Asset markets had a strong start to the year, global equities rising by 5.6% in euro terms,
longer dated western bond yields falling by circa 30 basis points and the euro rising by 1.5% against the US dollar. A rapid China reopening, no energy crisis in Europe, falling inflation in the US have provided solid macro tailwinds. Speculation from the “Fed-whisperer” at the WSJ, Nick Timiraos that officials could soon begin debating the criteria for a pause in their rate hike cycle added to hopes that the “softlanding” scenario may be more realistic than previously expected. As inflation fears ease the bear case appears to be now shifting to earnings risk as we go through the Q4 reporting season, with some prominent top-down strategists concerned about risks to margins. However, from a bottom-up perspective we find it difficult to see how these margin concerns materialise and if anything, see upside risks to margins from falling energy and raw material prices, collapsed freight rates and renewed discipline around corporate hiring and spending. US earnings will also get a boost from the weakening USD, which has declined by 7% (on a trade weighted basis)since companies last guided around mid-October.