Equities have been boosted by optimism relating to slowing inflation and stable economic data recently In the US, a large chunk of these gains came from the mega tech stocks, including the ones led by the AI wave.

On the economic front, strong US high frequency data have led us to upgrade our 2023 US growth forecasts, with a milder recession starting a bit later soft data still point to weakness In Europe, we slightly downgraded 2023 growth with divergences across countries. The UK should also remain weak, affected by high inflation and low investments.

However, we see a moderate recovery in China, with some weaknesses, leading us to downgrade our 2023 forecasts Thus, we stay cautious and the factors below further confirm this:

• Policy ambiguity is high and exacerbates downside risks. The Fed is likely to remain data-focused and would prefer to see some additional slowdown before confirming the pause.
• US consumer and credit conditions. While consumer spending is robust for now, any cracks in the labour market could cause consumers to become conservative.
• A combination of inflation and weakening consumption patterns could pressurise corporate earnings more from the revenue side.
• Geopolitical tensions, including US-China relations and the evolution of the Russia-Ukraine war, would increase financial market volatility. Unfortunately, on both, the outcome is highly uncertain.

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