A challenge for growth
Getting there, but more slowly
Summary
After a bullish start to 2023, investors appear to be becoming more cautious. Economic conditions in Europe are not as bad as feared. China reopening and policy stimulation in that country should aid economic growth globally.
Central Banks are facing a risk that inflation may be more stubborn than previously anticipated, so may hold interest rates higher for longer.
Expectations around corporate profits growth continue to be cut, leaving the US equity market in particular trading at full valuations.
Caution remains our watchword as the path forward could be clearing, with more optimistic minds spying a trough in some economic indicators, but the risk is this may prove a false dawn as higher interest rates continue to bite into the economic growth.
UK: markets and economics diverge
The headline last week was around the UK equity market reaching record highs. Given the sense of political and economic stagnation in the UK economy, it is striking that the UK equity market is reaching such lofty levels.
UK company profits have never been so high. Boosted by the oil companies, UK company profits have continued to climb even as companies in other countries have seen their profits fall.
UK profits and equities have reached record highs.
Source: Bloomberg, Artorius
The contrast with the economy is quite stark. The UK is the only major economy not to reach pre-pandemic levels, i.e., it is smaller than it was at the end of 2019. The International Monetary Fund, and others, expect the UK to continue to struggle in 2023 even when other economies are expected to grow, albeit quite modestly.
UK economy is uniquely weak in comparison with its peer group and the outlook is challenging.
Source: Bloomberg, Artorius
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