December 9, 2022

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Inflation will not calm the markets - E24

Inflation will not calm the markets – E24

Inflation from the US and EU, as well as speeches from major central banks, will shape next week. Here at home, we get important numbers for trade and unemployment.

SENTRALBANKTUNG: A week after last week’s central bank news, SEB’s Chief Strategist Erica Dalstow believes EU and US central bankers will reinforce the message in their speeches this week.
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After a tough week in markets marked by interest rate and inflation concerns, chief strategist Erica Dalstow believes central bankers will now use the opportunity to further clarify the message.

There will be a number of letters from the Federal Reserve (the US central bank) and the European Central Bank (the central bank of the European Union) that will be important to the market, as they can reinforce the message and provide more guidance, she says.

Recently, both the Federal Reserve and the European Central Bank have raised interest rates sharply.

The message was that significant rate hikes were still imminent, although there were many indications of negative growth in the coming year.

Inflation remains high

Surprisingly high and persistent inflation is the basis for high interest rates. On Friday, we will receive new inflation figures from both the US and the EU, both of which could affect the markets.

In August, inflation rose in Euro-zoneCountries that use the euro to a new record of 9.1 percent, and another increase to 9.7 percent is now expected, according to Bloomberg.

– Here we see a very big Upside riskThe risk of becoming higher Driven by energy prices, Dalstow says.

From the US, we get inflation as measured by PCE (Personal Consumption Expenditure), the US central bank’s preferred measure of price increases.

Although overall price growth is expected to slow to 6.0 percent from 6.3 percent, a marginal rise is expected in core inflation, which does not include food and energy prices.

Overall, we don’t think inflation will be able to calm the markets.

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Norges Bank is taking a darker look into the future. But the interest rate will continue to rise nonetheless.

It is important to follow it

– In Norway, it will be very interesting with the retail numbers on Wednesday, and it is very important to follow them in the future, says Dalstow.

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In July, retail trade showed a surprisingly large drop of 2.1 percent. In August, another 0.5 percent drop is expected, according to Bloomberg.

Private consumption is an important growth driver for the economy, but it is expected to decline in the future after higher inflation and several interest rate increases.

Consumption is what will be interesting to follow, says Dalstow, noting that the July GDP numbers showed a sharp decline in private consumption.

Retail sales rose significantly during the pandemic, because people were unable to spend money on the services sector (such as haircuts or visits to restaurants). Later, the serving volume rebounded again, but now both parts are down.

This could be the first sign that consumer confidence is slowing, which in turn could lead to a further decline in consumption. Although the retail numbers fluctuate a lot from month to month, it is very important to keep track of them now.

Approaching the tipping point

On Friday, Nav’s unemployment numbers for September will arrive. The proportion of the fully unemployed fell to 1.6 percent in August, but including the partially unemployed and job seekers in measures, the unemployment rate was 2.6 percent.

Then Hans Christian Holt, CEO of Nav, said there were signs that the decline in unemployment was about to stop.

Marius Gunsholt Hof, chief economist at Handelsbanken, believes that we are now approaching a tipping point for unemployment.

It may be a bit early, but we believe unemployment is now beginning to rise from historically low levels, he wrote in an analysis.

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Like most economists, Handelsbanken expects the share to fall to 1.5 percent in September, but adjusted for normal seasonal changes, Hov expects a rise to 1.7 percent.

“Although we do not believe that we will see a sharp and sudden increase in unemployment, we are very confident that this fall will show an upward trend,” he writes.

The Bank of Norway recently painted a darker view of the mainland economy and thus, despite strong inflationary pressures, made a more cautious upward adjustment. interest rate pathInterest Rate Expectations than the market expected.

Norges Bank also expects unemployment to rise somewhat in the future.

Inflation and unemployment numbers will be key to watch as the November interest rate meeting approaches.