Barclays Analysts on U.S. Election Impact on European Equities

Investing.com — Barclays analysts indicated that the U.S. election is a crucial "clearing event" for European equities, with a Trump victory favoring reflation trades and offering resolution for investors.

According to Barclays (LON:BARC), markets were largely set for a Trump win, as evidenced by rising U.S. yields, the dollar, and U.S. equities, while European markets trailed.

The outcome was in line with market anticipations, as betting odds had favored a Trump victory, despite a tightening gap in recent days.

With Republicans appearing likely to maintain control of the Senate, the so-called "Trump trade" is back, characterized by increasing rates, a stronger dollar, and higher U.S. equity futures—a sign of market relief as investors adjust to this familiar environment.

However, European equities could face challenges, especially if the U.S. government remains divided. A Red Sweep could intensify tariff risks for Europe.

Barclays highlights that tariffs are still a "key risk" for the European market. A split Congress might restrict domestic fiscal measures while keeping international trade policies prominent.

For U.S. equities, Barclays views a Red Sweep as the "most positive outcome," while the Trump-win-with-divided-Congress scenario is perceived as the "most negative outcome" for European stocks, at least relatively.

Barclays anticipates potential short-term "knee-jerk" reactions, with European equities susceptible to U.S. fiscal and trade policy uncertainties, particularly regarding tariffs.

Long-term, they believe a Trump victory could stabilize market expectations, fostering a renewed focus on growth-oriented sectors across U.S. and European markets alike.