June 28, 2022

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– Likely to be troubled in the future – E24

The US Federal Reserve is tightening its grip to rein in inflation. But the chief analyst believes that the Norges Bank will stick to a regular rate hike next week.

Senior Analyst Ole Håkon Eek-Nielsen at Nordea.
Posted:

The case is updated.

It’s likely to be turbulent in the future, says Liv investment director Ron Ren at Nordea Leaf to E24.

US stock markets rose sharply on the same day the Federal Reserve (the Federal Reserve) raised interest rates by the most since 1994, in an attempt to beat the highest inflation rate in 40 years.

This rally came after the US stock markets experienced a sharp decline recently, a decline due, among other things, to high inflation and a sharp rise in interest rates.

But on Thursday, Wall Street’s leading indexes will fall. This is what it looks like after just over an hour of trading:

  • The S&P 500 fell 3.46 percent
  • The Nasdaq is down 4.27 percent
  • The Dow Jones Industrial Average fell 2.76 percent

At the Nordea brokers table, screens showed a spike when the Oslo Stock Exchange opened for trading, but since then the benchmark index (OSEBX) is down 2.58 percent with the exchange closed.

Senior Analyst Ole Håkon Eek-Nielsen at Nordea.

– I think we should expect big volatility, says chief analyst Ole Håkon Eek-Nielsen.

He believes that interest rates will continue to rise, both in the United States and here at home.

At least it’s not unnatural that it continues to stir up some turmoil in the stock market.

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Ren also believes that markets will continue to be turbulent in the future.

– Lots of items are priced negatively if you see it in the short term. It rallied yesterday, but one should not forget what happened in the previous days, he says, aiming for a sharp drop in the stock market earlier this week.

The Fed’s problem is that the market thinks they’ve ended up in arrears, that they haven’t done much to stagnant inflation and are afraid of losing control.

Ren points to a perception among market participants that the central bank (the Federal Reserve) has delayed raising interest rates after they were cut to zero during the pandemic.

Less dangerous here than in the United States

On Wednesday, the Federal Reserve raised interest rates by 0.75 percentage points, an unusually sharp increase. Going forward, there are also plans for a sharp rate hike.

-If you had asked the market a year ago, it would have been out of the question, says Eek-Nielsen.

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Many economists expect that the Norges Bank will raise interest rates further when the central bank holds a rate meeting next week.

Eek-Nielsen believes the central bank will stick to a 0.25 percentage point regular rate hike, raising the key policy rate to 1 percent.

– The situation in Norway, although somewhat similar, we also have a tight labor market, and therefore the rate of inflation and wage growth is lower.

– It’s less dangerous here than in the United States.

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Eek-Nielsen says that the important difference between Norway and the US is the percentage of those with floating interest rates. He points out that 94 percent here at home have a variable interest rate.

When the central bank raises interest rates, it acts immediately. We have better control over the purchasing power of families.

He says that the Bank of Norway could therefore quickly tighten the noose if it discovers that the interest rate has been set too low.

– But it also means that if you narrow very quickly in Norway, you will be able to create a fairly strong recession at a lower interest rate level.

Fear of stagnation

The US Federal Reserve is tightening to curb the upswing in the economy, in order to curb inflation. The latest survey showed an annual price increase of 8.6 percent, well above the 2 percent inflation target.

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Surprisingly strong inflation of 8.6 percent in the US

One of the questions is whether the central bank will raise interest rates so much that it will cause a contraction in the economy. Currently, unemployment is approaching record low levels.

There are three or four historical examples who were able to make this easy landing, says Ryan.

He points out that the central bank envisages a situation in which stagnation is avoided, and inflation and unemployment are slightly lower.

– One should not forget that the starting point is that there is a high temperature. There is very high demand, there is very little capacity, and there are twice as many vacancies as job seekers.

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Investment Director Lev Ron Ren at Nordea. Pictured here on a previous occasion.

Eek-Nielsen notes that the central bank will tighten so far to avoid having to use stronger lotion later.

What we learned in the 1970s is that if you don’t take control, it must eventually lead to a strong recession on purpose.

– That’s what I did after that. The interest rate has been set at 20 per cent. The unemployment rate rose to 11 percent. Then I gained control of wage growth. It will now be avoided.

– More Attractive Prices

Analysts still expect US companies You will earn more in the futureat the same time with business leaders He envisages further ascent.

At the same time, stock markets fell. On the Nasdaq tech exchange, values ​​have been trimmed by nearly 30 percent since the new year.

– You’re approaching a mild recession, I don’t think it’s wrong to say that. There may be little left if there really is a recession, says Ryan, but there is no doubt that stock prices and the market are clearly more attractive.

– Maybe it was too expensive in the first place. There was no bubble in the market this time around, but we did find companies that are hard to count as their home.