Strong Performance Despite the Lows

Last week was relatively uneventful in terms of major data releases; other than the UK, where inflation remained above 10% and retail sales remained weak. The causality between these two indicators is clear, as high inflation reduces consumers' purchasing power, leading to lower retail sales.

Equity markets also remained flat, with the US down 0.5% and Europe up 0.5% on average. Most Asian were markets down 1% to 2% except for Japan, which was up 1%. However, what is noteworthy is that European and US (Dow Jones) markets are at or close to all-time highs while Asian markets – particularly China – have staged a strong recovery.

Corporate Earnings Remain Sub-Par

Despite the positive performance of the markets, corporate earnings are not expected to be at all-time highs. What this indicates is a Price-to-Earnings (P/E) ratio expansion, which is the result of bullish bets after the added liquidity and support provided by central banks.

Tricky Investing Environment

The investing environment, therefore, becomes a bit tricky with bullish momentum against relatively expensive valuations. Investors need to tread cautiously and weigh the risks and rewards carefully. While the liquidity provided by central banks has helped boost the markets, it has also inflated valuations, making some investments relatively expensive.