James
Gard:
Now,
the
first
quarter
of
the
year
is
nearly
over,
and
it’s
been
a
great
period
for
global
stock
markets.
To
discuss
this
and
more,
I’m
with
Morningstar’s
Michael
Field.
Michael,
can
you
give
us
a
recap
on
Q1?
Michael
Field:
Well,
it’s
been
a
strange
quarter
and
like
you
said,
it’s
been
overwhelmingly
positive.
I
think
no
matter
what
the
market
has
had
thrown
at
it,
it’s
pretty
much
responded
well.
The
market
dipped
a
little
bit
in
January
and
then
just
recovered
again,
and
you’re
looking
at
all-time
highs
or
close
to
all-time
highs
for
most
markets
now.
That’s
despite
a
mixed
earning
season.
It
seems
to
just
have
shrugged
all
of
those
things
off.
Gard:
Yeah,
it
seems
when
markets
seem
to
be
untroubled
like
a
completely
clear
sky,
that’s
when
I
start
to
get
a
bit
twitchy
because
I
think
that
something
bad
is
around
the
corner.
But
you
think
that
the
market
has
got
ahead
of
itself
in
some
respects
in
its
anticipating
rate
cuts.
But
those
are
going
to
happen,
right?
So,
the
market
confidence
is
to
some
extent
justified.
Field:
I
think
that’s
fair.
Usually,
we
complain
about
the
market
being
too
short-termist,
and
this
time
around,
it’s
looked
through
the
bad
news
of
a
mixed
earning
season
and
a
mixed
economic
outlook
picture.
It’s
looking
straight
through
to
the
second
half
of
the
year
when
we
should
have
lower
interest
rates
across
the
board.
So,
it’s
hard
to
fault
the
market
for
doing
actually
what
we
wanted
to
do.
Of
course,
there’s
no
guarantee
that
those
interest
rates
will
come
through,
those
interest
rate
cuts
will
come
through.
But
like
you
said,
it’s
looking
ever-increasingly
likely
and
the
data
points
that
we’ve
seen,
inflation
and
others,
are
definitely
supporting
that
argument.
So,
it’s
hard
to
faulter.
Gard:
Sure.
I
mean,
a
certain
thing
from
the
U.K.
perspective,
a
lot
of
the
data
points
are
being
revised
upwards.
There
is
optimism
even
in
the
Bank
of
England’s
forecast
now
about
GDP.
In
Europe,
we’re
not
going
to
get
spectacular
growth
or
probably
any
growth
this
year.
So,
despite
that,
the
markets
are
rising.
Recently,
I
read
your
strategy
monthly
and
you
were
saying
that
basically
this
is
a
good
chance
for
Europe
to
shine.
And
this
seems
to
me
a
little
contrarian
in
the
sense
of
all
the
stock
market
gains
over
the
last
three
months,
a
year
have
been
driven
by
the
U.S.
and
the
U.S.’s
strong
economic
growth.
Things
are
a
bit
tougher
in
Europe.
But
you
think
that
Europe
could
actually
get
ahead
of
the
U.S.
in
terms
of
interest
rate
cuts.
Field:
So,
I
think,
yes.
In
some
ways,
Europe’s
weakness
is
its
strength.
So,
the
fact
that
inflation
is
running
lower
in
Europe
than
it
is
in
the
U.S.,
unemployment
is
slightly
higher,
gives
the
central
banks
a
bit
more
leeway
in
terms
of
interest
rate
cuts.
Now,
a
lot
of
people
believe
that
the
ECB
will
wait
for
the
Fed
to
cut
rates.
But
in
terms
of
the
magnitude
of
the
cuts
and
the
number
of
cuts
that
could
come
this
year,
it’s
fair
to
say
that
the
ECB
have
far
more
room
for
manoeuvre,
which
would
be
very
supportive
of
markets
and
the
economy
in
general.
Gard:
Sure.
I
mean,
the
ECB
was
one
of
the
last
central
banks
to
hike.
So,
it
takes
a
little
bit
of
a
leap
of
faith
to
think,
well,
it’s
going
to
be
bold
this
time.
But
like
you
say,
the
inflation
numbers
are
better,
then
there’s
no
chance
of
overheating
the
economy
in
Europe,
unlike
there
is
in
the
U.S.,
with
rate
cuts.
Field:
I
think
that’s
fair
to
say
that,
look,
unemployment
is
close
to
historical
lows
in
the
U.S.
at
the
moment.
Economic
growth
is
still
coming
in
at
around
3%
or
so.
