Ronald Temple’s Perspective on the Markets: March 2023
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Ronald Temple, Lazard’s Chief Market Strategist, puts the most recent economic data into context and identifies what he believes to be the most important macroeconomic forces shaping global markets right now.
In Ron's March 2023 Market Update:
- Markets have significantly repriced inflation risk across developed markets over the years ahead, with 5-year breakevens up as much as 70 basis points (bps) over the last two months.
- The new “about 5%” growth target set by China’s National Policy Committee was likely agreed in December before the economy began a sharp rebound. The key message from the relatively unambitious target is that China is unlikely to unleash large stimulus packages, but will instead aim to have a more sustainable recovery. Importantly, the benefits of the reopening will largely accrue to domestic services companies in China, with less upside to global goods producers.
- As data continues highlighting economic resilience, rate markets are now pricing in substantially higher short-term interest rates, with no easing until 2024.
- Equity markets have largely ignored the effects of tighter monetary policy on discount rates and instead focused on the hope that inflation will subside without enduring the pain of recession.
- While the risk of recession in 2023 has declined, it has not disappeared, with the risk likely delayed to 2024. Equity markets appear vulnerable to both higher discount rates and lower earnings, with the U.S. more exposed than non-U.S. markets given its greater exposure to speculative growth stocks that are more susceptible to downside from higher interest rates.
