Forget the turmoil in the cryptocurrency market, the unresolved election results in the US and the slightly gray season of results. It’s inflation and the Federal Reserve that matter. Eric Bruce and Joachim Bernhardsen conclude this in the latest weekly report from Nordea Markets.
On Thursday, it became clear that inflation was lower than expected, sending the Nasdaq up 7.35 percent and the S&P 500 by 5.55 percent. This should have meant that the market is now convinced that there will be a double rally, not a triple rally in December.
Strategists write that it’s no surprise to have a party in the stock exchange when October inflation numbers come in slightly on the lower side of expectations, but the strong rise of 0.2 percentage points below inflation looks fierce.
“Interest rates have fallen sharply on the figure and the market is now convinced that the long-awaited tapering of interest rate increases will come at the next meeting in December.”
This means an increase of 0.5 points after a series of increases of 0.75 percent.ยป
Strategists write that by the end of 2023, the market expects a policy rate of 4.4 percent, which is lower than the central bank’s interest rate forecast as of September. The central bank governor also indicated a few weeks ago that interest rate expectations are likely to be revised upwards.
Shared governance is good for the market
The Republicans were expected to achieve a clear electoral victory in the US midterm elections. It looks like they will win a majority in the House of Representatives, but it is more uncertain who will get a majority in the Senate.
Strategists write that Biden appears to have a room in Congress against him, which means paralysis in many areas.
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