We
expected
to
fall
a
little
bit
this
year,
but
it’s
still
miraculously
high,
given
everything
that’s
happened.
And
that’s
not
the
case
in
Europe.
And
you
mentioned
the
U.K.
as
well.
But
growth
is
at
or
around
zero
at
the
moment.
It
should
be
a
little
bit
higher
in
2025.
But
to
actually
overheat
that
economy,
we’re
probably
taking
atomic
bomb
at
this
stage.
So
that’s
definitely
not
going
to
happen.
And
I
think
the
other
thing
that’s
overlooked
as
well
is
that
economic
growth
in
the
U.S.
to
some
degree
came
through
because
of
the
large
stimulus
packages
that
were
offered.
That
set
the
economy
off.
And
we
didn’t
have
that
in
Europe.
And
the
upside
of
that
is
that
we
haven’t
expanded
at
our
debt
to
GDP
as
they
have
in
the
U.S.
So
that
kind
of
flexibility
should
help
a
little
bit
going
forward
also.
Gard:
Sure.
It
certainly
feels
like
there’s
a
kind
of
economic
standstill
approaching
in
the
U.S.
in
terms
of
the
debt
ceiling.
I
feel
like
we
may
revisit
that
again
later
this
year
or
maybe
next
year.
So,
the
U.S.
has
been
all
guns
blazing
since
the
pandemic,
but
it’s
papered
over
the
cracks
really.
Field:
I
think
that’s
fair
to
say
to
some
degree
indeed.
Like
it’s
hard
to
big
up
Europe
given
that
economic
growth
is
so
low.
But
also,
you
have
to
say
that
then
the
ceiling
for
Europe
over
the
next
couple
of
years
is
a
lot
higher.
Who
knows
what
the
stimulus
that
will
come
from
lower
interest
rates,
what
that
might
do
for
the
economy.
So,
it
could
be
exciting
times.
Gard:
Sure.
And
also,
the
valuations
are
lower.
There
hasn’t
really
been
a
kind
of
AI
miracle
in
Europe.
So,
you’re
looking
at
lower
P/E
ratios
across
the
board
and
it’s
more
undervalued
companies.
Field:
I
would
say
some
of
that’s
fair
to
say,
okay,
look,
if
you
look
on
a
P/E
basis,
certainly
Europe’s
trading
at
a
cheaper
valuation
than
the
U.S.
A
lot
of
that
is
the
growth.
The
growth
is,
generally
speaking,
lower.
The
U.S.,
as
we
know,
is
dominated
by
the
Magnificent
Seven.
And
that’s
kind
of
inflating
the
P/E
ratio
and
inflating
the
growth
as
a
result.
So,
it’s
difficult
to
know
what
it
looks
like
when
you
kind
of
X
that
out.
But
indeed,
from
that
perspective,
Europe
is
cheaper.
On
our
price
to
fair
value
estimate,
we’re
at
or
around
fair
value.
So,
we’re
not
seeing
the
kind
of
bargain
territory
we
saw
last
year.
But
certainly,
there’s
pockets
of
value
within
that.
And
also,
we
believe
if
interest
rate
cuts
do
come
through
in
the
next
few
months,
then
that
might
change
the
valuation
picture
across
the
sectors
as
well
and
open
up
some
opportunities.
Gard:
Sure.
I
mean,
in
your
strategy
report,
you
said
that
rate
cuts
in
Europe
are
going
to
be
disruptive.
So
just
to
pick
three
sectors
that
you
highlighted
is
financials
going
to
be
more
negative
for
the
banks
but
positive
for
consumer
sectors
and
positive
for
utility.
So,
if
you
don’t
mind,
we’ll
focus
a
little
bit
on
the
consumer
sector
here
in
that
just
today
Ocado
is
saying
its
sales
growth
was
up
and
a
number
of
active
customers
have
increased.
So,
I
regard
Ocado
as
quite
a
useful
bellwether
for
the
more
affluent
consumers
in
the
U.K.,
their
willingness
to
spend,
their
willingness
to
pay
more
for
groceries
than
they
need
to.
So
that
to
me
is
a
positive
sign.
But
you
think
that
we’re
not
out
of
the
woods
yet.
In
terms
of
European
consumer,
there’s
a
lot
of
belt
tightening
still
to
be
done.
Field:
Yeah,
indeed.
I
think,
look,
we
can
find
some
examples
of
consumer
firms
that
have
done
well,
despite
the
difficulties
that
we’ve
seen.
Ocado
was
one
of
them.
It
kind
of
sits
in
a
niche
to
some
degree.
