The Rising Influence of European Markets
A look into June’s market signals as VGK emerges as a trendsetter in global finance networks.
In the wake of recent trade wars, the global financial landscape has undergone significant shifts. As US trading policies grow increasingly uncertain, asset allocators are pivoting toward alternative markets - Europe chief among them - perceived as less vulnerable to tariff disruptions with an economic environment tilted to fiscal expansion and looser monetary policy. This reorientation is more than a matter of asset flows; it’s reshaping the causal structures that underpin financial networks.
A New Role for European Equities
One striking development is the transformation of VGK (European FTSE) within this global network - a blend that spans US and European financial sectors, gold (GLD), US short-term volatility (VIXY), 10y and 30y Treasury Bond yields.
Two months ago, before the latest tariff escalations, VGK operated as a causal hub, i.e. it was a nexus, both influencing and being influenced by other assets in the network. Through these networks we can observe that in late March this year (before the US' tariffs) VGK's price movement was driven by 30y Treasury Bond (^TYX yields as well as US short-term volatility (VIXY) and its position in the network was located at the edge, signaling a moderate impact. VGK was one of the drivers of gold but, like gold, its price was driven by the 30y TB yields.
At the beginning of this week, amid this new market regime, VGK has evolved into a causal source, i.e. it now drives price movements across the network with minimal reciprocal impact. We can now see that VGK is positioned more centrally in the network and is a key causal driver, impacting the VIXY (this causal relation completely reversed during this period), as well as the US financial sector (XLF) and regional banking (KRE) ETFs.
Unlike two months ago, its price movement is not being driven by any of the assets in this same network, reflecting its new role in the current financial markets. We can also observe the current predictive performance statistics of VGK's causal relationships in this network: 73.86% median directional accuracy (i.e. how good it has been at predicting the future price direction of assets in this network) and 4.25% median relative error (i.e. how big have been the errors in predicting the precise price movement size).
Historically, US markets have been the dominant force in global Finance, with European markets often seen as reactive or secondary players. VGK’s emergence as a causal source upends that narrative, suggesting European markets are not just a safe haven but can increasingly play a more significant role in steering global financial trends. This challenges long-held assumptions and underscores a rebalancing of influence amid global fragmentation.
As European markets gain this newfound prominence, their influence is reshaping investor expectations and portfolio strategies. With VGK now acting as a trend starter, its movements are setting the tone for broader market behavior, particularly in terms of risk appetite and defensive positioning.
This shift is not just a theoretical change in market leadership - it’s actively driving the forward-looking signals we’re observing across the network, as investors adjust to a landscape where European equities are taking the lead in some market behavior.
Trend Starters and Forward-Looking Signals
Currently, VGK stands out as a trend starter - assets setting the pace for others in the network. Our analysis points to the following signals over a 20-day horizon:
Downward pressure on 30y Treasury Bond yields: Concurrently, yields are poised to compress.
30y TB yields forward-looking signals on June 2nd, 2025 Upward pressure on TAIL: As June unfolds, expect tail risk (TAIL) to face upward move, reflecting heightened uncertainty filtering through the network.
TAIL forward-looking signals on June 2nd, 2025
Current market perception leans heavily risk-on, with equity indices near all-time highs and volatility measures like the VIXY at subdued levels. Treasury yields have remained stable, showing no immediate signs of a flight to safety. Yet, our analysis paints a different picture: rising VIXY and TAIL signal underlying risks that could jolt markets out of complacency, while falling 30y yields hint at a defensive shift that clashes with the bullish mood. This disconnect suggests markets may be underpricing volatility and stress - crucial intel for asset managers looking to position ahead of a turn.
These projections stem from the aggregated influence of multiple drivers, not a single isolated signal. It’s the interplay of these forces, combined with the analysis of historical event spaces, that not only reveals the current market direction but also anticipates potential shifts in that direction. Unlike approaches that simply track trends and/or breakouts, it leverages past events to predict when the market might change course, offering a more dynamic understanding of its trajectory.
Looking Ahead
As this new regime takes shape, we’ll keep tracking how these dynamics evolve and what they signal for the broader market. The rise of European influence is a trend worth watching - not just for its immediate implications, but for what it reveals about the adaptability of global financial structures in uncertain times.
In a world increasingly shaped by trade wars and fragmentation, understanding these shifts could be the difference between staying ahead or falling behind.
While sentiment rides high on optimism, our network-driven insights flag risks and shifts that aren’t necessarily priced in. Rather than relying solely on trend-following or reversal signals, it analyzes past situations to calculate precise likelihoods, providing asset managers with a robust early warning system that stands apart from market extremes.
Disclaimer: The information provided in this content is for general informational purposes only and does not constitute investment, financial, legal, tax, or other professional advice. It should not be relied upon as such. Always consult with a qualified professional or advisor before making any investment or financial decisions.