Financial Markets
The Q1-2023 earnings season has surprised as companies’ results point to the end of the earnings recession. However, the good news is already priced in – the market has barely budged over the past six weeks. Earnings rebound may continue as long as the economy avoids a recession. However, inevitably, tighter monetary policy will weigh on demand, and recovery will come to a halt.
Global growth will weaken in the coming months, yet monetary authorities worldwide will be reluctant to ease policy. This state of affairs foreshadows a clash between markets and policymakers in the months ahead. China’s recovery is losing steam. The latest divergence between Emerging Asian and LATAM currencies will not last.
There is a 50:50 chance of experiencing a major deflationary shock in the next two years, and an even greater likelihood on a longer timeframe. The good news is that several assets provide a good insurance against this risk, and that this insurance is now cheap. Plus we highlight a compelling commodity pair-trade.
This week we are sending you a transcript of my conversation with one of China’s most prominent and influential pro-market economists. Topics raised during my conversation with this Chinese expert may offer our clients important insights and provide context into recent developments in China’s economy.