Three things you need to know about European markets

Tom Stubbe Olsen, Fund Manager of Nordea 1 – European Value Fund and Founder of Mensarius AG

Trade-war rhetoric coming from the US appears to be heading for a boiling point—and that could impact European markets

Following his focus on tax reform, another of US President Donald Trump’s campaign promises reared its head in the second quarter. Initial outbursts against unfair trade practises were directed against China and the steel trade, but the rhetoric and action are now widening. Europe and European companies, along with other close partners of the US, are at risk of tariffs. Europe has already retaliated by introducing tariffs on some iconic US brands including Harley-Davidson motorcycles, Bourbon whiskey and Levi’s jeans. The US administration has subsequently threatened to extend the tariffs to autos, particularly from Europe.

Tariffs on autos would clearly be painful for Germany, and hence for European growth, even though growth is now broader and has a stronger domestic element than it did a few years ago. Tariffs will no doubt result in higher prices and put upward pressure on inflation. While this may initially be welcomed by central banks, which have struggled with deflation for years, it will accelerate interest rate rises.

No economic theory supports the notion that starting a trade war will increase the wealth of anybody participating or affected by it. It is neither good news for the world economy, nor for European growth or corporate earnings. We are concerned though that the current US administration is not basing its decision on economic theory, but is pursuing another, more political agenda.
We keep our fingers crossed and hope the current unstable situation does not escalate further. In general, we are not invested in commodity-related companies, but tariffs can result in higher input prices, for instance in manufacturing. Potentially, more widespread tariffs could disrupt the global supply chains many companies rely on, and affect production as goods become stuck or delayed at customs. In our view, investing in companies with a strong franchise, which gives them the power to raise prices if required, is the best way to protect investments.

The European Central Bank is ending quantitative easing (QE), which could bolster valuation of financial markets.

In June, the European Central Bank (ECB) signalled it will end its bond-buying programme by December 2018. This decision came after the Eurozone achieved 2.3% growth in 2017, although more recent indicators suggest the figure for 2018 could be lower due to limited demand growth. The ECB takes a slow approach to raising its deposit rate, which is now at -0.4%. Any negative developments in Italy (the ECB has been the largest buyer of Italian government bonds for some time) may delay this further.

We welcome the decision to normalise monetary policy, which should correct some of the misallocation of capital caused by the policies introduced post-financial crisis. In the meantime, a gradual retreat from QE will lend support to valuation of the financial markets.

Europe’s second quarter earning season should be positive, which may offset potentially negative developments in Italy.

In the coming weeks, companies wills tart to report Q2 numbers. Earning for the second quarter should continue to improve. Purchasing Managers’ Index (PMI) numbers have generally been positive and the strong currency headwind in the first quarter should have eased. Revenues should continue to develop positively and earnings revisions by analysts have also been positive. While news headlines are dominated by politics, earnings have supported equity valuations in Europe. There are indications the investment cycle is improving, with some of the strongest PMI increases seen in France. A stronger French economy will be positive not only for France but for Europe more widely, as a strong France will support the pull made by Germany and would enable the EU to better counter any potential negative developments in Italy. 

About Nordea Asset Management

Nordea Asset Management (NAM, AuM 216.5 bn EUR*), is part of the Nordea Group, the largest financial services group in Northern Europe (AuM 320.1 bn EUR*). NAM offers European and global investors’ exposure to a broad set of investment funds. We serve a wide range of clients and distributors which include banks, asset managers, independent financial advisors and insurance companies.

Nordea Asset Management has a presence in Cologne, Copenhagen, Frankfurt, Helsinki, London, Luxembourg, Madrid, Milan, New York, Oslo, Paris, Sao Paulo, Singapore, Stockholm, Vienna and Zurich. Nordea’s local presence goes hand in hand with the objective of being accessible and offering the best service to clients.

Nordea’s success is based on a sustainable and unique multi-boutique approach that combines the expertise of specialised internal boutiques with exclusive external competences allowing us to deliver alpha in a stable way for the benefit of our clients. NAM solutions cover all asset classes from fixed income and equity to multi asset solutions, and manage local and European as well as US, global and emerging market products.

