Better than expected U.S. earnings have helped markets move higher, adding to support from trade deal hopes and better Chinese data. But don’t expect market gains to go on for ever: consider taking profits and recalibrating portfolios.

1. U.S. equities continue to rise, despite mixed economic data. Q1 earnings are providing a helping hand.

Despite a slowdown in the growth of consumer spending and mixed signals emanating from the property market, U.S. equities extended their gains this week on the back of better-than-expected corporate earnings. While 75% of the companies having reported so far have beaten their earnings estimates (page 2), it’s equally interesting that nearly as many have beaten their revenue forecasts, in defiance of recent concerns about a lack of pricing power. Overall GDP growth in Q1 accelerated to 3.2% (annualized), driven by a surge in inventories and brisk trade figures, as well as an uptick in government spending in spite of January’s shutdown.


2. Meanwhile, in Europe ECB board member Coeuré has been lowering expectations around policy stimulus.

The latest news emanating from the Eurozone provide little clarity as to what investors should expect from monetary policy. Up until now, it seemed obvious that the ECB would step in to stimulate the continent’s economy with a variety of non-traditional measures, with a particular focus on the banking sector that is still hampered by negative interest rates, according to received wisdom. However, the latest pronouncements from an ECB board member, Benoit Coeuré, challenge this assessment, as we discuss on page 3. Additionally, while the ECB itself has acknowledged that the economic slowdown is stronger than expected, Mr. Coeuré has also been lowering expectations as to the likely size of the promised new TLTRO programme. Over in the UK, meanwhile, the political paralysis caused by Brexit so far has not hurt the economy nearly as much as feared. Buoyant retail sales, a strong labour market and solid wage growth have boosted public finances to the point of reducing the budget deficit to its lowest level in 18 years.

3. Recent Indonesian elections may allow further reforms, with the next interest rate move likely to be down.

Indonesia is one of the Asian emerging market countries that suffered the most during last year’s appreciation of the USD due to its sizeable USD-denominated public debt. One of the measures taken to stave off a currency depreciation was a raft of successive interest rate hikes by the central bank. Now that a certain degree of stabilization has calmed investors, the next move in interest rates may well be down. In fact, economic growth is brisk, if slightly lower than in 2018, and there is a feeling that recent economic reforms are paying off. On page 5 we look at the possible implications of the recent Indonesian elections.


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