Goldman Sachs' latest weekly European market report: Global debt costs continue to rise, capital is becoming increasingly expensive, and corporate profits and balance sheets will face a real test. Since the beginning of this year, the yield on 10-year US Treasury bonds has risen by approximately 80 basis points to 5.0%, while the yield on 10-year German bonds has risen by approximately 50 basis points to 3.3%, widening the spread between French and German bond yields to 175 basis points. Sovereign debt pressure is gradually being transmitted to the corporate sector. Since September, yields on European investment-grade bonds have risen to 4.4%, and high-yield bonds to 7.0%, indicating that corporate financing costs are rising across the board. Goldman Sachs believes that the AI capital expenditure supercycle is further intensifying the global competition for capital. The debt issuance of US hyperscale cloud service providers is expected to increase from $250 billion in 2026 to $420 billion in 2027, and global AI project financing will also double from $150 billion to $300 billion. The tech industry is undergoing structural changes. Previously reliant on an asset-light model to generate cash flow, it now requires increasing capital investment to build data centers and AI infrastructure. Some cloud giants are finding their operating cash flow insufficient to cover capital expenditures, leading to a growing reliance on external financing. High interest rates are beginning to erode corporate profits. Since 2022, the ratio of interest expenses to sales revenue for European companies has risen from 1.25% to 1.85%, a change of only 60 basis points that has reduced overall corporate profits by more than 5%. Currently, the average debt maturity of STOXX 600 companies is approximately 7 years, with about 25% of debt needing refinancing within the next two years, and another 25% being floating-rate debt. This indicates that even if interest rates stop rising, the high financing costs accumulated over the past few years will gradually be reflected in corporate profit statements. However, Goldman Sachs does not believe a systemic credit crisis is imminent in Europe. The balance sheets of European households, businesses, and financial institutions remain relatively healthy overall, and corporate leverage ratios have not reached historical extremes. Goldman Sachs expects inflation and interest rates to decline in 2027, along with improved economic growth, thereby alleviating corporate financing pressures. However, the absence of a credit crisis does not guarantee strong performance for all stocks. Goldman Sachs believes the biggest change in the market will be a further widening of the gap between companies. Companies with stable cash flow, high profit margins, healthy balance sheets, and pricing power will have a greater advantage. Companies with high debt, weak cash flow, and a need for short-term refinancing may face the triple pressure of rising financing costs, declining profits, and valuation compression. Currently, European Q3 earnings reports are generally supportive, with corporate profits exceeding expectations by an average of 1.8%, and the technology, telecommunications, and building materials sectors performing particularly well. However, European corporate EPS growth is projected to slow from approximately 20.7% in 2026 to 8.8% in 2027, while US earnings growth is also expected to slow from over 30% to below 15%. As overall earnings growth begins to slow, the market will place greater emphasis on earnings certainty and will not simply chase high-growth stories. Goldman Sachs remains optimistic about the medium-term outlook for European equities. The STOXX 600 currently has a 12-month P/E ratio of approximately 13.7, a dividend yield of 3.4%, and an expected upside of approximately 9% over the next 12 months. The Euro Stoxx 50 index is expected to rise 13.4%, with a target of 8,700 points for the S&P 500. Meanwhile, Goldman Sachs predicts the US 10-year Treasury yield will fall to 4.4% over the next 12 months, gold will rise to $5,235, and Brent crude oil will fall to $75. Going forward, greater emphasis should be placed on companies' free cash flow, net debt levels, interest coverage ratios, and debt maturity structures over the next two years. Compared to simply chasing revenue growth, strong balance sheets and genuine profitability may become more important stock selection criteria in the next phase.