Macro Moments Weekly: Europe saves, US spends, Asia grows

Key takeaways:

• Asia (the exciting story): South Korea and Taiwan are climbing fast, with AI supply‑chain dominance blurring the line between “emerging” and developed markets.
• Europe (pressure building): Confidence is fading, cash is being hoarded and earnings momentum is narrow — growth feels fragile and defensive.
• United States (still powering ahead): Confidence remains high, supported by fiscal stimulus, energy strength and capital investment — momentum looks intact.
• Parting shot:  Around 15% of global oil and gas supply has been lost due to the Iran war, pushing up prices, yet US shale producers have shown little urgency to raise output, opting instead to 'take the money'.

Last week, the South Korean and Taiwanese stock markets edged past Canada and the United Kingdom in world rankings. This should hardly be a surprise, given their corporates are the “shovel and spade” makers for the artificial intelligence revolution. From processors to memory chips and everything in between, the strength of these two economies is reflected in their company growth and valuations, which are slowly catching up with counterparts in the US market. The question is not whether this can be maintained—that’s a question dependent on the US-driven AI-investment boom—but how long can these markets be called emerging?

All of this is, of course, a huge compliment to the strength and vitality of the US economy. It is striking in all the conversations I have had over the last few weeks, how different the mood is on the other side of the pond. European business and consumer confidence is shrinking at a rate comparable to 2022, interest rates are forecast to rise, and gross domestic product estimates, which were weak to start with, are being cut. People are sombre and worried.

I hear none of the same fears in the United States. The tariff cheques, control of its national energy supply, and the capital expenditure boom driven by the ‘One Big Beautiful Bill,’ are all happening together. You would almost ask why growth is only forecast to be in the 2%-3% range in 2026. ‘Nothing to see here, business as usual,’ is the mantra.

Should we wonder if this reverses in 2027? Is there a case for the harder you fall, the further you bounce? So far, for European markets 2026 earnings (company earnings per share) have been upgraded by 4%, but two-thirds of this rise is from energy stocks, oil and gas, and if one includes utilities and metals and mining, it explains approximately 80% of the upgrade. If the recovery is based on oil prices falling, then will European indices have a build-in drag which could offset some of the upside? The tech-heavy Taiwanese, South Korean and US markets have their biases, too, but if the AI revolution continues, so should the returns. In comparison, just 8% of European market cap is tech.

This brings us to one thing the Europeans are doing better than others: saving. And in particular, saving cash. As ever, when confidence falls, both companies and consumers build up their precautionary cash savings. That cash hoarding cuts into demand for services, goods and investment. It is striking that the downturn in European Purchasing Mangers Index data is driven by services, fitting precisely this pattern.

The problem is what happens to this cash. Cash held in banks as market rates rise is good for bank profits but bad for the economy. Economic logic suggests that interest-rate rises—which are expected as early as the next meeting from the European Central Bank—cannot be maintained over the long term into a slowing economy. But that acts as an incentive to hold more, not less, cash.

So where is the demand for cash coming from? Clearly, it is from the United States and its corporates, which Alphabet, bang on cue, has tapped this week. It has issued US$10 billion of bonds denominated in euros, with maturities up to 37 years. The issue was two times oversubscribed. Alphabet also issued US$6 billion of Canadian dollar bonds. This was the largest-ever investment-grade corporate debt offer in the Canadian dollar (source: Bloomberg.com).

The United States may be becoming more reliant on global sources of funding, but that demand is being met easily by excess savings elsewhere in Europe and China. This then presents some difficult questions for the US dollar, presuming that the Federal Reserve  is, at best, on hold regarding rates. Does this demand for US-dollar assets, ‘the only game in town,’ drive up the US dollar, or does it weaken it? Into this equation must be placed the trajectory of the US fiscal deficit and current account deficit. We remain mild US dollar bears—but mild.

There is always a point in market cycles when you can buy the same asset for less elsewhere. That was the argument for Europe at the start of 2025, and this will return every so often. Underpinning the validity of the valuation argument is a simple truth, that as a global investor you should be thinking in terms of sectors and themes.

Parting shot

Estimates vary, but consensus is that around 15% of the world’s energy supply, oil and gas, has been lost as a result of the closure of the Strait of Hormuz. We have all seen what that has done to prices, in particular for jet fuel. Yet we have not seen much, if any, of a supply response, in particular, from the Permian Basin of shale oil and gas in the United States. Producers may or may not have the ability to raise capacity, but they have clearly decided to ‘take the money’ that the price rise offers.