Weekly View – Europe’s “black hole”

The CIO office’s view of the week ahead.

Positive economic data has sent relief through markets, with encouraging news coming out of the world’s two biggest economies. The Chinese economy grew faster than expected in the first quarter, as the government’s stimulus policy begins to take effect. In the US, a rebound in consumer spending resulted in retails sales posting their biggest gain since 2017 in March. However, as astronomers published the first image of a black hole, the European economy remains a bit of a black hole itself, with persistently weak Purchasing managers’ indices (PMI) in the euro area’s manufacturing sector. Providing some reassurance is the European services sector, where PMIs are still in expansion territory, implying that the domestic economy is in solid health.

Giving further calm to markets has been the Q1 earnings season, which has had a better start than expected although is still early days. So far, the large US banks have outperformed analyst estimates, although after the previous downward revisions, the benchmark to beat was relatively low. Looking forward, this will be a big week for the healthcare and tech sectors. While markets may have calmed in anticipation, the proof is in the pudding, which is why we are staying neutral on equities for now and advocate active, bottom-up stock picking in this environment.

Meanwhile, the geopolitical waters are as choppy as ever. The Trump administration has just called for the removal of sanctions waivers that had allowed certain countries to continue importing crude oil from Iran without penalty. Oil prices touched new highs for the year on Monday as a result. We could see tensions rise further as Iran has already renewed its threat to close the Strait of Hormuz in response, which would shut down the passageway for nearly a third of all oil traded by sea. We are positive on oil, but have also bought equity puts in portfolios for protection against any further market volatility.


César Pérez Ruiz, Head of Investments & CIO

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