September 26, 2022

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Also sharp decline in energy-packed Oslo: - We see signs of 'demand destruction' for the first time, says investment manager

Also sharp decline in energy-packed Oslo: – We see signs of ‘demand destruction’ for the first time, says investment manager

A bad mood prevailed on Wall Street on Friday last week, with major indices down nearly three per cent after mounting concerns about inflation and interest rates. On Monday morning, the turmoil continued in Asia with sharp declines in major stock exchanges.

At the same time, the price of oil fell by about 3.2 percent to 102.3 dollars a barrel. International media reports a drop in demand in China, as the authorities adhere to a zero-transmission strategy and strict anti-Corona measures.

The main index on the Oslo Stock Exchange fell 3.5 percent around 11.00. Aker BP and Equinor are down five percent, while Norwegian Hydro is down nearly seven percent.

It’s the common themes that scare the stock markets, with the fear of inflation and rising interest rates. What the market is now wondering is whether the US Federal Reserve is tightening so hard that we’re making a hard landing with lower economic activity, says Gaute Eie, investment manager at Eika Kapitalforvaltning.

“destroy order”

Energy-rich Oslo has continued due to higher energy and commodity prices so far in 2022. The main index is up 2.5 percent this year, including the current decline. In comparison, the broad US S&P 500 is down 11 percent this year, while the tech-heavy Nasdaq 100 is down nearly 20 percent.

Eie believes that commodity prices have been high for so long that they are now approaching their breaking point.

– What we have seen in recent days is that commodity prices have come under some pressure. We see signs of ‘demand destruction’ for the first time, then risks increase even though the supply side remains tight. If global growth falls too low, E says, it will have a negative impact on oil and commodity-related stocks.

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A large number of major banks and financial institutions have lowered their growth estimates for the global economy after the outbreak of the war, mainly due to high energy prices and disruption in supply chains.

As a commodity-heavy stock exchange, we’ve been a bit immune to the stock market’s ravaged fears. But if the world is pushed into recession, the uncertainty will also increase dramatically on the Oslo Stock Exchange, says E.

Eie and Eika continue to invest heavily in energy-related stocks, highlighting fish farming as an attractive sector.

There are high prices and a limited supply side in the fishing sector this year, next year, and indeed for the foreseeable future, he says.

scary cocktail

A large number of companies on the Oslo Stock Exchange present results for the first quarter of this week, including Yara, Tomra, Aker Horizons, XXL, Vår Energi, Aker BP and Europris.

The property will follow the numbers with scrutiny.

– This is the most important thing for us now. There are a number of Swedish companies, such as Volvo, ABB and Sandvik, who were positively surprised by the guide last week. In this sense, it turned out to be promising for the Nordic countries, but there are still many companies, says E.

In the United States, earnings season has long begun, with streaming giant Netflix deeply disappointed after losing 200,000 subscribers in the first quarter. The market cut the share by 35 percent after the numbers were released, thus evaporating several hundred billion kroner in stock market values.

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– I’m surprised if some of the expectations associated with tech companies don’t go down, in addition to increasing interest rates, that’s a bit of a scary cocktail for us. E says: We stay a little further away.

Uro in Asia

China is the world’s largest oil importer in a normal year, and according to Bloomberg News, as a result of the new closure, it is heading for the largest demand shock in the country since the beginning of the Corona pandemic. The country’s demand for gasoline, diesel and jet fuel is expected to fall 20 percent in April compared to last year, according to Bloomberg estimates, which are also estimated at the equivalent of 1.2 million barrels of oil per day.

The important port city of Shanghai has been almost closed for the past four weeks, and new measures have been taken in Beijing, according to a number of international media. Already fragile supply chains are under more pressure.

We see the consequences of what happened in Shanghai on global value chains and I think we will see more of that in the future. It has economic consequences, consequences for the previously shaky housing market, and consequences for the stimulus that China’s central bank and fiscal policy could bring, says DNB macroeconomist Kelly Chen.

Kelly Chen, macroeconomist at DNB Markets.

Kelly Chen, macroeconomist at DNB Markets. (Photo: Michaela Berg)

Two weeks ago, China’s central bank chose not to cut its key rate, even though many thought it should, says Chen.

It has consequences for stock prices, as well as bond prices in China. If we look at net changes in foreigners’ holdings of Chinese assets, there were a number of drawdowns throughout March and April. Chen says it has consequences for values ​​and we see that the Chinese yuan has weakened because of that.

The Shanghai and Hong Kong stocks fell five and 3.7 percent, respectively, on Monday.

The situation in China is helping to confuse the whole picture, with commodity shortages and higher commodity prices, slowing global growth. However, we believe it could give a good boost to the stock market, if the situation improves, says Eie at Eika.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.