Morgan Stanley Derivs Desk: Europe Is Capped, Buy America

US over Europe

The Morgan Stanley derivatives team thinks that SX5E is more capped and should underperform SPX in a “resolution scenario”. Historically, once oil peaks around any Middle East related ‘oil-sensitive’ event, EU equities typically underperform US. While this is counter intuitive (Europe is a large net oil importer so passing the peak in oil prices is ‘less bad’), it’s worth remembering that oil typically settles ~25% higher than it was pre-crisis and as a result keeps pressure on EU.