What's takeaway 1 on Signal over Noise with Ulrike Hoffmann?

U.S. currently holds a 64% share of global startup funding, underscoring its dominance in tech.

What's takeaway 2 on Signal over Noise with Ulrike Hoffmann?

Europe's fiscal stimulus may offer temporary support, but lacks long-term structural changes for growth.

What are the market implications for Signal over Noise with Ulrike Hoffmann?

Traders should watch for EUR/USD movements, particularly around levels of 1.075. Influential U.S. economic indicators and central bank communications in March could provide further catalysts for the anticipated upward trend of the dollar.

What are the risks to this view on Signal over Noise with Ulrike Hoffmann?

A significant shift in European policy, particularly if aggressive technological reforms are adopted, could negate the current USD bullish outlook. Additionally, any unexpected resurgence in European economic data exceeding expectations might also challenge our forecast.

Signal over Noise with Ulrike Hoffmann-Burchardi

What the desk is arguing

The desk believes the insights shared by Hoffmann-Burchardi highlight significant risks to European economic stability as it struggles to keep pace with U.S. advancements. The emphasis on AI as a focal point at Davos illustrates the widening gap between the two economies, with U.S. firms having already established dominance in crucial sectors while European regulation may hinder its own growth potential.

Moreover, Hoffmann-Burchardi's observations on fiscal stimulus suggest a short-term uplift for EU markets, but without structural reforms in innovation, Europe may fail to sustain this momentum. The clear weight of U.S. firms in global markets, as underscored by the 64% representation in the MSCI ACWI, reinforces the likelihood of continued USD strength.

Where it sits in our coverage

Currently, our coverage indicates a consensus target for USD/EUR at 1.075, reflecting a cautious outlook amid the shifts in global economic power dynamics. Specifically, jpmorgan has established a target of 1.10 for March 2026, while bofa holds a more conservative stance with a target of 1.04.

The desk’s interpretation aligns with this consensus range, situating the forecast toward the upper bound, potentially reflecting growing sentiment around U.S. dollar appreciation as Europe navigates its challenges.

How other firms see it

Firms such as jpmorgan and others are aligned with the desk's perspective, emphasizing the potential for USD strength against the Euro based on structural economic discrepancies. In contrast, bofa presents a more cautious outlook, indicating risks associated with overestimating the impact of fiscal policy in Europe.

Relevant currency pairs to monitor will include EUR/USD, reflecting the broader economic trajectory and challenges each region faces. Additionally, keep an eye on U.S. economic data releases that could influence central bank policy and market sentiment as the distinctions between these economies become more pronounced.

Hello and welcome to Signal Over Noise. I'm Ulrike Hoffmann-Buchardy, CIO for the Americas and Global Head of Equities for UBS Wealth Management. Davos last week was all about a geopolitical and technological crossroads, a sharp contrast to the small Swiss village with its single main promenade.

The scale and speed of U.S. policy moves and innovation stands in stark contrast to the consensus-driven and rule-based European Union and Canada. Even though President Trump used his speech in Davos to reverse course on Greenland, the U.S. dollar did not reverse course. The unpredictability of U.S. policy remains a marked concern.

AI took over Davos both visually and literally, posing another challenge to Europe. During the World Economic Forum, almost every shop in Davos turns into a makeshift corporate headquarters. And almost every storefront flaunted AI in its pitch, from banks to investment funds to professional services to cybersecurity.

And there again, the contrast could not be starker. The U.S. government has made AI a strategic priority, while Europe focused on regulation first. By the time the EU AI Act was finalized, U.S. firms had already captured global market share.

This was also clearly visible with the strong U.S. corporate AI presence in Davos and with top U.S. tech leaders speaking at the World Economic Forum, from Jensen Huang to Elon Musk. Europe needs to tackle these challenges to hold its economic position. EU growth should get a short-term lift from fiscal stimulus this year, and we're tactically constructive on its equity markets.

But durable long-term growth will require more than stimulus alone. Europe needs to regain its edge in technological innovation. The U.S. leads by a wide margin.

It dominates the public equity market with a 64% weight in the MSCI All-Country World Index. But it also dominates the next generation of corporates to the exact same extent. 64% of global startup funding went to the U.S. last year. Only 13% went to Europe, down from 18% in prior years.

The clear signal to Europe? Inaction means insignificance over time. Another country spurring economic growth with fiscal stimulus is Japan.

So much so that it caused a trust moment for JGBs last week. The 10-year JGB yield hit 2.26%, over one percentage point above last year, in reaction to further fiscal expansion, atop a debt that exceeds 230% of GDP, the highest among major advanced economies. With G7 economies at record debt-to-GDP levels since 1950, yield spikes remain a risk in fixed-income markets more broadly.

Other wobbles in fixed income came from private credit on Friday. BlackRock disclosed a 19% net asset value cut to one of its private debt funds. With a strong U.S. and global economy, we don't expect this to signal the start of a credit cycle.

But we do expect further NAF adjustments to private credit in structurally challenged parts of the economy. So what is our investment call in this backdrop? We prefer equities over fixed income.

In fixed income, we stay neutral on the areas that have attracted most capital over the past decade – government debt and private credit. In equities, we underwrite the great broadening for 2026. Over the last two and a half years, we had a narrow spotlight on AI, tech, and the U.S.

Since November last year for the first time, we shined the floodlight on broader equity opportunities. On the macro side, the driver is the fiscal stimulus in the four largest global economies. This is a tide that lifts all boats.

In the U.S., another driver is the midterm election. You don't win elections with only the top 20% of earners. We expect more policy measures this year to support the low- and middle-income consumer.

This is one of the reasons for our upgrade of the U.S. consumer discretionary sector. Lower rates and lower inflation could boost affordability, unlocking broader consumer gains. Without Amazon and Tesla, valuation in this sector is quite attractive at 18 times next 12 month's earnings, for a 16% expected earnings growth.

Turning to next week, we see little market signal from the Fed meeting – more from earnings. We expect one more cut in Q1, but expect the Fed to hold policy steady next week with little new forward guidance. December's tone should persist – power call policy no longer strongly restrictive, now in the broad range of plausible neutral estimates, and well positioned to adjust based on data.

Earnings are likely to dominate next week, with 30% of S&P market cap reporting, including four out of the seven Mach 7. Microsoft met at Tesla on Wednesday and Apple on Thursday. We expect tech earnings to be strong and recommend using any tech strength to position for further broadening, especially into the U.S. consumer discretionary sector.

With this, stay well and stay ahead. UBS Chief Investment Office's investment views are prepared and published by the Global Wealth Management Business of UBS AG, or its affiliate, UBS. This material has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient, and is published for informational purposes only.

As a firm providing wealth management services to clients globally, UBS AG and its subsidiaries offer both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. In the USA, UBS Financial Services, Inc. is a subsidiary of UBS AG and a member of FINRA SIPC.

For information, please visit our website at ubs.com forward slash working with us. For a full legal disclaimer applicable to the independent investment views produced by UBS, please visit our website at ubs.com forward slash CIO dash disclaimer.

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