October 6, 2022

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The Fall of the Chief Stock Market Strategist: A Combination of Interest Rate Fear, Recession Fear, and Political Uncertainty

The Fall of the Chief Stock Market Strategist: A Combination of Interest Rate Fear, Recession Fear, and Political Uncertainty

Oslo’s main index, the Poor’s, has fallen since the start on Wednesday morning. After a short time, the decline accelerated, and the exchange was down about 2 percent at 09.30.

It follows a drop of more than three percent on Tuesday, the biggest drop in Oslo’s stock since January.

As on Tuesday, many oil and gas stocks fell on Wednesday morning. Equinor continues to decline from Tuesday, dropping nearly four percent on Wednesday morning. Far Energy and Acker BP shares also fell sharply.

Formue chief strategist Christian Lie cites three main reasons for the pessimism on Wednesday in Oslo Bors:

The essence is a mixture of fear of interest rates, fear of recession, and uncertainty about what politicians might come up with in an effort to reduce the energy crisis. Given the latter point, Oslo Boerse is particularly sensitive if any policy actions affect the profits of Norwegian energy companies, he tells DN.

The drop in oil prices has a big impact

After the spot price of fuel oil crossed $100 per barrel at the end of August, the price fell again significantly in September. That, along with lower gas prices on Tuesday, contributed to a sharp decline in shares of Equinor, Vår Energi and Aker BP.

Overnight, the price of oil has fallen further, and a barrel of fuel oil is trading at 07.30 for $91.3 a barrel. This corresponds to a 1.5 percent price drop since the previous closing price.

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Energy-packed Oslo has been a relatively safe haven so far this year, despite major global turmoil, is time running out?

– I think it’s too early to say. Energy prices are very volatile at the moment. On the other hand, there are clear signs that the global economy is heading downward, which could reduce energy demand, Lee says and continues:

On the other hand, there is a huge imbalance in the energy market, but inventory levels are low for everything from crude oil to gas and finished products such as diesel. This means that if there are new shocks in the supply chain or on the supply side, we cannot rule out that this will cause energy prices to rise even more, despite the fact that the global economy is on its way to a decline. Something that can help support the Oslo Bors.

But there are factors that could go the other way.

The sharp improvement in terms of trade with other countries means that the Norwegian government’s finances are now significantly enhanced. But the development in Oslo Bors is actually only slightly related to the development in the Norwegian economy. This is the only argument that Oslo Bors will not necessarily remain a safe haven, says the chief strategist.

The second argument Lee makes is the low risk appetite in global markets.

– The NOK is what we call procyclical, which means that it often weakens in periods of increased turmoil in the stock market. This may cause foreign investors to become more cautious and avoid trading in Norwegian securities.

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Poor numbers from China

On Wednesday, the US central bank will release an update on the economic situation in the US, referred to among Fed experts as the “beige book”, and Bloomberg writes that the prospect of strong monetary policy tightening is boosting the dollar even more.

At the same time, US government bond yields rose overnight, and the sum of that contributed to the decline in the stock market in Asia. Overnight China released figures for imports, exports and trade balance in August — all of which were weaker than economists had expected, according to Trading Economics.

TDN Direkt writes that exports, measured in dollars, rose 7.1 percent year on year in the period, versus an expected increase of 12.8 percent. Imports rose 0.3 percent in August, versus an expected increase of 1.1 percent.

New Chinese shutdowns and weak overall numbers, among other things, caused Saudi Arabia to lower the price of oil for customers in Asia, and also raised fears of a slowdown in the global economy.

– In addition, you have a fear of recession, which is affected by persistently high inflation, which raises expectations of a sharp increase in key interest rates. Disappointing data on Chinese exports and imports point to lower global demand and continued weak development in China. The August global PMI indicates an economic downturn for the first time since June 2020, Lee notes.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using the links that lead 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.

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