_{1. Regime change for  EURUSD?}

Overthe last 5 years, EURUSD has tended to have a negative relationship with VIX.Qi's sensitivity analysis - the percentage move in spot FX for a 1 sigma shockup in US equity vol - shows that spikes in risk aversion have been consistentwith lower EURUSD.

Makessense: the US Dollar is the flight-to-quality play. Today, however, thatpattern of association has turned positive: risk off equates to EURUSD upside.

The suggestion is the transition from MAGA to MEGA is not only encouraging capitalflows from the US to Europe but is also starting to give the Euro a safe havenrole.

Thatwould be a major structural change if it were to last. But there are signs thepositive sensitivity is already abating. The evolution of this pattern could bea barometer for the whole US-Europe narrative at large.

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2. If the US sneezes, will Europe catch a cold?

 Arguably, European equities are now trading ex-two key catalysts.

One, it feels like the “German fiscal spending boom” is no longer new news. The German budget expansionpassed the Bundestag but with limited reaction in stocks.

Two, Putin / Trump negotiations suggest we should not expect a quick conclusion to the Ukraine conflict.

The rush toreallocate from the US to Europe is reflected in the Stoxx 600 now having apositive exposure to VIX according to Qi’s models. In other words, it hasbecome market belief that if the US sneezes, Europe won’t catch a cold.

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This is a rareoccurrence. It has occurred only twice before in the last 4yrs. On both ofthose occasions (Sep-21 and Jul-24), we saw a pullback in the Stoxx 600. -5%and -7%, respectively.

Looking ahead, westill face the April 2 tariff deadline where Trump plans to implement“reciprocal tariffs”, raising the ante for Europe.

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3. US High Yield vs. Itraxx Xover

Qi model value forthe spread between CDX US HY spreads and Itraxx Xover spreads has beenwidening. Aggregate macro conditions are consistent with US high yield credit trading 23bp over their European peers.

In this US-European re-rating, however, the market has moved even further. The spotspread is nearly 20bp wider again. That's a Fair Value Gap of over 1 sigma.

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The model is not in regime (36% confidence) so there's no official signal. That said, we'd be watching macro-warranted fair value very closely. If the blue line above doesn't set newwides, the implication is the US credit underperformance trend is losing momentum.

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