(News Bulletin 247) – For several months, and until the beginning of March, with each statistical publication, investors observed the pendulum movement that was taking shape between economic upturn and inflation, trying to anticipate the next evolution of the markets.

‘Nevertheless, from March 8, a third factor came into play: that of financial stability’, indicates Alexandre Hezez, actuary, strategist & beneficiary at Richelieu.

That day, the SVB bank indeed began to pitch, the banking establishment announcing a loss of around two billion dollars. An announcement that would generate wider concern about the overall soundness of the international banking system.

According to Richelieu, it would be neither more nor less than a consequence of the policy of the Fed which went ‘very quickly and very far’. Thus, the sharp rise in interest rates has strongly impacted and destabilized the most fragile structures.

On this subject, Alexandre Hezez believes that the Fed should raise its key rates one last time in May, before keeping them in restrictive territory in 2023.

‘My belief is that rates will rise to 5% or 5.25% before stabilizing at this level in 2023/2024’.

However, investors seem to have already ‘priced’ for future rate cuts, starting in July… ‘I don’t understand how it’s possible’, underlines the analyst.

For its part, the ECB could raise key rates by 100 bp by the end of the year. Indeed, while headline inflation in the euro zone slowed in March (+6.9% year-on-year against +8.5% in February), core inflation (excluding energy & food) is still accelerating, fueled by rising costs – an effect amplified by rising corporate profits.

The markets are also watching China, whose rebound is driven in particular by domestic demand. The signals are also ‘green’ in the Asian sphere. ‘After the 2021 rate hike, emerging countries have already completed their rate hike, they are ahead,’ notes the specialist.

Finally, on the geopolitical level, Richelieu does not hesitate to mention ‘a new organization of the world which is being put in place’: while the United States had asked Saudi Arabia to increase oil production to counter Russia and strangle Moscow, OPEC took the markets by surprise by announcing a cut in production – the exact opposite of what the White House was asking for.

In this context, Richelieu anticipates a decline in earnings growth of 5% on US equities in 2023, and neutral earnings growth in Europe.

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