【MACRO Alert】The "epic escape" of US stocks and the "historic expansion" of German finances under th

A Bank of America survey of fund managers showed that investors made the “biggest ever” cuts to their U.S. stock allocations in March, with allocations to U.S. stocks falling sharply by 40%, from a 17% increase in February to a net 23% decrease in March, amid concerns about the U.S. economy caused by Trump's erratic trade war and a severe sell-off on Wall Street. The month-on-month drop in investor confidence was the largest drop in the survey since the COVID-19 outbreak in March 2020. Elyas Galou, senior investment strategist at Bank of America, pointed out that investors turned from enthusiastic long positions at the beginning of the year to short positions.

Meanwhile, European stocks benefited, with allocations to euro zone stocks jumping 27% to the highest level since July 2021, the most dramatic shift in funds from the U.S. to Europe since U.S. banks began recording in 1999. Trevor Greetham, head of multi-asset at Royal London Asset Management, said it was not surprising that fund managers were leaving the U.S. market because the policies introduced by the White House were not what they expected.

Nearly 70% of investors believe the “American exceptionalism” theme, which drove the S&P 500 and Nasdaq to record highs in the weeks after Trump's election victory last November, has peaked. Investors surveyed were particularly pessimistic about technology stocks, with a net reduction of 12%, bringing allocations to the lowest level in more than two years. Fund managers were more optimistic about utilities and banks, while increasing their exposure to U.K. stocks.

Although the proportion of cash held by investors rose slightly to 4.1%, government bonds did not benefit from investors' withdrawal from the stock market, and bond allocations fell slightly, with most investors still reducing their holdings. Michael Metcalfe, head of macro strategy at State Street Global Markets, pointed out that this was not a typical risk-off behavior of selling all assets, but more like a rebalancing. He added that investors were not preparing for a bear market that lasted for several months, but rather a very rapid rebalancing of highly concentrated trades at the beginning of the year.

German lawmakers approved a landmark spending package, taking a major step toward freeing up hundreds of billions of euros in debt financing for defense and infrastructure, heralding an end to decades of budget austerity. The legislation, pushed by conservative Chancellor-designate Merz, passed the lower house of parliament with support from the Social Democrats and Greens, and will largely free defense spending from debt constraints, create a potentially unlimited supply of money for rearmament to deter Russia and set up a 500 billion euro fund to invest in the country's aging infrastructure.

Lars Klingbein, co-leader of the Social Democratic Party, said this could be the largest spending package in Germany's history and that Germany must take the lead in Europe. After two years of contraction due to structural problems, including high energy costs, weak manufacturing and bureaucratic problems, Germany's shift to expansionary fiscal policy is expected to revive Europe's largest economy.

The historic decision, spurred by Trump's alienation of the transatlantic alliance, is expected to help boost economic growth across the region. German politicians now have a huge responsibility, but the huge borrowing authority approved will help stimulate economic growth and improve competitiveness, said Peter Adrian, chairman of Germany's DIHK industrial lobby group. After approval by the lower house, the legislation will be voted on in the Bundesrat on Friday, and if it is approved there as well, it will then be signed into law by President Frank-Walter Steinmeier.

The final fiscal compromise could bring huge fiscal benefits to the federal states, with up to 200 billion euros in off-budget infrastructure funds available to the federal states, in addition to raising the net borrowing limit for the federal states from 0% of GDP to 0.35%. And the time is very tight, as Merz seeks to pass the measure before the new parliament takes office next week. Amending the constitution will become more difficult after the far-right Alternative for Germany and the anti-capitalist Left Party gained more support in the February 23 election.

Both parties oppose the spending plan and have gained more support in recent opinion polls. For Merz, the passage of the plan is a milestone, even though he lost credibility during the campaign for budget consolidation. The financing plan will help in negotiations with the Social Democratic Party, led by outgoing Chancellor Scholz, on forming a governing coalition. Merz aims to form a government by mid-April. Bloomberg economists commented that reasonable assumptions about the way spending grows suggest that Germany's growth rate could reach 1.6% in 2026, double our previous forecast.