Market Overview – March 2023
A strong economy increases the risk of recession · 14 March 2023
Investor optimism at the start of the year has faded. Data assessing the level of inflation indicated a slower-than-expected slowdown. But surprisingly, the main news that weighed on investor sentiment is that the US and European economies are resilient in many areas and show no sign of slowing down. Indeed, employment and consumption remain at high levels. This is "bad news", as persistent inflation and a strong economy are prompting central bankers to maintain their aggressive monetary policy. Indeed, the objective of central banks is to slow down the economy and consumption sufficiently to attenuate inflationary pressures. Thus, an economy that does not weaken makes it possible to continue to raise interest rates. Consequently, since the end of January, interest rates have continued to rise. As a result, equity markets misplaced some of the gains generated in January. This return of volatility in both equities and bonds is not a surprise. Indeed, historically, bond market volatility remained at high levels until central bankers clearly signalled a halt to the cycle of rising interest rates.