The leading stock exchanges in Asia and Europe started the week with a strong rally, with a number of the most important indicators rising above one percent. The positive mood in financial markets spread to US stock markets, with the Nasdaq up nearly 2% at its open.
This strong rally was sharply erased throughout the trading day, and the day ended with caution.
- The Dow Jones Industrial Average ended almost unchanged.
- The broad S&P 500 index rose 0.31 percent.
- The Nasdaq Technology Index rose 0.4 percent.
Before the opening of the US stock market, Senior Portfolio Manager Olaf Chen at Storebrand noted the most important event of the week, which will affect the financial markets:
– What will be important in the future are the inflation figures presented on Friday. We believe that inflation in the US has peaked and will decline in the future. The question is how fast will it fall, says Olaf Chen.
Bloomberg writes The US Consumer Price Index (CPI), which shows inflation on a monthly basis, is expected to be quieter in May than in April, and some economists expect it to confirm that inflation has peaked.
Technology ranks by job numbers
Wall Street’s major indexes ended last week lower, despite a solid labor market report from the US Department of Labor.
The figures showed that 390,000 new jobs were created in the United States in May. At the same time, job growth for April was revised down from 428,000 to 436,000. In advance, job growth was expected by 325,000 in May, according to estimates obtained by Trading Economics.
Strong labor market numbers indicate continued strong activity in the economy, which could reduce the likelihood that the US Federal Reserve will halt expected interest rate increases.
The technology-heavy Nasdaq was down 2.5 percent when the stock market closed on Friday. With the prospect of a rate hike rising, it doesn’t make sense for the strong job numbers to outpace tech stocks and growth in Nasdaq indices, such as Nerflix, Meta and Tesla — which all ended lower Friday.
Unemployment has been low several times in the last 40 years, but inflation hasn’t been very high, and so they were in no hurry to raise interest rates. Now you have record high inflation and record low unemployment, and that scares the market, says Chen.
Challenge period in store
Chief Strategist Christian Lee at Formue says investors have a twisty period ahead.
Investors will have a tough time with economic numbers from the US: the good numbers can be interpreted negatively because they increase the likelihood of monetary policy tightening, but at the same time ease fears of a recession. Lee says the bad numbers will ease pressure on the Fed, but remove economic uncertainty.
Lee says the signs of stabilization in recent weeks have been driven by declining core inflation in the US, somewhat lower US interest rates, and a weaker dollar. In addition, the easing of infection restrictions in China and the rebalancing of stocks from large management environments have contributed positively, Lee says.
However, the recent price hike occurred even though key numbers from the US and Chinese economies disappointed expectations. In recent weeks, the Oslo Stock Exchange has soared, hitting an all-time high on Tuesday. There was also a broad recovery in European and Asian markets.
Lee points out that the rally is occurring at the same time that inflation continues to surprise the upward trend in major economies.
Therefore, investors should prepare for several turbulent periods, especially in light of the fact that the global economy is undoubtedly heading into a difficult period driven by a wave of monetary tightening and record high food and fuel prices for example.
Don’t think a recession is imminent
Many economists have expressed concern about economic stagnation. However, Chen does not believe that this will happen in the near future.
– We think it’s premature. We can see a slight unloading of growth, but we don’t believe in any stagnation in the next three to 12 months, says Chen.
He says they have invested during the pandemic in merchandise and merchandise, such as hiking clothing, skis, computers, cars or Netflix subscriptions. Now the trend is reversed:
Now they prefer spending money on hotels, restaurants, planes, and festivals. The problem for economists is that there are no good numbers for stocks in the services sector. Here the biggest component is the people, and then you will notice poor service. In such a situation, I will not be able to see economic stagnation in the next three to twelve months, because I do not believe that unemployment will increase, he says and adds:
– I find that the service quality is very poor. Restaurants are closed, there is chaos when traveling and passport chaos in Norway is a symptom of what I am saying. All of these things are a sign that there will be a huge demand for the service and that will lead to good growth, but higher prices.
Christian Lee-en-Formy, for his part, sees an increased potential for recession in Europe and the United States during 2022 or 2023.
– Because inflation weakens the purchasing power of households, which in turn leads to a weakening of the consumption capacity and an increase in uncertainty, which in turn leads to an increase in savings relative to consumption. The mood among eurozone households, Lee says, is almost as bad as it was in 2020, while expectations for US households and top managers have also fallen sharply. (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.
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