Latest insights

European equity markets continued their uptrend over the past four weeks on the back of positive economic surprises and a sharp fall in headline inflation as base effects in energy started to drag. The positive market trend was clearly driven by large caps and defensive growth sectors.

April saw positive performances for risky markets, with equities and convertible bonds outperforming, followed by high yield. Government bonds underperformed across most major markets except Japan. We also saw a recovery of subordinated and CoCo bonds to the detriment of more senior issues.

The market narrative remains very cautious and divided as to the path to follow over the next few quarters. While some investors prefer to look to the encouraging observable data points being published regarding earnings and inflation, many are hanging back, pointing to an inevitable deterioration of consumer spending and liquidity provided by banks to finance the economy.

In our economic and market scenarios, the next stage points to lower growth and gradually lower inflation in the US by the end of 2024. Consequently, lower interest rates should follow, and we keep a long duration bias in fixed income. We expect a soft landing and are buyers of Investment grade credit and Emerging market debt since the carry is attractive in this outcome. Regarding equities, we keep a neutral stance considering the limited upside potential as several uncertainties weigh on the outlook. If risks to the outlook materialise or markets become too complacent, we would stand ready to reduce exposure.