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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.

March was a challenging and volatile month, with investment sentiment going through a whole variety of shades in a single month.

In March, markets were driven by the strong performance of most asset classes, confirming a general trend year-to-date in which investors in most major asset classes have been rewarded with positive returns.

European equity markets have rebounded strongly since mid-March after the sell-off due to the collapse of Silicon Valley Bank in the United States and the financial turmoil around Crédit Suisse.

Our main scenario incorporates slow growth, both in the US and eurozone, and continues to remain the most likely.