Reopening the pandemic creates bottlenecks in the global economy. The prices of energy, raw materials and freight are rising sharply internationally:
- Prices in the eurozone rose by 3.4 percent last year. Shows the forecast for September from the European Union Statistics Office, Eurostat.
- In the United States, inflation was 5.3 percent in August, down from 5.4 percent in July, according to the US Census Bureau.
Prices are rising so fast in the US and EU this year that one has to go back to 2008 to find stronger price growth.
Stock markets are falling
The job of central banks is to keep inflation at around 2 percent. High interest rates and less money pressure are among the tools needed to curb the demand for goods and services.
High inflation on both sides of the Atlantic is making the market fear that central banks will have to raise the lower interest rate sooner than expected. Many international media reports, such as Bloomberg.
On Friday, stock markets fell broadly:
- Japan’s Nikkei index fell 2.31 percent in the morning.
- The main index on the Oslo Stock Exchange opened with a decline of 1.6 percent, but parts of the decline recovered. At lunchtime, the index was down 0.40 percent.
- In Germany, the DAX fell 0.7 percent.
The “world’s most important interest rate” rose
One reason economists monitor this fear is that the ten-year interest rate on money lending to the US government has risen to 1.5 per cent. This is well above the main policy rate in the United States.
It did not rise because the outlook for the economy is good, but because the key policy rate is low. One is concerned about wage growth and inflation. This is not good news for the stock markets, says Harald Magnus Andresen, chief economist at Sparebank1 Markets.
The interest rate on 10-year debt securities is often referred to as the most important interest rate in the world, and says something about what you can earn by putting money into US debt, which is virtually risk-free in relation to the stock market.
If the market believes that interest rates will rise, this also means that companies incur greater expenses and can give lower profits to shareholders. Then the value of the shares is often lower.
Central banks think inflation will be temporary
For months, US and eurozone central bankers have tried to allay fears of lower oil, gas, commodity and shipping prices.
European Central Bank President Christine Lagarde warned last week against overreacting to inflation.
– The big challenge is ensuring that temporary problems in supply chains are not overreacted, Lagarde said, referring to the cascading effects of the pandemic.
She pointed out that the scarcity of raw materials and the main parts of production such as semiconductors contributed to the inflation.
— But that has no effect in the medium term, she said.
EU finance ministers meet on Monday to discuss the soaring energy prices that have characterized Europe this fall CNBC.
Companies are asking for workers
In the US, Central Bank Governor Jerome Powell has long said that inflation is temporary.
In September, the central bank said interest rates would rise a little earlier than expected, and on Thursday Powell said for the first time that high inflation could lag the economy next year.
Economists question whether Powell should raise interest rates before 2023.
Powell will wait, but it depends on whether companies’ calls for labor will be answered in the coming weeks and months, says chief economist Harald Magnus Andreessen at Sparebank1 Markets.
“The US labor market is in a very special situation with a record number of vacancies and strong pressure on wages, at the same time that employment is low,” he says.
Andreessen says interest rates don’t work well when the supply of oil and gas, for example, is low, but they work best to dampen demand in the economy.
Wage growth may intensify inflation
The question is whether the people who ended up out of the job market will find their way again this fall.
– If it turns out that the workforce is not returning, we are already in severe shortages, he says.
Then wages have to go up to get people, and as people deal with more, the demand for clothes, cars and cell phones can increase sharply.
At the same time, the cost of companies paying people is increasing, and the pressure to raise interest rates is growing, according to Andreessen.
– Then the challenge for monetary policy will be something else, as well as for the stock market, because wage growth will affect earnings at the same time that interest rates will apparently rise. This is the crux of the matter, he says.
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Biggest Stock Market Down Since March 2020
October opens with the down arrow in the financial markets.
In September, the largest decline came in the US S&P index since March 2020. The index includes the 500 largest companies in the United States, and it fell by 4.8%.
On the Oslo Stock Exchange, oil prices rose due to higher oil prices. The price of a barrel of North Sea oil exceeded $80 for the first time in three years in September. At the same time he has the price of gas Reached record heights.
The main index in Oslo in contrast to US stock markets rose 3 percent in September, according to analyst Roger Berntsen.
By the way, the Oslo Stock Exchange rose every month in 2021, something that had never happened before. High inflation and uncertainty about further growth in the global economy is what worries investors right now, writes Berntsen in NordNet in morning report.
After reaching the psychological limit of $80 The price of a barrel of North Sea oil fell again to $78 a barrel on Friday.
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