Though war continues at an accelerated pace in eastern Europe, you wouldn’t know it by the action in the stock market since the autumn lows. The Continent got lucky with Mother Nature this winter; visions of a deep freeze and stubbornly high natural gas prices failed to materialize after energy prices spiked to the moon last year. For large chunks of 2022, Dutch Title Transfer Facility (TTF) natural gas was trading hands for the oil equivalent of $400–$500 per barrel, levels so bizarrely high that it seemed a slam dunk that the entire region would slip immediately into an ugly recession.

But a combination of fuel economization and the aforementioned mild winter, not to mention the market’s realization that Europe has not yet completely eliminated Russian natural gas purchases, has caused prices to crater back to oil-equivalent levels in the digestible double digits. Suddenly we find ourselves in 2023’s first quarter with a war that seems only to be accelerating, yet with the European Commission anticipating a sigh-of-relief +0.9% real GDP growth rate for 2023. If you had told us a year ago when the war started that the conflict would be this deadly, yet the ink on Europe’s 2023 GDP could be black, not red, we would have raised our eyebrows.

As Europe’s economic sentiment has improved, so too have its stocks. The confluence of a euro rally and an upside snap in riskier assets has propelled the MSCI Europe Index to a 32.9% gain from September 27, 2022, through the close of last week’s action. In contrast, the S&P 500 has only returned 12.9% during this period, with several major U.S. stocks posting outright losses.

Potentially supportive for Corporate Europe is the large wage arbitrage that has opened relative to the U.S. because of currency dynamics.

The euro was changing hands above $1.60 in 2008, when it was routine to hear some economists flirt with the idea of it becoming the new reserve currency. Ancient history. Today the currency languishes at $1.07. Back when the common currency was expensive, the dollar-terms average wage of French workers briefly poked above that of American workers, according to OECD data. Sterling was also strong in the years leading to the global financial crisis, so much so that British workers made several thousand dollars more than Americans in the middle of this century’s first decade. A generation before that, in the early 1990s, the dollar-terms wages of Japanese workers were about double those of their American counterparts.

Not anymore.

Using the OECD’s calculations for average wages in Q1 2023 and converting them to USD, the typical French worker is making $43,529 per year, while the Brit makes about the same compensation, $44,417. The yen has fallen so hard that it’s $31,053 for the Japanese worker. But in the U.S., it’s a completely different ballgame: $74,998.

There are several implications of these wage disparities. For one, should the near-ubiquitous global worker shortage subside, high-priced U.S. workers could be vulnerable to layoffs. A similar concept worth considering: on the other side of this economic funk, perhaps multinationals will scan more European resumes when they need employees.

Perhaps most important for equity investors: after years of watching the euro and sterling—and many other major currencies—slip away from the U.S. dollar, perhaps the stock market is telling us that the seedlings of competitive advantage have sprouted.