Friday, U.S. President Joe Biden thanked Mexican President Claudia Sheinbaum and the country’s military and law enforcement officials for seizing over twenty million doses of illicit fentanyl.Mexican officials have been in touch with Trump allies, Gutierrez added, though they have not met with incoming administration officials. The exception is Jamieson Greer, Trump’s tapped trade representative, with whom Gutierrez met before his nomination.Trump, as well as some U.S. industry leaders, have accused Mexico of being a “backdoor” to Chinese goods and investment, which Mexico has denied.SCREENING INVESTMENTSMexico is looking to take a cue from the U.S., however, in screening investments coming into the country, Gutierrez said. Mexico is looking to develop a process similar to the U.S.’ Committee on Foreign Investment, he explained.When asked if that would affect Chinese automaker BYD (SZ:002594)’s plans to build a factory in the Latin American country, Gutierrez responded that Mexico wants “to play with the same rules” as its trade allies.Trump had threatened to put a 100% tariff “on every single car coming across the Mexican border” in response to BYD’s plans, though the carmaker has repeatedly said its plant would serve the local market and not the United States.Mexico is considering doling out incentives to draw manufacturing investments, Gutierrez said, suggesting Mexico could produce batteries that the U.S. wants to be made regionally.CORN COMPLICATIONSMexico is also awaiting the result of a dispute panel under the USMCA trade deal regarding Mexico’s restrictions on imports of genetically-modified corn.Mexico will comply with the panel’s ruling even if unfavorable toward the nation, Gutierrez said. And depending on the outcome, Mexico will weigh whether it must make changes to a proposed constitutional reform that would bar the use of GM corn for human consumption, the official added. More

“The National Bank of Hungary (MNB) has maintained a tight monetary policy stance, while the government has taken steps to reduce the primary deficit since 2023,” Fitch said in a statement. Hungary’s Economy Minister said in October that the country has overcome its inflation crisis, with price growth slowing toward the central bank’s target after being the highest in the EU last year.Fitch forecasts Hungary’s economy to recover gradually, driven by stronger private consumption, investment and exports.Last month, Finance Minister Mihaly Varga submitted the 2025 budget draft to parliament, dismissing concerns raised by the budget watchdog about insufficient reserves to mitigate risks and potential revenue shortfalls due to weak growth.The government, led by Prime Minister Viktor Orban, aims to reduce the 2025 shortfall to 3.7% of GDP, down from the 4.5% target for this year.”The expected decline in interest expenditure will support a further decline in the fiscal deficit to 4.2% in 2025 and 3.7% in 2026,” Fitch added. Ahead of the 2026 parliamentary elections, Orban’s government plans to increase tax benefits for families and continues to provide an additional month’s worth of pensions, focusing on key demographics.The government expects a 3.4% economic growth rebound in 2025, a projection the Fiscal Council considers optimistic in light of current forecasts.The agency also affirmed its rating for Hungary at “BBB.” More