As the situation in UK have showed us, a comprehensive vaccination doctrine could be ones of the ways out of the current pandemic. Although local daily cases are higher, it still put limited strain on the healthcare system. Vaccinations in most major European economies has hit the suggested herd immunity level, expect economic activities to return to normal. PMIs have edged slightly lower, while sentiment indicators stay close to the recent highs, which suggest that economic fundamentals remain positive. Although the EU revised its Q4 GDP forecast higher, as the recent fall in German factory activity showed, economy growth could be past its peak.

Inflation is the more concerning data point here, given that the latest CPI figure was 3.4% YoY, a level not seen in the past 13 years. To make matters worse, Europe was also facing an energy crisis, surging gas prices had a spill over effect, which is expected to further drive inflation higher. Markets are worried if the ECB will tighten the monetary policy in response, while the ECB reiterated that the Bank would refrain from premature tightening that could damage the economy. Overall, we would like to stay positive on the market outlook as valuations and fundamentals continue to support the market.