And
you
had
the
news
also
this
morning
about
U.K.
grocery
inflation,
which
is
down
to
pre-pandemic
lows.
It’s
4.5%.
There’s
nothing
to
be
sniffed
at.
That’s
still
currently
high,
but
a
lot
lower
than
the
near
20%
levels
that
we
saw
a
year-and-a-half
ago
or
so.
So,
there’s
things
are
improving,
certainly.
But
if
you
look
at
some
of
the
earnings
recently
–
and
this
is
kind
of
more
globally
–
but
Nike
or
Lululemon,
even
these
companies
that
we
thought
were
in
these
kinds
of
niches
are
really
struggling
at
the
moment.
And
I
include
the
luxury
names
and
that
kind
of
examples
as
well.
Again,
firms
that
we
thought
were
invulnerable
to
this,
the
cracks
are
starting
to
show.
So,
I
think
the
consumer
is
still
a
difficult
space,
but
valuations
are
looking
cheap.
So,
it’s
going
to
be
very
interesting
how
that
picture
plays
out
over
the
next
few
months.
Gard:
Sure,
you’re
absolutely
right.
I
mean,
there’s
a
whole
idea
when
we
were
entering
the
inflation
era,
it’s
like,
well,
brands
are
moat-worthy,
these
companies
can
pass
on
price
rises
and
they’re
somehow
protected
from
the
wider
reality.
And
that
hasn’t
been
the
case.
I
mean,
I
sense
that
although
inflation
is
falling,
prices
have
reset
at
higher
levels,
right?
So,
people’s
wages
have
grown,
certainly
in
the
U.K.,
but
the
problem
–
unless
we
have
deflation,
we’re
still
paying
higher
prices
than
we
were
two
years
ago,
a
year
ago,
and
there
has
to
have
a
break
on
spending
surely.
Field:
Completely.
And
I
think
even
the
economic
data
points
like
U.K.
retail
sales,
for
example,
one
interesting
titbit
from
that
was
that
the
actual
volumes
of
goods
that
people
are
buying
is
lower
now
than
it
was
before
the
pandemic.
So
those
price
increases
that
we’ve
seen
have
eaten
up
people’s
incomes
as
opposed
to
them
buying
more
than
they
did
before.
Gard:
Sure.
And
I
also
wonder
whether
–
I
remember
this
figure
that
the
Bank
of
England
said
at
the
end
of
the
pandemic
that
people
had
100
billion
of
spare
cash
that
they
saved.
And
I
wonder
whether
quite
a
lot
of
that’s
been
used
up
in
travel,
kind
of
revenge
spending.
So,
people
have
burnt
up
the
kind
of
excess
reserves
that
they’ve
had.
So,
they’re
now
making
hard
choices.
I
don’t
want
to
spend
X
on
a
new
sofa,
a
new
fridge,
new
TV.
I’m
not
going
to
prepare
to
pay
the
higher
price
because
I
know
what
it
was
a
year
ago.
Field:
And
that’s
true
to
some
degree
as
well.
Like
obviously,
100
billion
sounds
like
a
lot
of
money.
But
when
you
spread
that
out
across
the
entire
U.K.
populace,
it’s
not
very
much.
And
when
you’re
experiencing
the
levels
of
inflation
that
we’ve
spoken
about,
it
gets
eaten
up
pretty
quickly.
Gard:
Sure.
I
mean,
one
thing
that
could
help,
I
guess,
is
some
rapid
interest
rate
cuts.
I
mean,
the
Bank
of
England
looks
in
no
hurry
to
do
it,
but
certainly
the
inflation
figures
are
supportive.
I
read
something
from
Capital
Economics
this
week
who
are
usually
pretty
contrarian.
And
they
say
that
inflation
is
actually
going
to
be
below
target
next
year
and
2026.
So,
we
could
see
1%
inflation,
which
will
undershoot
the
Bank
of
England’s
target,
leaving
it
with
no
choice
but
to
cut
rates
to
say
instead
of
4%,
3%
or
2%.
I
mean,
that
seems
like
a
mortgage
holder’s
dream.
But
that
may
be
a
bit
of
an
outlier
in
terms
of
prediction.
Field:
Yeah,
look,
it’s
a
moving
target.
So,
it’s
very
difficult
to
actually
pinpoint
what’s
going
to
happen.
But
indeed,
the
Bank
of
England
are
looking
at
this.
Look,
they’re
concerned
that
inflation
might
spike
or
that
it
might
go
below
the
target
for
a
short
period
of
time.
