Cross Asset Investment Strategy - March 2023

European equities are favoured in a fragile earnings outlook

Q4 2022 was the first quarter of YoY profit declines for the United States, while Europe has held up better. In the United States, Big Tech-related sectors are suffering the most and we confirm a cautious view. In Europe, earnings resilience is keeping valuations at attractive levels despite the strong stock market rebound since late September. As long as the soft-landing scenario prevails, the European market could be considered as a wildcard for international equity portfolios.

• Macroeconomic focus: Easing financial conditions, tightening conditions for borrowers
• Emerging markets: Despite January jump, a deceleration in EM inflation remains in the cards
• Macroeconomic snapshot
• Central banks watch: DM central banks to stay hawkish, in EM they remain driven by a fragmented inflation picture
• Geopolitics: EU will face more hawkish Biden pre-US elections
• Policy: European Union: the great bargain has begun
• Scenarios and risks 
• Amundi Institute models: Inflation Phazer: a model that detects the most likely inflation regime and tilts asset allocation
• Infographic - Markets in charts: Equities & Bonds
• Commodities: Conflicting supply and demand forces keep oil prices range bound
• Currencies: Expect a weaker dollar moving into H2 2023

Rally fatigue: dichotomy between markets and economy too wide

The year started with a rally mood amid short covering and the return of retail investors’ risk appetite. There were some supporting reasons for the situation, at least in Europe and China, where lower gas prices and China reopening helped to remove some of the downside economic risks that were on the table last year.