Trading Insights: The rise in European trading volumes

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Eloise Goulder: Hi, I'm Eloise Goulder, Head of the Data Assets and Alpha Group here at J.P. Morgan. And today I'm so pleased to be joined by Chris Andrew, who is Head of Market Structure and Regulatory Change here in EMEA. So Chris, thank you so much for joining us here today.

Chris Andrew: It's really great to be back again, Eloise. Thank you for having me.

Eloise Goulder: And in fact, Chris, this marks our fifth discussion together on this podcast series. And we've always touched on market structure and time and time again, you've spoken about this demise in European volumes and turnover ratios, the fact that over the last five or 10 years, while US volumes and Asian volumes as a whole have been ticking higher, European volumes and turnover ratios have just been on the decline. And so, Chris, what a brilliant time to be talking with you again, because of course, this year, so much has changed. Not only have European equity markets outperformed US equity markets, but we've also, as far as I understand, seen this tick higher in European volumes. So Chris, can you start by providing the backdrop and telling us what you really have seen?

Chris Andrew: Yes, so I remember last time we talked, we discussed whether there was going to be a catalyst that might refocus investors on European equities a little more. And that's after a long period in which attention has been focused very much on US markets. And I think there's at least some evidence that something might be changing. So let's look at the headline numbers first. In the first four months of 2024, European volumes averaged around $45 billion a day. In the first four months of 2025, they averaged $63 billion a day. So that's an increase of 38%. And you really start to see that change build from mid February onward. And that's following JD Vance's speech at the Munich conference, and then going into the German debt break announcement. Then, of course, you have the US reciprocal tariff announcement on April 2, which caused a spike in global trading volumes. And with that, we saw intraday volatility levels that were comparable to what we saw during the onset of the COVID-19 pandemic.

Eloise Goulder: So we really have seen quite a remarkable pickup in volumes here in Europe, up a full 38%. Can I just check, have currency moves impacted that number at all, in that we've seen a relative dollar decline and euro strength?

Chris Andrew: Yes, the dollar is probably down about 9% this year. And those volume numbers I gave were in dollars. So that's absolutely contributed to that. One way that we can control that is by using the turnover ratio. So we take that dollar turnover and divide it by the dollar capitalization of the shares in question, we get something that is currency neutral. Even on that basis, European volumes are still noticeably higher. The other thing we need to control for is volatility. In other words, is trading only higher because there's more volatility, more news flow, or have volumes increased structurally beyond that? So just to control for that volatility, I plotted some scatter diagrams showing the turnover ratio in each trading day in 2025 so far, and showed that against the 15 minute volatility for each day. I did the same thing for 2023 and 2024. And what I wanted to see was, does that line for 2025 sit above those for more recent years? Or have volumes just increased with volatility? And what those charts suggest is that even if you adjust for recent volatility, European volumes are still significantly higher than they have been for the last two years. More like how they were during the pandemic and the subsequent recovery.

Eloise Goulder: And have there been particular countries or sectors that have really driven this increase?

Chris Andrew: Well, I think there's some more obvious pockets of concentration that you probably won't find surprising. So if we think in terms of countries, Germany's had the biggest increase in volumes with a 65% year on year increase. Italy, France and Austria, all up by 40% or more. And then even the UK, Spain and Sweden are also up by over 30%. And then if we look at it in terms of sectors, well, again, no real surprise, the fence volumes increased by over 130%. But then other industrial and capital goods sectors have also seen significant increases. And then also banks, insurers, consumer discretionary and telecoms.

