May 29, 2022

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Smaller rise in interest rates could push stock markets even more: - Markets are likely to be hit hard by fears of a new shutdown

Smaller rise in interest rates could push stock markets even more: – Markets are likely to be hit hard by fears of a new shutdown

The Corona virus variant Omicron has caused turmoil in the markets over the past week.

Chief Economist Kjersti Haugland at DNB Markets says news regarding omicron could have a significant impact on the markets going forward.

Markets are likely to be hit hard by fears of a new shutdown, says Hoagland.

After the discovery of omicron infection after a Christmas table in Oslo, the government has introduced several regional measures in the Oslo regions, stricter entry procedures and national recommendations.

The virus variable has caused uncertainty over whether the Norges Bank will continue to raise interest rates in December.

The Norges Bank announced in November that the key rate would likely rise from 0.25 per cent to 0.5 per cent in December. The interest rate decision will be presented on Thursday, December 16th.

Believes in raising interest rates

Haugland is still pushing for the central bank to raise interest rates.

Omikron has certainly added to the uncertainty, but with no new information in the near future indicating stronger restrictions, we believe Norges Bank will raise rates further. Hoagland points out that the Norwegian economy is very good right now, and unemployment is about the same as it was before the crisis.

I made a reservation that the Bank of Norway thinks this is the wrong time to raise rates now, because we know so little about the financial consequences of Omicron, as well as the fact that we have very high electricity bills.

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Haugland says there will be interesting headline numbers next week, but these look outdated, now that the new uncertainty factor has entered the omikron.

However, it does highlight the report from companies in the Norges Bank’s regional network, which will be presented on Tuesday next week, as particularly important ahead of the rate decision. She is particularly interested in the factors that could lead to increased inflation in Norway in the future, and the proportion of firms that struggle to provide labour, which will increase prices for consumers.

– It’s not entirely clear

Portfolio manager Christian Tonal of Alfred Berg Asset Management points to the upcoming interest rate meeting in the US and here at home, as crucial to how the market develops in the future.

– There has long been an expectation that interest rates will rise, but on Friday disappointing employment numbers came from the US, and in Norway we have high electricity prices that affect purchasing power, Tonal says.

210,000 new jobs created in the US in November. It was expected in advance that 550,000 new jobs would be created in the United States.

– If the expected rise in interest rates does not occur, it will affect the markets, especially the popular sectors.

Portfolio manager Christian Tonal at Alfred Berg Asset Management believes it is not entirely clear that the announced rate increases from Norges Bank will be implemented.

Portfolio manager Christian Tonal at Alfred Berg Asset Management believes it is not entirely clear that the announced rate increases from Norges Bank will be implemented. (Photo: Michaela Berg)

Low interest rates and wide access to liquidity in global markets have, for a long time, stimulated investors’ willingness to take on risks. Historically high price levels add to the downside in stock markets. The valuation is particularly high in the technology sector, where the rise in recent years accounts for a significant portion of the total return globally, Finanstilsynet writes in its latest report.

– Given the latest news that has come in, it is not entirely clear that the announced interest rate increases will be implemented, he said.

– Highest odds of rising

Tunaal also believes that the development of the new omikron variant will affect the exchanges in the coming week.

– As it now appears, the epidemic is not over yet, and it is likely to affect the market this week, says Tunal, who believes the stage is set for new volatility on the Oslo Stock Exchange this week.

December is usually a good month for the stock market, so the odds are high for a continuation of the rally.

Investor legend and Warren Buffett’s right-hand man, Charlie Munger (97), has described today’s stock markets as “greatly exaggerated, and crazier than they were during the dot-com boom.”

– I understand he’s saying that, but it’s worth mentioning the stock market pricing. Some stocks are very highly priced, while others are not. Scandinavian banks, for example, are not particularly high rates. Not the traditional industrial companies either, Tunal says.

He points out that there have been good profits in the stock market this year, and that interest rates are at a level that can tolerate price hikes. Capital inflow has been particularly good for technology companies and companies working in renewable energy over the past year.

– There are many companies listed on the stock exchange in 2021 and they are in an early start-up stage, as not everyone will succeed, says Tunal. (Terms)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.