European Equity Strategy: Shrugging off the energy shock

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European Equity Strategy: Shrugging off the energy shock

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European Equity Strategy

Shrugging off the energy shock

Iran – resolution proving elusive: Iran has outlined wide‑ranging preconditions for renewed talks, including 15 May 2026

the recognition of sovereignty over the Strait of Hormuz, with the two sides still seemingly far apart. As the

Equity Strategyclock ticks and the Strait remains closed, oil prices were expected to rise. Instead, they have fallen. Higher US

Europe

exports and lower Chinese imports have likely helped, but such offsets look unsustainable as long as

inventories are being drawn down in the absence of demand destruction. Current low levels of equity risk Sebastian Raedler >>

premia suggest strong investor confidence in a swift resolution. We are concerned that such a resolution and a Investment Strategist

resumption of ample global energy supply is less certain. MLI+44 (UK)20 7996 1749

sebastian.raedler@bofa.com

US macro – the consumer powers on: the US impact of the Iran war has so far skewed towards stronger Thomas Pearce, CFA >>

growth rather than inflation‑driven weakness. The labour market remains resilient, supporting real incomes and Investment Strategist

consumer spending, partly via increased borrowing. Strong data have led our economists to change their call MLI (UK) +44 20 7996 2081

on the Fed to no cuts until Q3 next year. Meanwhile, core PCE inflation is now tracking at levels they see as tpearce@bofa.com

problematic. While our base case remains cooling growth and lower real yields, recent data point to upside Andreas Bruckner >>

risks for inflation, bond yields and, hence, the potential for equity de-rating via a higher discount rate. Investment Strategist MLI (UK)

+44 20 7996 1306