 *Source: Nordea Investment Funds, S.A., 31.03.2018

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches, subsidiaries and representative offices. Additional information for Nordea 1, SICAV: The sub-funds mentioned are part of Nordea 1, SICAV (the “Fund”), an open-ended Luxembourg-based investment company (Société d’Investissement à Capital Variable), validly formed and existing in accordance with the laws of Luxembourg and with European Council Directive 2009/65/EC of 13 July 2009. This document is advertising material and does not disclose all relevant information concerning the presented sub-funds. Any investment decision in the sub-funds should be made on the basis of the current prospectus and the Key Investor Information Document, which are available, along with the current annual and semi-annual reports, electronically in English and in the local language of the market where the mentioned Fund is authorised for distribution, without charge upon request from Nordea Investment Funds S.A., 562, rue de Neudorf, P.O. Box 782, L-2017 Luxembourg, from the local representatives or information agents, or from our distributors. The Depositary of the Fund is J.P. Morgan Bank Luxembourg S.A. Further information can be obtained from your financial advisor. He/she can advise you independently of Nordea Investment Funds S.A. Additional information for investors in Switzerland: The Swiss Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, CH-8002 Zurich, Switzerland. Additional information for investors in Germany: The Information Agent in Germany is Société Générale S.A. Frankfurt Branch, Neue Mainzer Straße 46-50, D-60311 Frankfurt am Main. A hard copy of the above-mentioned fund documentation is also available from here. Additional information for investors in Austria: Sub-paying Agent and Representative in Austria is Erste Bank der Österreichischen Sparkassen AG, Am Belvedere 1, A-1100 Vienna. Additional information for investors in the Netherlands: Nordea 1, SICAV is a Luxembourg Undertaking for Collective Investment in Transferable Securities (UCITS) registered in the Netherlands in the register kept by the AFM, and as such is allowed to offer its shares in the Netherlands. The AFM register can be consulted via Additional information for investors in France: With the authorisation of the AMF the shares of the sub-funds of Nordea 1, SICAV may be distributed in France. Centralising Correspondent in France is CACEIS Bank, located at 1-3, place Valhubert, 75013 Paris. Investors are advised to conduct thorough research before making any investment decision. Additional information for investors in Spain: Nordea 1, SICAV is duly registered in the CNMV official registry of foreign collective investment institutions (entry no. 340) as authorised to be marketed to the public in Spain. The Depositary of the SICAV’s assets is, J.P. Morgan Bank Luxembourg S.A. In Spain, any investment must be made through the authorised distributors and on the basis of the information contained in the mandatory documentation that must be received from the SICAV’s authorised distributor prior to any subscription. The Representative Agent is Allfunds Bank S.A., Paseo de la Castellana 9, ES-28046 Madrid, Spain. A complete list of the authorised distributors is available in the CNMV’s webpage ( Additional information for investors in Portugal: The Management Company of the SICAV, Nordea Investment Funds S.A., and the Depositary of the SICAV’s assets, J.P. Morgan Bank Luxembourg S.A., are validly formed and existing in accordance with the laws of Luxembourg and authorized by the Commission de Surveillance du Secteur Financier in Luxembourg. Our distributor in Portugal is BEST – Banco Electrónico de Serviço Total, S.A., duly incorporated under the laws of Portugal and registered with the CMVM as a financial intermediary. Additional information for investors in Italy: Fund documentation as listed above is also available in Italy from the distributors and on the website The updated list of distribution agents in Italy, grouped by homogenous category, is available from the distributors themselves, at State Street Bank International GmbH – Succursale Italia branches (located in the main towns of each region), BNP Paribas Securities Services Succursale di Milano, Banca Sella Holding S.p.A, Banca Monte dei Paschi di Siena S.p.A, Allfunds Bank S.A. Succursale di Milano, Société Générale Securities Services S.p.A. and on the website Any requests for additional information should be sent to the distributors. Before investing, please read the prospectus carefully. We recommend that you read the most recent annual financial statement in order to be better informed about the fund’s investment policy. The prospectus and KIID for the sub-funds have been published with Consob. For the risk profile of the mentioned sub-funds, please refer to the fund prospectus. Additional information for investors in the United Kingdom:
Approved by Nordea Bank AB, 5 Aldermanbury Square, London EC2V 7AZ, which is regulated by the FCA in the United Kingdom. Additional information for investors in Sweden: The Paying Agent is Nordea Bank AB (publ), Smålandsgatan 17, Stockholm SE-105 71. The Representative Agent is Nordea Funds Ltd, Swedish Branch, Mäster Samuelsgatan 21, Stockholm, SE-105 71. Additional information for investors in Denmark: The Information and Paying Agent is Nordea Danmark, filial af Nordea Bank AB (publ), Sverige, Strandgade 3, Christiansbro, DK-1401 Copenhagen K. A hard copy of the above-mentioned fund documentation is available here. Additional information for investors in Norway: The Paying Agent is Nordea Bank AB (publ), Filial i Norge, Essendrops gate 7, Postboks 1166 Sentrum, NO-0107 Oslo. The Representative Agent is Nordea Funds Ltd., Norwegian Branch, Essendrops gate 7, Postboks 1166 Sentrum, NO-0107 Oslo. Additional information for investors in Finland: The Paying Agent is Nordea Bank AB (publ), Finnish Branch, Satamaradankatu 5, FI-00020 NORDEA, Helsinki. The Representative Agent is Nordea Funds Ltd, Satamaradankatu 5, FI-00020 NORDEA, Helsinki. Additional information for investors in Latvia: The Representative and Paying Agent in Latvia is Luminor Bank AS, Skanstes iela 12, Riga, LV-1013. Additional information for investors in Estonia: The Representative and Paying Agent in Estonia is Luminor Bank AS, Liivalaia 45, 10145 Tallinn. Additional information for investors in Lithuania: The Representative and Paying Agent in Lithuania is Luminor Bank AB, Konstitucijos pr. 21A, 03601Vilnius. Shareholders must evaluate possible investment risks and take this into consideration when making investment decisions. Information for investors in Brazil: Nordea 1, SICAV have not been, and will not be, registered with the CVM and may not be offered or sold in Brazil except in circumstances which do not constitute a public offering or distribution under Brazilian laws and regulations. Investors within Brazil should consult with their own counsel as to the applicability of these laws and regulations or any exemption there from. This material aims to provide information only and does not constitute and should not be construed as an offer to buy or sell or solicitation of an offer to buy or sell any security or financial instrument. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. For further details of investment risks associated with these sub-funds, please refer to the relevant Key Investor Information Document, available as described above. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden, Finland and Luxembourg respectively. The Legal Entities’ branches, subsidiaries and representative offices are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and representative offices. This document may not be reproduced or circulated without prior permission. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same, but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.