UBS Road to the midterm elections: Global market signals from the US midterms

Yeah, I think we're not so much looking at it more from the perspective of the dramatic changes in policy.

I think when all is said and done, the things that matter to Europe areas such as trade, foreign policy and perhaps regulatory policy still reside largely with the with the president.

So that's really how they evolve.

post the midterms that is our focus.

Now, when I think about the transmission channels into the European economy, I think there's three key areas we've got to focus on.

The first is clearly trade.

And I don't think the focus here is so much necessarily a renewed trade war.

It seems to me that the agreement that's been struck between the U.S. and the European Union has largely been settled.

But what I'm focusing on more is how U.S. trade and China trade and how Europe gets brought into that broader discussion And it matters because European trade with China is a very important part of our overall external sector.

So any changes that happen there, which could be influenced by U.S. policy, could clearly have some implications for how European economy performs over the next couple of years.

I think the second area is clearly with regards to defense spending.

And, you know, let's be clear about one thing.

Defense spending in the euro area is on an upward trajectory as Europe seeks to assert some strategic autonomy within this crucial area.

But perhaps where the midterms can matter is that the speed and urgency with regards to how quickly Europe has to rearm could change as a result of the midterms.

I think the third thing that I'm keeping an eye on as well more broadly is with regards to U.S. fiscal policy and how that evolves post the midterms.

And look, I think we're all well aware as investors, the U.S. bond market remains the global benchmark for bond markets.

And therefore, what we see in Europe is that our debt essentially trades as a function of what happens in the U.S.

So any developments with regard to fiscal policy, either positive or negative, can have spillovers into our economy.

And where that matters is, of course, that if borrowing costs in the US are on an upward trajectory, then we may see some of that emerge in Europe.

And that could have an impact on the economy, not just in terms of economic growth, but also inflation and how the central banks may have to deal with that.

Yeah, it's easy to forget, Dean, how closely tied our countries are economically and, as you said, fiscally.

And we're, of course, watching every tick on Treasury bonds here in the U.S., and they're making multi-decade highs as we speak.

So, yeah, obviously there's a global impact there as well.

So with that being said, When you think about an investor, whether they're investing from the US or investing within Europe, what should investors be thinking about to prepare for some of the risks that you highlighted, especially, you know, tariffs are still on the table, as you mentioned, obviously fiscal policy.

How should investors navigate all of this?