While Europe has had a somewhat more erratic handling of the pandemic, with greater restrictions on mobility than the U.S. and a slower start to the vaccination process, things are beginning to improve, things are beginning to improve.

Infection rates in most countries are declining, vaccination is surprising to the upside and it seems likely that most services will be fully restored this summer (critical for many economies that rely heavily on tourism, such as Spain, Italy and France, for example). As expectations for the eurozone remain limited, we are likely to have upside surprises in rates (steeper yield curves), a stronger euro and equities leading at the developed level.

Regarding the vaccination process, today 26.5% of adults in the European Union have received at least one dose and that number is expected to increase to around 65% by the end of June, given an improved vaccine supply. Pfizer expects to add 50 million more doses in 2Q21 than initially planned, Johnson & Johnson doses are back in use after a pause due to blood clot concerns, and Moderna is launching its supply. Use of existing vaccine supplies has also increased, and even AstraZeneca defied bad publicity to see its utilization rate rise from 62% at the end of March to around 80%.

Linking this improved public health situation to the timing of the EU economic recovery, the UK (where 65% of adults have received a dose of vaccine and Covid-19 infections have collapsed) offers the most relevant comparison. After a nearly four-month lockout, the UK is embarking on a gradual reopening that has seen mobility readings leapfrog those of the EU. It is also notable that the UK PMI reading moved above EU levels in late February, a point at which the UK economy was still locked in, but visibility was emerging about the success of its vaccination implementation, a path that Europe should now begin to travel.

Corporate earnings in Europe also gain momentum and upward revisions outperform global equities and are the best in 10 years.

Both the UK and the Eurozone are outperforming global equity markets in 2021, a trend we expect to continue going forward.a trend we expect to continue going forward. We like the more value cyclical composition of both markets and that they offer more reasonable valuations than the US.

Particularly for the UK, return risk has improved, following the underperformance of the market in 2020, the GBP rally and an agreement on Brexit. Positioning is low and the country has value quality, which makes it benefit from reflation.

The UK has more attractive valuations than its peers in terms of price/expected in terms of price/expected earnings (14.5x), price/book value (1.7x) and dividend yield (4%), the latter being one of the highest in the world, which is favorable in a world of low interest rates for a prolonged period of time. The above multiples compare respectively with 23x, 4.3x and 1.4% of U.S. equities.