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The earnings season is well underway in Europe with mixed signals. LVMH, one of the biggest luxury brands companies in the world, reported rather disappointing earnings, with Chinese consumers saving not spending – what a surprise! Yet the results analysts had been waiting for, the Banks, posted very strong earnings as higher interest rates supported margins, and non performing loans (NPLs) were hardly changed. If banks put aside more cash for NPLs this is a sign of a deteriorating economic backdrop, yet this clearly isn’t the case for now – a real positive.

Continuing the positivity, US retail sales grew 0.4% month on month in September, whilst in the UK they rose unexpectedly 0.3%. It does appear that consumers are trading down, meaning they are not buying the more expensive items in supermarkets, where sales fell -2.4% during the month. This usually occurs when consumers try to save money – something to watch.

To add to the optimisim, the UK inflation data continued to grow at a slower rate, 1.7% annually to the end of September. This is the lowest since April 2021 and crucially showed a slowing of services inflation, a major focus for the Bank of England.

Developed equities have been bouyed by the positive economic sentiment, whilst also supported by the likely rate cutting cycle. The European Central Bank cut interest rates by -0.25% with comments that the “disinflationary process is well on track”. Whilst equities have been positive in Europe on the back of the expectations of rate cuts, we remain concerned that the economics could lead to volatile earnings.

The bond markets continue to remain within a range. In recent weeks yields have risen to highlight longer term growth potential, whilst this week they tapered back as inflation pointed to rate cuts – good as we have extended duration recently. We do of course watch the US government bond market as polling has started in the US ahead of the Harris Trump showdown and an uncertain fiscal environment.

Elsewhere, the outlook for commodities is mixed. Brent Crude (oil) is down over -6% this week as tensions in the middle east continue to ease back and Chinese weakness weighs on the price.

A positive to end the week is from one of the biggest signs of risk taking – Bitcoin. Not an asset we mention often, yet it’s climbed to over $67,000 per coin and is now back at the highest level since the summer.

A week that highlighted the optimisim in developed markets, bouyed by the expectations of rate cuts and better than expected consumption. Maybe the Santa rally is underway very early this year!

Looking ahead

Next week we get surveys for manufacturing and services in Europe and the US, the inflation outlook in Japan with indication on rate increases in the country. More focus on earnings with Tesla, Boeing, Coca-cola and Lockheed Martin.