Investment Manager: Risk appetite, which was extreme, has undergone a major shift

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The main index on the Oslo Stock Exchange opened with a gain of 0.4 percent on the second trading day of the week. On the other hand, mood quickly worsened to a decline of 0.3 percent.

Around 10.30am, the main indicator was relatively flat.

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The price of oil rose after falling below $90 on Monday, and North Sea oil was trading at $92 a barrel on Tuesday morning.

Telenor announced in the morning hours that operations in Asia are being consolidated into a separate unit, and that the company plans to cut costs. It also warned of the difficulty of achieving the profit target this year. Telenor shares rose 1.5 percent on the stock exchange on Tuesday.

This week there are interest rate meetings in a row that are occupying the market. Alexander Miller, chief investment officer at Odin Forvaltning, points out that it is not the rise in interest rates that worries the market now, but how large and frequent increases will be in the future.

The risk appetite, which used to be intense, has undergone a major shift and is now on a completely different level, says Miller.

Director of Investments Alexander Miller at Odin Forvaltning. (Photo: Per Ståle Bugjerde)
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After long periods of low interest rates, central banks around the world have increased lending rates sharply this year in the fight against accelerating inflation.

Low interest rates are a drug the stock market has been using for many years — and it has become addictive, Miller says.

– There have been huge sums pumped into the market, not least through the epidemic that is now disappearing. Interest rates are no longer zero and it is a difficult market shift. It’s like detoxing when you quit, Miller says.

Interest rate decisions this week

Tuesday:

Sweden:

On Tuesday, Sveriges Riksbank was expected to present its first two significant rate hikes before the start of the year. Sweden’s central bank, Riksbank, decided to raise the repo rate by 100 basis points to 1.75 percent from the previous 0.75 percent.

Wednesday:

– United State:

The US key interest rate is expected to be raised by 75 basis points for the third time in a row, to 3.25 percent. DNB Markets believes that “point” estimates will indicate that interest rates are peaking at a much higher level than reported in June. The brokerage also expects members to significantly raise their inflation expectations, both in 2022 and 2023. However, this is likely to be closer to the current market rate, and should not change interest rate expectations significantly. The brokerage also expects unemployment expectations to rise somewhat, while GDP growth is expected to be revised downward.

Thursday:

– Japan:

Economists polled by Bloomberg News expect the Bank of Japan to continue to be the “different central bank” and keep its key interest rate and monetary policy unchanged at its rate meeting. Among the 49 economists asked, no changes in monetary policy are expected. Economists write, however, that there is pressure on the central bank to do something to address the development of the weak exchange rate, but that this will not come in the form of major changes in general monetary policy.

Norway:

Economists TDN Direkt spoke of their expectation that Norges Bank will raise its key rate by 50 basis points to 2.25 per cent. The peak interest rate is expected to be between 2.00 and 3.25 per cent.

We don’t think the Norges Bank is following market expectations of a three-digit rate hike well. There will be a steeper interest rate path this fall, but no more, and the reason for that is that we are already seeing many signs of a slowdown in the economy, says Harald Magnus Andreassen at Sparebank 1 Markets.

The Norges Bank had lower growth estimates, but the network report was lower and anticipating a drop in GDP, so there is a limit to how much the Norges Bank needs to raise interest rates to keep wage growth in check. Overall, wage behavior has been better than we thought this year, he says.

– Great Britain:

Danske Bank, in addition to consensus, expects the Bank of England to raise its key rate by 50 basis points to 2.25 per cent. Danske Bank indicates that the market is priced around 65-70 basis points from the central bank, the brokerage believes that the central bank will admit it was fine if it was 50 or 75 basis points, but at the same time the BoE is clearly inclined to surprise the pacific side In his own interest meetings.

difficult balancing

Monetary policymakers are balancing on a knife edge: if they tighten too much, economies will be pushed into recession, and too little action can lead to a wage and price vortex.

It is a difficult balancing act for banks that have to manage the economy with limited tools. Fighting inflation while keeping unemployment low is a tough challenge. It’s easy to fail and make mistakes, says Miller.

Miller points out that times when stock markets fall a lot and for a long time are associated with recessions.

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Big drops in the stock market usually come after central banks have missed a bit. Either by a strong yearning for austerity, or vice versa, by inaction, Miller says.

– The market expects a recession – there will be no surprise. How deep and dangerous this is, Miller says, is the worrying factor that causes major mood swings in the market.

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