Eloise Goulder: That's so helpful. So we've seen this notable pickup in volumes and turnover ratios here in Europe this year. And we've seen that tick up, even if you control for the currency moves and the pickup in volatility that we've seen. And it hasn't been uniform, but you have seen a pickup across many countries.. I guess the key question is why? And to what extent is this tick up likely to be sustained? And I'm sure it's linked to the relative outperformance we've also seen in European equities year to date, which obviously also marks a contrast to the trends we've seen over the last five or 10 years. And from my lens, I can think of a few reasons for that. The first one is that across Europe, arguably in response to Trump's America First policy and demands that Europe should spend more on defence, we have seen these signs of European policymakers just coordinating more, coordinating more on fiscal spend, on defence spend, and potentially through the Savings and Investments Union as well. Something we discussed with Lauren Anderson, our Head of Government Relations in our podcast episode back in March. And then second of all, this increase in fiscal and defence spend in Germany in particular, we think has a positive impact on GDP growth. In fact, our economists have upgraded their German GDP forecast for 2026 by a full percentage point as a result of these policy changes. They're now expecting 1.2% GDP growth in Germany in 2026 as a result. And then I guess the final point is less pro-Europe and it's more the fact that investors arguably have chosen to diversify somewhat away from US equities in light of the political volatility that we've seen so far this year. Bearing in mind that we went into this year with MSCI World having nearly a 70% weight towards US equities. And not only have we seen US political volatility and tariff discussions and the potential impact on US GDP growth as a result of that, but we also prior to many of those announcements saw DeepSeek's AI model released and the success of that and question marks, I guess, around the relative leadership of the US tech and AI industry in the face of competition from abroad. So I think from a risk management perspective alone, there have also been arguments to diversify away from US equities. So I can imagine that all of these factors have helped European equities outperform relative to the US and perhaps have also helped European volumes pick up on an absolute basis. Chris, do you have any thoughts on these points? And which of the arguments I've just given, do you find to be the most persuasive?

Chris Andrew: So I think the most concrete of these, particularly when I look at the way the data's evolved this year is like the pull into Europe. And that's really from the release of the German debt break and the recognition for greater self-sufficiency in defence and security matters. And the effect of that was very evident even prior to the liberation day announcements. The push side of this where investors may be diversifying away from US equities is harder to gauge. Certainly, it seems difficult to imagine that that wasn't in effect while there was a de facto embargo on trade between the US and China. Judging by the most recent performance in the US market, a lot of investors seem to be discounting some of the downside risks from the tariff base that remains in effect. But at the same time, there's been no rebound in the dollar, which makes me wonder if there's a disconnect between the way in which US investors, particularly retail, and foreign investors are seeing the world. I think my best guess is that that side of the equation is going to wax and wane as the economic data come out, and maybe some of the data from the AI companies evolves, and also as US policy evolves. And then just to come back on your first point around the Savings and Investment Union, and that means greater policy coordination on capital markets, I think it's a really interesting one from my point of view. But I also think it's much more of a slow burner. And I'd be really surprised if it's pulling investors into Europe in the short term.

Eloise Goulder: Yes, would you argue that what you've seen this year really is a game changer when it comes to the effectiveness of European capital markets?

Chris Andrew: Well, it's a difficult question to answer. So European and US economies are of comparable size. But US equity markets turn over at least 10 times as much as though in Europe. And why is that? So part of it comes down to two areas in which Europe is very different to the US. First one is culture. Broadly speaking, Europe doesn't have the same capital markets culture. Put another way, much more financing is provided by banks via savings. And pension schemes tend to get funded by state generosity, as opposed to investment in equities. And the second element really relates to the extent of cross border investment within Europe, particularly with respect to retail investors. So here, think of an Italian retail investor buying German shares. In Europe, retail investment tends to be very biased to the home market. So that almost makes the retail market in Europe only as big as a single European country, when it could be much, much bigger. And here the US has a huge advantage. So the idea is you fix these two things and European capital markets start to look at least a little more like those of the US and therefore much stronger.

Eloise Goulder: But Chris, you and I have long discussed this fragmentation of European shares issue and the need for this integrated capital markets union across Europe. Chris, what's changed this year?

Chris Andrew: Well you make a good point. This has been known previously as the Capital Markets Union, and it's had a rebrand, it's now been called the Savings Investment Union. And this sort of reflects that it's long been a goal of the Commission to try to make up for this comparative weakness in European capital markets. But I guess what is maybe changing this time is that even before the recent geopolitical reordering, concern about Europe's capital markets was growing, particularly as ever more listings headed off to the US in search of higher valuations. Then you add to that an acceptance that Europe really needs to start funding its own security and has to find a way to pay for that. Then suddenly the need for Europe's capital markets to start working more effectively to deliver growth has gone from a nice to have to a must have. And that's in the Commission's own words. So there's a kind of turbocharging to this process I haven't seen before.

Eloise Goulder: That's so interesting. So it's the very fact that Europe needs to spend more on its security or defence that's forcing policymakers to sharpen their focus on the need for this Savings and Investments Union. So Chris, what are the next steps required to actually make this a reality?

