LIVE MARKETS-Europe's small caps leading the recovery

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EUROPE'S SMALL CAPS LEADING THE RECOVERY

Since the April low after "Liberation Day", Europe's small caps .MIEU000S0PEU have risen 26%, outperforming the broader MSCI Europe .MIEU00000PEU, which has risen 19%, and Barclays is remaining positive.

"The (small cap) rally has been driven by improving sentiment from previously depressed levels amid a resilient domestic EU macro backdrop," write Barclays equity strategists, "while supportive fiscal and monetary policy has created a favourable setting for domestic-exposed names."

The improving macro backdrop has been playing out in the data.

Citibank's economic surprise index for the euro zone is firmly in positive territory, suggesting that economic data has been beating expectations. In contrast, the U.S. index turned negative last week.

Barclays remains positive and believes that valuations are still attractive for European small caps, and their lower exposure to the U.S. and China, and stronger sensitivity to domestic activity position them well in a stronger euro environment.

The single currency has gained 10.5% this year against the dollar as some investors shied away from U.S. assets in the wake of Trump's tariff plans. EUR=EBS

(Samuel Indyk)

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