Political announcements have become more market-friendly over the course of April, leading analysts at Deutsche Bank to turn bullish once again on the outlook for European equities.
Since announcing his punishing tariffs on a host of countries at his April 2 "Liberation Day" event, U.S. President Donald Trump has appeared to somewhat soften his stance, partially delaying many of the levies and introducing exemptions for some industries.
Trump has also moved to open negotiations with China, the central target of his tariff agenda, although the prospect for the talks remains unknown. The president has also signaled a willingness to speak with the European Union, another recipient of his trade-related ire.
"We had called for peak fear on April 7, and the start of a de-escalation on tariffs on April 9," the Deutsche Bank analysts said in a note to clients. "Both materialized and the situation continued to improve since."
Separately, Trump has tried to soothed worries that he was attempting to oust Federal Reserve Chair Jerome Powell, after he hit out at the central bank leader for not quickly cutting interest rates. Trump, however, has said he has "no intention" of firing Powell.
The changes have come after worries over the impact of the tariffs and Powell have contributed to deep volatility in stock and bond markets, triggering a so-called "Trump put", the Deutsche Bank strategists led by Maximilian Uleer said. A "Trump put" refers to a belief among some investors that Trump will do whatever it takes to keep the financial markets happy.
Meanwhile, manufacturing activity in Europe has been better than anticipated, while only a few companies in the region have revised their annual guidance in the face of trade-fueled economic uncertainty, the analysts said.
Discussions around a potential ceasefire in the war in Ukraine have also re-emerged, offering a further boost to sentiment around European stocks, they added.
Against this backdrop, the Deutsche Bank analysts, who turned neutral on European equities in late March, said that they are now bullish on these assets again.
"Going forward, in our view, some of the risk factors that fueled the market sell-off in April have now eased and as expected, implied equity volatility has started to come down," they argued.
