November 27, 2022

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On Wednesday, new US inflation numbers come: - We've rarely seen economists get it wrong as sharply as they have in the past 12 months

On Wednesday, new US inflation numbers come: – We’ve rarely seen economists get it wrong as sharply as they have in the past 12 months

It’s been another turbulent week in the markets. Friday, Wall Street remains closed Heavy stock market weekAfter the Nasdaq Technology Index on Thursday Biggest drop in two yearsdecreased by more than five percent.

It happened the day after the Fed on Wednesday Raise the main interest rate By 0.5 percent, the so-called double increase, for the interest rate range from 0.75 to 1.0 percent.

This happens after inflation in the US has risen to new record levels. In March, the country’s consumer price inflation reached 8.5 percent, the highest level in 40 years.

Storebrand’s head of global allocation and interest rates, Olaf Chen, has no doubts about what will affect the market next week. On Wednesday, new inflation numbers will come out of the US, which the world’s investors will follow with scrutiny.

There is a lot of tension about whether we will finally see a settlement in the numbers. The inflation rate is expected to decline from 8.5 percent in March to 8.1 percent. In this case, it would be a symbolic influx of inflation. Chen says he differs slightly on the forecast, as we’ve seen economists repeatedly get it wrong on inflation.

Didn’t miss a lot

He confirms that inflation has been said for a year, or that inflation in the country is “temporary,” meaning temporary.

– Inflation was then expected to decline rapidly compared to the high we saw last year. But that wasn’t temporary at all, says Chen and adds:

The US Federal Reserve believes that this is temporary. Economists believe it will decline rapidly. Rarely have we seen economists get it wrong as sharply as they have in the past twelve months. I don’t think I’ve ever seen economists fail so sharply on inflation.

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Nor does he rule out the possibility that economists will fail again.

– If the number ends at nine, I think the market will be in shock. Then the turmoil that we have seen in the market recently will continue. Chen says the development we’ve seen in the past six months in the market is linked to inflation and rising interest rates.

You may have reached the top

In late April Male Chief Strategist Erica Dalstow at brokerage SEB said that the peak of inflation has been reached in the United States, and is expected to turn lower. She also stressed that inflation will continue to rise abnormally, as well as uncertainty related to energy prices and war-related disruptions and epidemics in supply chains.

Chen also thought that the peak might have been reached.

I don’t think the question is whether it will peak or not, but when it will peak and how much inflation will fall in the future. If it does not peak on Wednesday, it will peak over the next few months, given that energy prices are at the levels they are now. The markets have removed most of the fear of war. Given that this is the case, it is only a matter of time before inflation drops.

But the question is also how far will inflation go down. There is great disagreement over where the end of the year will fall.

He himself thinks he ends up somewhere between four and five percent, but there is a risk that he can still stay higher. The long-term goal, mandated by the US Federal Reserve, is to keep the inflation rate at around 2%.

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If inflation peaks now, the US Federal Reserve will buy time. The market has priced a lot of interest rate hikes. “I went back before the last interest rate meeting when I checked what was actually priced,” says Chen.

The market priced four double-digit rate hikes, and three more double increases in six months. If there is more market turmoil, Chen thinks it is possible that the US Federal Reserve will pull back the rate hike.

– Many people think that the US Federal Reserve is too late in this area?

Certainly, I totally agree with that. Norges started last year, and it wasn’t much earlier, but then it’s clear that the US is way behind when you see that wage growth and inflation are much higher than that of Norway. Had they known how inflation developed, it might have looked different. There is no doubt that interest rates will rise, the question is how far they will rise.

decisive in the market

Chen understands that the US inflation numbers will be the highlight of the week. What is more sensitive in the market are long-term interest rates, as it is not known how much they have been priced so far in the future among equity analysts.

Many are betting that the US Federal Reserve will raise interest rates too much in the long run, driving the economy into a recession, so it should cut again. We never know exactly how much they’re priced, and what the trajectory for a ten-year-old American looks like. From a stock market point of view, it will be important to keep an eye on the 10-year-old and long-term interest rates, among other things, Chen says.

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The yield on a 10-year US government bond, often called a “ten-year”.

The ten-year-old is often referred to as the “world’s hottest interest rate,” because it is a reference to many interest rates, but also other financial variables, around the world.

An increase in the 10-year period, referred to as the long-term interest rate, is often negative for growth firms. Growth companies are priced based on the expectation of high profits in the future. An increase in long-term interest rates results in lower potential profits in the future.

The US tech index Nasdaq has so far this year seen a drop of more than 22 percent.

Many technology companies are profitable in the distant future, so interest rate sensitivity is very large. Chen says the more interest rate signals, the more moves we’ll see on the Nasdaq.

Perhaps the Oslo Stock Exchange is a bit of the opposite scale. We will only go back to the 20th of April when the Oslo Stock Exchange reached a new all-time high. So the stock market here at home is going to react more moderately quickly and at times the opposite of what the Nasdaq does with a preponderance of value stocks and energy stocks, says Chen.(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.