But
ultimately,
rates
in
the
U.K.
are
5.25%.
So,
they’re
the
highest
in
the
developed
world.
The
Bank
of
England
have
lots
of
room
for
manoeuvre
there.
And
I
think
they
will
start
making
cuts
sooner
than
later.
And
they
can
do
it
marginally
and
they
can
see
how
that
feeds
into
the
system.
They
have
plenty
of
room
for
manoeuvre
there.
But
it
is
an
experiment.
We
haven’t
really
been
in
this
position
before.
So,
it
is
going
to
be
interesting
to
see
exactly
how
it
will
pan
out
and
what
effect
that
will
have
on
inflation.
Gard:
Yeah,
I
mean,
they’re
naturally
cautious
anyway.
But
I
guess
there’s
the
other
factor.
I
don’t
desperately
want
to
go
down
the
rabbit
hole
with
the
election,
although
consumers
will
benefit
from
lower
rates.
There
is
economic
uncertainty
in
the
next
year
or
so.
So,
it’s
not
plain
sailing
really
for
the
consumer.
Looking
ahead,
I
know
your
quarterly
look
ahead
report
is
due.
I’m
eagerly
looking
forward
to
reading
it.
Can
you
give
us
just
a
few
titbits
or
insights?
I
know
in
Q2,
we’ve
got
potential
interest
rate
cuts
and
we’ve
got
another
earnings
season.
So,
do
you
want
to
just
give
us
a
little
bit
of
a
teaser?
Field:
Yeah,
look,
there’s
a
lot
happening.
I
think
one
thing
that’s
fair
to
say
is
that
a
lot
of
the
trends
we
saw
in
the
first
quarter
of
the
year
are
kind
of
continuing.
So
that’s
quite
an
interesting
situation
to
play
out.
But
we
are
seeing
some
signs
of
life
in
some
sectors.
U.K.
homebuilders,
for
instance,
you’re
starting
to
see
home
sales
increase
over
the
last
little
while.
So,
the
front
running
of
interest
rate
decreases
and
how
that’s
affecting
certain
sectors
will
be
a
pretty
big
theme
that
we’re
going
to
touch
upon
next
month.
Gard:
Sure.
Yeah.
I
mean,
the
housing
sector
is
always
very
interesting.
It
was
beaten
up.
And
if
you
look
at
the
share
prices,
there
is
a
little
bit
of
kind
of
tentative
signs
of
renewal.
Even
the
REITs
prices
have
started
to
push
up
a
bit
as
people
go
back
in
the
office
and
rates
potentially
could
come
down.
But
I’m
looking
ahead
to
June.
And
I’ve
already
called
it
Super
June,
but
I
don’t
think
anyone
else
is
going
to
call
it
Super
June.
But
we’ve
got
ECB
June
6,
June
12th
Fed,
and
June
20th
Bank
of
England.
So
potentially
we
could
tee
up
a
triple
rate
cut
for
June,
which
would
make
an
interesting
end
to
the
quarter.
Field:
Indeed.
And
Super
June
is
pretty
catchy,
James.
I’d
be
surprised
if
that
doesn’t
take
off.
But
no,
indeed,
indeed.
And
expectations
are
lining
up
for
June
across
the
board.
So,
whether
that
will
be
one
central
bank
or
three
that
will
cut,
I
think
you
could
certainly
see
something
happening
there
at
the
very
least.
Gard:
Yeah.
I
mean,
Q1
was
fascinating
and
so
many
things.
You
mentioned
in
your
report
that
you
felt
like
central
bank
words
were
never
more
adhered
to
or
followed
by
the
market.
It
feels
like
we’re
going
to
get
more
of
the
same
in
the
next
quarters.
Central
banks
will
hold
all
the
cards.
It’s
a
question
of
second
guessing
what
happens
next
and
seeing
whether
they
do
finally
cut.
They
have
to
cut
at
some
point,
surely
this
year.
Field:
Indeed.
And
I
said
about
the
words
being
followed
very,
very
closely
in
the
last
central
bank
meetings
that
we
saw.
But
I
think
as
and
when
we
approach
June,
I
think
investors
are
looking
for
a
little
bit
more
than
words.
Gard:
Yeah,
they
want
to
see
some
action.
But
things
might
be
clear
next
time
we
talk,
which
is
in
a
month’s
time.
So
very
much
looking
forward
to
speaking
to
you
then
and
we
hopefully
have
a
better
idea
of
what
the
market
is
going
to
do
in
the
second
quarter.
So,
thanks
very
much
for
your
time,
Michael.
