June 2, 2023


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Olaf Chen does not think the markets have understood the full “hardcore” reversal of central banks: - a new recession is needed to change this situation

Olaf Chen does not think the markets have understood the full “hardcore” reversal of central banks: – a new recession is needed to change this situation

This week, the main index of the Oslo Stock Exchange is down 0.6 percent, thus dropping a total of 5.6 percent from its historic high in November.

The price of a barrel of North Sea oil, Brent Spot, started the week at $74.24 a barrel, and ended at 74.58, up nearly 0.5 percent.

With Christmas Eve on Friday, the next trading week will be short, and marked in particular by one thing, believes Olaf Chen, head of global allocation and interest rates at Storebrand:

Markets are going to spend some time digesting last week. Chen says there will be no less focus on inflation going forward, given the signals we’ve received.

The most significant of these signals on Wednesday came from the US Federal Reserve, also known as the Federal Reserve. After doubting the “two-way” approach during the Corona pandemic, that is, lower key interest rates and support for the purchase of securities, it will now be tightened.

The reason for the Fed’s shift is “hardcore” inflation, which has risen sharply recently. In November, the US consumer price index rose 6.8 percent year on year, the highest number in nearly 40 years. The central bank’s response will be to cut support purchases in the market, and accelerate planned increases in interest rates.

The Bank of England was also surprised by the rate hike, and here at home, Norges Bank defied both an electric shock and a variable omicron, raising its key rate by 0.25 percent. The European Central Bank, for its part, is more conservative.

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screwing up Hitting interest rate-sensitive growth stocks, among other thingsThe US tech-heavy Nasdaq 100 index was down three percent from Wednesday to Friday.

However, Chen is surprised by how little interest rates have been raised on government debt. The most important among them are the US promissory note with a ten-year maturity, and the “ten-year” pioneer.

If you take a look at the actual development of interest rates, you will find that it has not done much good. Chen says it’s a bit odd that interest rates aren’t going up, considering how optimistic we are about the signals we’ve received.


“Central banks are still buying a very large amount of securities, and they are still manipulating price formation in the markets with extreme monetary policy,” says Chen.

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In addition to the ongoing large support buying, Chen points to two possible explanations for the fact that market reactions are still pending:

  • The turmoil in the stock markets leads to a “flight to security effect” as rising demand for safe government bonds counteracts the impact of expectations of higher interest rates from the hawkish Federal Reserve.
  • The market does not believe that the real economy and financial markets can tolerate higher interest rates, in part due to the high proportion of debt, and therefore believes that central banks cannot be hawkish.

Omicron may cause delay

One question remains, which is the consequences of omikron.

At the end of this week, it became clear that the Netherlands was in a total lockdown to slow the spread of the new virus variant, while British researchers warned of thousands of treatment cases a day, Unless similar measures are introduced. On Sunday, the country’s health minister said he would not rule out new austerity measures before Christmas.

There is widespread agreement that the new virus variant is much more contagious than its predecessors, but there is still mixed information on whether or not it causes milder disease.

Chief Strategist Eric Bruce at Nordea.

Chief Strategist Eric Bruce at Nordea. (Photo: Per Ståle Bugjerde)

– Next week we can get more information about how omicron-infected people work, and how many of them are seriously ill. How this wave hits the economy depends entirely on its severity, says chief strategist Eric Bruce at Nordea.

He, too, noted that the Fed’s message didn’t have much of an impact on the “ten-year-old,” but in any case he doesn’t think the pandemic will have much to say.

– Bruce says the message from central banks is consistent that Omicron is not a problem, or that it is exacerbating inflation problems.

Qin also does not believe that any waves of viruses and lockdowns will change the picture in any particular way for central banks.

– In this case, there will be only a break, a quarter of the risk of postponement. They will not detonate normalization. Compare with March of last year, when the lockdowns were much stronger and the economic consequences were greater. Then they had no challenges with rising inflation, and they could have catalyzed and adapted to the crisis. We no longer have that luxury, he says.

Employment led to the transformation of the Fed

Bruce believes that the response to central bank austerity measures indicates that the market expects high inflation to be temporary.

The main view is clear that the central banks are in control. This is reflected in the prices, he says.

So far, inflation growth has been primarily driven by disruptions in global supply chains and the effects of throttling. although The demand for labor in the United States has risen sharplyHowever, this has not yet led to broad inflation-driven wage growth. Chen thinks so far:

– What made the Fed turn around is that full employment is approaching, and that growth continues. A tight labor market is the best indicator of wage growth. The temporary effects and bottlenecks will disappear, but wage growth will. A new recession is needed to change this situation(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.