Chris Andrew: So the stated objective of the Commission is to have legislative proposals on the table towards the end of the year. And they currently have a consultation out which describes itself as a targeted consultation. But in reality, it's actually one of the most wide ranging I've ever seen on market structure.

Eloise Goulder: Well, I think that's really exciting. Finally, we have this catalyst and we have this political will for greater capital markets integration across Europe. Chris, what's the bad news here?

Chris Andrew: Well, I think one of the issues is the strength of that political mandate. And the Commission's own statement acknowledges a few of the challenges here. So one of the things they say is that stakeholders are going to face difficult choices. And that's true. They also say that some of these choices are going to require courageous decisions. And they acknowledge the need for collective action. And in particular, they acknowledge the willingness to overcome vested interest and move away from long established practices. So there's a real call to action here. But there's also a nod to the fact that those individual capital markets that exist today, and the associated financial markets infrastructure, so think exchanges, central counterparties, depositories, they come with history invested interests. And they also carry the flag for individual member states. And it's not clear that Europe can achieve what it needs to achieve whilst completely protecting that status quo. So it's going to become a real test of whether there really is the will for that collective action. All of that said, if it can't be done in the current environment with all these catalysts, then I don't think it ever will be. And then the other thing is really one of time, particularly on the capital markets culture side of things. So one good model for the EU's reform in this area are those undertaken by Sweden, which began in the late 70s and are widely believed to be a success. So here in Sweden, households only hold about 10% of their financial assets in cash. And Sweden accounts for about 13% of EU pension assets while only having 2% of the population. But I think the key is in the word culture here. Almost by definition, it can't change overnight. But it's more likely to be a decade or decades long endeavour.

Eloise Goulder: So this still is a very long term aspiration. And presumably, this can't just simply be mandated by EU law, presumably individual member states will have to play their part as well.

Chris Andrew: Exactly. If you think about a lot of the really important stuff here, it's around getting citizens to participate in capital markets. And that has to come from individual member states. It's not something that the Commission can legislate for just mandate. So that becomes a case of really bashing a lot of heads together and coordinating and hoping that everybody plays along. So it's going to be really interesting to watch the progress of this one. It's really ambitious, and will take the EU into some uncharted territory, I think.

Eloise Goulder: Thank you, Chris. So taking a step back, we've seen this increase in volumes and turnover ratios in Europe, we've seen that increase, even if you control for the higher volatility that we've seen this year, and the stronger currencies you've seen here in Europe. We've posed several reasons why this might have happened. Also reasons that help explain why European equities have outperformed US equities year to date. I guess the real question coming out of all of this is, what's next? Is this just yet another blip where European equities outperform and volumes increase for a very short period, and then they fall again on a relative basis? Or are these changes here to stay? Chris, what are your thoughts?

Chris Andrew: Well, I'm probably not known for my optimism. So sadly, I think the best I can say is that we might be seeing the start of something particularly if we start to see negative data come out of the US in response to tariffs, and European reform continues apace, then I think this could be sustained. And I think the flip side of that is that US policy normalizes and at the same time, Europe's appetite reform diminishes, or sense of urgency diminishes, or it runs into political quagmire, then yes, it could be just a blip.

Eloise Goulder: And on my side, I would agree that this could be the start of something more optimistic for Europe. We definitely have seen some seeds of structural changes here, in terms of greater policy coordination and greater will for the savings and investments union. And then my other point would be, there's really two questions. One is, is US exceptionalism here to stay? Or does it wane on the basis that investors are choosing, as they have done year to date, to diversify somewhat away from the US? And it's an entirely different question as to whether Europe is the net beneficiary of that. Because of course, there are other economies that have also outperformed year to date for what it's worth across Asia and across Latin America, that could also disproportionately benefit from many of these dynamics. So I think it's a very complex one, but really helpful to hear, Chris, from your market structure and your regulatory perspective, where there have been some real genuine seeds of change here in Europe. So Chris, thank you so much for walking through all of this with us here today.

Chris Andrew: Thanks for having me, Eloise. I've really enjoyed being here.

Eloise Goulder: Thank you also to our listeners for tuning into this bi-weekly podcast series from our group. If you'd like to access Chris's work, do get in touch with one of us or indeed through your sales representative here at J.P. Morgan. Alternatively, please do go to our website at jpmorgan.com/market-data-intelligence. And there you can always send us a message via the contact us form. And with that, we'll close. Thank you.

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