Investment Viewpoint: earnings season and ECB in focus

Written by Bernard Swords, Chief Investment Officer, and Elizabeth Geoghegan, Head of Fixed Income Strategy

29 January 2024

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Equity markets with Bernard Swords, Chief Investment Officer

Equity markets advanced last week powered by earnings season. What sectors led the way – and what does it mean for our positioning?

  • The new economy sectors, IT and Communications, led the moves higher last week as several key companies in these sectors reported good Q4 results.
  • For example, Netflix reported an all-time high in the number of subscribers, thereby getting back on its long-term growth trend and leaving behind the pandemic-related boom and bust. To us, this means that the growth in the digital economy is back on track. Meanwhile, stronger-than-expected sales growth from semi-conductor equipment maker ASML indicated a turn in the semi-conductor cycle as well as the growth potential of AI development on the industry.
  • US banks performed strongly after they released their results. 2023 was a tough year for the sector due to the insolvencies in March and the cost of passing on the higher interest rates. The pain we took last year by keeping our banking exposure in the US is now paying off for us.
  • The cost of passing on the higher interest rates is an issue the European banking sector now faces too as well as a less robust economy. Indeed, last week data showed that consumer confidence, the real ‘Achilles heel’ of the euro area, fell again in December – despite record low unemployment. However, the main business sentiment indicators (PMIs) revealed modest improvement in the region, while the ECB’s Q4 lending survey showed loan demand was still declining but at a much slower pace than in the previous quarter.
  • The US had been our favoured region due to better economic momentum and greater exposure to rising industries – and this remains the case. We are overweight the euro area but that is because the Pacific Basin faces greater challenges.


Fixed Income with Elizabeth Geoghegan, Head of Fixed Income Strategy

How did markets react to Christine Lagarde’s comments after the ECB meeting last week – and what does this mean for our fixed income view?

As expected, the ECB left interest rates unchanged. However, the main focus was on Lagarde’s commentary. The initial market reaction was to price in more cuts with the expectation for an April cut moving from 60% probability to an 84% probability. Here’s what drove this reaction.

  • Lagarde reiterated that rate cuts would be a summer phenomenon, but she didn’t push back explicitly on market pricing for March or April. She also made some concessions on growth, the labour market and inflation.  
  • On growth, she acknowledged that the market largely stagnated in Q4 and that the European rebound was not quite what the ECB had been expecting.  
  • On labour markets, which feeds into the inflation picture, she noted that there are signs that wage pressure is stabilising, and companies are largely able to absorb wage increases which we know would limit the feed through to price pressures.  
  • She highlighted how almost all underlying measures of inflation declined further in December.  
  • In terms of a fixed income viewpoint, the reaction of bonds, even after more cuts were priced in, wasn’t all that notable. Focusing on the German bund, it remained within its recent 2.2-2.35% range. So even though bonds do benefit from more cuts, what we are seeing here is that a lot of the current pricing is already baked into valuations. To get more constructive on longer duration bonds such as the 10-year bund, one would need to gain comfort that this recent range may break or that markets have moved their focus to the number of cuts in 2025. With this in mind, releases like the European inflation print on Thursday are very important.

The week ahead: what to watch out for

This week is a busy one for both economic data and earnings. Euro area inflation for January will show if the downward momentum continues. In the US, the jobs report (non-Farm Payrolls) and the ISM Manufacturing Survey will give us a glimpse of whether the growth momentum in the US has carried into the new year. In China, the PMI surveys will be released. These were conducted before the recent monetary loosening measures so may be somewhat dated.

On the earnings front, the highlight will be results from three of the mega seven: Alphabet (Google); Meta Platforms (Facebook) and Microsoft. Will the earnings outcomes keep pace with the share price moves?

This is a marketing communication.

Related Articles
Your Investments
The Big Question: when is the best time to start a pension?

Simon Owens, Lead Financial Planner

In our first episode of The Big Question, we ask Simon Owens, Lead Financial Planner: when is the best time to start a pension?

Read More
Your Investments
Chart of the week: Red Sea shipping costs

Elizabeth Geoghegan

In Chart of the week, we examine how Red Sea shipping costs are rising but are well within the highs experienced during the pandemic.

Read More
Your Investments
Setting financial goals for 2024

Owen Redmond

A new year is an opportunity to refocus on your future financial goals. Here we examine four common financial goals.

Read More
Contact Us
Warning: Nothing presented on this website constitutes investment advice as it does not take into account the investment objectives, knowledge and experience or financial situation of any person. You should not act on it in any way and are advised to obtain professional advice suitable to your own individual circumstances. The value of your investment may go down as well as up. You may lose some or all of the money you invest. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.