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Market update: European growth and the earnings season

It’s been an interesting few weeks for financial markets and monetary policy in the UK. Whilst the Bank of England faces a growing dilemma over normalising interest rates, financial markets have been a mixed bag.

UK interest rates

Led by Mark Carney, the UK’s Central Bank has wanted to normalise monetary policy for some time, by increasing interest rates off their historic lows.

Most had expected interest rates to rise in May. This now looks unlikely as sluggish economic growth prevents the Bank of England from making any ill-timed and potentially costly moves to monetary policy.

Financial markets in April

Three things caught our attention on the financial markets in April; US government bond yields, European growth and the equity earnings season.

Concerns that tighter monetary policy in the US could slow down economic activity caused the yield on 10-year Treasuries to go briefly above 3% in April.

Whilst this has the potential to cause wider jitters on the financial markets, we haven’t seen any evidence of this so far.

Europe showed signs of health in 2017, with economic growth coming in better than expected. Although still decent, this strength seems to be showing signs of strain this year. We’re seeing this reflected in some of the economic surprise indicators we track.

Europe’s growth story is being felt in the equity earnings season, as European earnings look a little weaker than the results coming from the US.

Is this the start of a broader trend? It’s too soon to tell, but we’ll certainly be keeping an eye on these themes to see how they develop.

What does this mean for your investments?

Overall, we’re happy with how the investment portfolios are positioned. We don’t have much exposure to interest rates, due to the mindset of normalising monetary policy.

From an equity perspective, we’ve seen some decent growth from the US. Whilst there may be pockets of weakness, there’s nothing to worry about right now. We’re happy with our portfolio positions.