LIVE MARKETS-Lazard strategist sees U.S. drift toward stagflation, global volatility
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LAZARD STRATEGIST PREDICTS U.S. DRIFT TOWARD STAGFLATION, GLOBAL VOLATILITY
In his first six months in office, President Donald Trump has followed through on his campaign pledges to upend U.S. domestic and foreign policies with significant global ramifications.
To date, key macroeconomic and earnings indicators have given only early glimpses of the consequences of these policy changes. However, going forward, Ronald Temple, chief market strategist at Lazard, believes the impacts on inflation, employment, gross domestic product (GDP), and corporate profitability are likely to become more evident.
In his "Global Mid-Year Outlook 2025," Temple takes a look at what he expects for a number of markets.
As for the U.S., Temple thinks the U.S. economy is "likely to drift in a stagflationary direction," with higher inflation and slower GDP growth through 2026.
In China, he expects GDP growth is likely to decelerate further with deflation becoming more ingrained, "creating longer-term systemic risks."
Temple says the euro zone is likely to suffer marginal near term headwinds from U.S. trade policy shifts. Of note, however, he says that "U.S. security policy changes have triggered a German fiscal inflection, while the European Central Bank (ECB) has materially eased monetary policy."
As for Japan, Temple says inflation has remained above the 2% target for nearly four years, "strengthening the case for a multi-year normalization process. Meanwhile, corporate strategic decision-making increasingly reflects the effects of governance reforms and a more shareholder-friendly takeover code."
Temple's bottom line is that he expects increased volatility through year-end across asset classes globally.
"Across developed markets, government borrowing is likely to increase from already-elevated levels, adding upward pressure to interest rates. With rates likely to stay higher for longer, equity investors could find it more difficult to justify elevated price-to-earnings ratios, especially in the United States."
(Terence Gabriel)
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