Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update. And it feels as though the market has made up its mind and concluded that inflation pressures are now behind us, that we've seen the peak in US inflation in particular, and that from here we can now instead worry about the outlook for the broader economy.

And on that point, there seems to be a real debate. If we go back a few months, I think the consensus market view was that if interest rates were going to stay higher for longer, that there was a real risk of a significant recession. In fact, we spoke about maybe a sort of like a 1981 kind of recession in Europe, and something like a 2001 in the US.

Well, since then, it feels as though actually the consensus has shifted into a much more sort of benign outlook. And I think the catalyst for this has really been the change in three things. The first of which has been a very mild winter in Europe, temperatures have not got down to the levels that we've had in previous years, and actually natural gas prices as a result of that are actually lower today than when they were just before Russia's invasion of Ukraine, which is remarkable if you come to think about it.

The second thing that's happened is that China has made an unexpected retraction of its zero-covid policies. A lot of people are expecting that if they're going to do it, they’re better off doing it in the spring summer when there are fewer respiratory diseases around. They've gone early. And although that has caused some very profound and regrettable short-term disruption, what it does do is actually it pulls forward the point at which China's economic recovery can truly begin, and that's going to be good for global economic growth. Maybe China can be a growth locomotive to the sort of the global economy train of over the next few months or so.

And I think the third thing that's happened is that we've actually begun to see goods prices, particularly in the US, begin to stabilise and in some instances fall. So used car prices, for example, are actually lower now than where they were even a few months ago. And that's potentially significant because we’ve still got quite a tight US labour market, which means job security is good, wages are rising. And if you put that together with falling goods prices, then actually the outlook for household consumption probably isn't that bad. And so those three things together I think have actually sort of been absorbed by market consensus.

And in effect, we've now sort of shifted in terms of the outlook, because I think a lot more people now no longer perhaps talking about a hard landing and actually what was beginning to hear much more conversation around a soft landing and in some potential instances, even no landing, that may be somehow significant and large economies may be able to avoid recessions altogether. Now, you know, who's to say what will happen in that respect? We don't know. But actually, compared to the defensive crouch that I think equity markets got into at the end of 2022, this is more sort of benign outlook has come as something of a relief. And actually, I think to some extent explains the strong market recovery that we've seen in global equity markets since the beginning of the calendar year.

As we sit here today, we're just now just beginning to get into the real throes of the earnings season. Our expectations with that actually would see a sort of a mix of earnings, not dissimilar to what we saw in the third quarter, it didn't feel as though the earnings trajectory had shifted much. And so far, the early results seem to be backing that up. Approximately two third-ish of companies are beating expectations, and that's a little bit lower than what we would normally expect, which is around about three quarters.

The key thing, though, we feel this is actually the outlook. So, any forward-looking statements that company management teams are providing, this is really what's driving the investors attention and focus. So, we are seeing some earnings changes and earnings revisions as a result of that. So, I think from investors’ point of view, we need to see things settle down from here. It wouldn't surprise me if we see some earnings revisions in earnings estimates. How the market develops I think is going to very much depends upon the volatility that we expect that we may get as a result of these earnings estimates in the short term. I would say that we are seeing pockets of relative strength within the market, but that does not appear to include sort of more of a household related areas connected to the US consumer, interestingly enough, and may have something to do with some weakness we're beginning to see actually in the US housing market itself. We are seeing quite a bit of enthusiasm though from investors generally for non-U.S. stocks, particularly European, helped, I think because of the lower gas prices, energy prices in Europe, which is in effect a tax cut for consumers and industry.

If I try and sort of lift our gaze and look a little bit towards medium and longer term, though, actually, I feel quite encouraged by what we're seeing here because this this episode that we're going through, yes, there’s some short-term uncertainty and we are seeing some volatility in the market. However, going from where we were, where there was a lot of concern that inflation would perhaps run away, that interest rates would stay higher for longer, it's now a much more nuanced conversation about the economic outlook. I regard that as progress. This is sort of heading this is a step that we need to go through on the way towards normal.

Now, there will be a debate about what normal looks like. I think lot of people are expecting that maybe we don't go back to 0% inflation and negatively yielding debt. Actually, maybe it looks a little bit more like the 1990s with sort of low to single mid-single digit inflation and interest rates. And naturally, I think for many investors over the medium to longer term, that's probably something that we could all live with.

So actually, I think this is actually quite a constructive kind of set up that we're in at the moment as the market is beginning to continue to develop as we head towards that new normal. I hope that’s been of interest and I look forward to catching up with you again soon.