This is a star week for investors, full of crucial events for the markets. It’s first and foremost a whole bunch of central banks that will have interest rate meetings, including US, European and Japanese bank meetings as well as our private meetings, says Erica Blomgren Dalstø, chief strategist at SEB.
After months of comforting talk from the US Federal Reserve that high inflation was only “temporary”, came the realization in November that inflation was much longer-lasting than initially thought. Thus, the central bank decided to start phasing out subsidy purchases.
The cut was initially set to equate to about $15 billion in reduced support purchases in November and December. The central bank has been buying government bonds and other mortgage bonds for $120 billion a month since June of last year. Dalstø believes the Fed will further reduce bond purchases from 15 to 30 billion per month – which means the Fed will actually end the cut in March of next year.
The Fed will give flexibility to be able to raise interest rates already this summer. The most important thing for the market, Bloomgreens says, is likely not to phase out bond buying, as it is expected, but rather what the Fed chief is signaling about raising interest rates.
She believes that the spread of the Omicron virus affects the European Central Bank more than the United States, as many countries in Europe are introducing or introducing comprehensive measures.
– game of luck
Investor Peter Hermannrod believes that it is Omicron and inflation that will characterize the markets in the future first and foremost.
The big question with omikron is whether it can overburden the health sector on a completely different level than before and lead to more closures than ever before. When it comes to inflation, many people think it’s temporary, but to me it feels more like a game of chance. It’s like betting everything on one card and I can’t understand why you should be so sure.
Hermannrod resigned as chief strategist at Sparebank 1 Markets this summer and is now starting to invest his own money full time. As chief strategist for several brokerages, Hermanrud was not allowed to invest in stocks he recommended himself. He was skeptical of pricing in August and is skeptical now.
I now have 20% cash and 80% stock. It’s a lot more cash than I usually have, but now I think the market is way too expensive. I think many stocks can go down a lot, and then it’s OK to have a lot to buy for.
Hermannrod has no doubt that sooner or later there will be a major stock market correction. He’s just one of many market experts who have warned about the stock price rally in the last year — and what could happen when the US Federal Reserve drops support for purchases and raises interest rates. But he also sees a very different danger in the distance, one he believes can just as easily be the motivating factor.
– What will really break us may be the natural economic slowdown caused by the collapse in the Chinese housing sector. One has to go back and look at the bubbles past. Why did you crack? It’s always about economic stagnation, he says, citing Chinese housing developer Evergrande as an example. The company has about NOK 2.7 trillion in debt and has breached the terms of the loan several times in the past year. The stock price has collapsed and the company may be relying on government assistance to survive. Indebted home developer Kaisa Group is also in crisis mode.
If you start looking at the numbers, start-ups of new homes in China are down more than 20 percent so far this year. It’s the biggest drop in at least 20 years, and it’s also larger than it was during the financial crisis, and the decline has accelerated recently. It was a similar situation in the United States that started the financial crisis. The housing sector accounts for nearly 30 percent of the Chinese economy, and China is just as important to the global economy now as the United States in 2008.
During the financial crisis, the Oslo Stock Exchange fell more than 60 percent, while it fell by 30 percent when the Corona pandemic occurred. Hermanud thinks a place in between is most likely next.
– He thinks a drop of 50 per cent is not that big given the prices in the market.
Agreeing to raise the interest rate
– Here at home, uncertainty has increased well, notes Keri M. Knudsen, chief economist at Sparebank 1 SR Bank.
The communication from the Bank of Norway was crystal clear. The bank delivered its first rate hike in September and set the next schedule in December. He said in November that the key policy rate was likely to rise. The word “probably” in Norges Bank usually means 100 percent certain language. But then came Omicron and new measures limiting activity in some industries.
Bloomberg has asked eight financiers, and they all believe Norges will raise the interest rate to 0.5 per cent.
– We’re there too. There is very good underlying growth in the Norwegian economy. We are already back to where we were before the pandemic if we measure economic activity, the number of jobs and the number of unemployed people. So even though the uncertainty has increased, it probably hasn’t increased so much that you want to cancel the rate hike. Everything points to the Norges Bank raising interest rates as planned. The uncertainty could mean something for the interest rate path in the coming year. The previous cycle had a rate hike in both March and June. I think Norges Bank will set a new course a little lower in the early months of next year.
– Did the United States not start raising interest rates after the pandemic?
No, and you want to gradually reduce support purchases before raising the interest rate. So the exciting thing now is when the US phases out its subsidy purchases. In the past two months, it has been suggested that the support purchase may be completed in March of next year, and this may also be what will be announced at the interest rate meeting on Wednesday. Believes.
The US has so far been very focused on the real economy and has put inflation aside a bit. So the focus on inflation concerns is likely to get some attention during the week.
– Moderate Democrats in the US are now pushing the central bank to tighten monetary policy to curb inflation?
– Yes. If one feels the central bank is at peace with some loss of control over inflation, it has to respond in some way – perhaps by reducing support purchases more quickly and then raising key interest rates. We see that high inflation in the United States affects the purchasing power of most people.
Knudsen notes that there will also be more so-called PMIs, or PMIs, this week.
– Among other things, there will be one for Germany. It has fallen slightly since this summer, especially with regard to problems in the auto industry. Then there are the new numbers out of China that will likely test whether the attenuation there is over. And we must not forget the November figures for the Norwegian trade balance. These numbers are likely to set a new record in both the value of exports and the trade surplus, especially thanks to very high gas prices, says Knudsen of SR Bank.
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