March 2023 - Monthly House Views

The economy is still ailing from the double shock of Covid and the Ukraine war, which makes it hard to read the usual indicators.Surveys of industrial and household sentiment suggest risks of recession continue to run high. The same message can be read into bond markets: medium-/long-term yields are well below short-term rates. Such an inversion of the yield curve suggests that markets are expecting sharp downturns in the economy and inflation, to the point that interest rates will have to drop off significantly.

On the other hand, the latest actual indicators show developed economies looking fairly healthy, holding up well despite the spike in inflation and interest rates, and the more recent energy crisis in Europe. Labour markets are booming, with levels of employment above what they were pre-Covid in most economies. The rebound in equity markets since the start of the year also sends a clear signal that expectations are improving as investors move away from a scenario of imminent recession.

Read more in our March 2023 House Views by clicking on the document below.