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The read-through from a dovish Federal Reserve repricing should lift European equities. Investors reduced their expectations for Federal Reserve rate hikes, and yet European markets remained muted.
That gap between the catalyst and the reaction is where the story actually is. The case for a rally was not complicated.
When the market prices out Fed tightening, the cost-of-capital argument for international equities improves and rate-sensitive sectors get a tailwind. That is the basic transmission mechanism.
What's changed, or rather what appears to have changed, is the sensitivity of European markets to the Federal Reserve's rate signaling.
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