Over the course of the week, banks will announce how much of the default they think higher interest rates will give, while the gas cable from Russia may stay shuttered for longer than planned.
The week begins with quarterly figures from major banks Nordea, Bank of America and Goldman Sachs.
It’s earnings season, and more important than the actual numbers that come in are the future prospects companies report, says Anders Johansen, chief strategist at Danske Bank.
He points out that several banks are starting to set aside money to cover future losses.
– There are no actual losses but interest rates have risen and companies must refinance at high levels. This increases the likelihood that more people will not be able to make up for it, Johansen says.
Banks are obligated to set aside money to cover such losses, and they cannot wait for the default to actually arrive. Thus, how much banks think they will default on can be a good indicator of how the economy will perform in the future with higher interest rates.
Recent housing numbers show whether interest rates are snappy
It will also be interesting to follow some of the home-related numbers from the US next week, due to higher interest rates.
In the United States, most people have fixed-rate mortgages, so when the central bank raises interest rates, most people don’t notice the immediate effect unless they have to take out new mortgages.
– Then it becomes important to follow what is happening on the housing side. Do you stop? If you get a surplus in this industry, that’s an increasing negative factor, says Johansen.
The numbers of newly started apartment buildings in the United States and sales of existing buildings in the United States appear on Tuesday and Wednesday.
We want more unemployed home builders
Unemployment in the United States is currently at 3.6 percent, the same level it was before the pandemic.
– This is usually not very interesting, but this week it may be useful to see how many first-time applicants for unemployment benefits are coming from the US on Thursday. It’s the job market, Johansen says, that has to get weaker for there to be a recession now.
Is this exactly what the US Federal Reserve wants?
– This is it. They don’t want to say it directly, they wrap it up, but they believe that unemployment must be raised in order to bring down inflation.
Gas cable from Russia is in operation – or not
According to the plan, the gas cable from Russia to Germany, called Nord Stream 1, will be restarted after annual maintenance, on Thursday.
– Many believe that this is an opportunity for the Russians not to start production again, while others think that it is too early for the Russians to do so, says Johansen.
He says that when the component that was to be serviced was due to be sent to the workshop, the delivery was delayed due to the curl knot.
– It took time, so it’s likely that he’ll be back in hindsight. What happens here will be very important for autumn and what happens to European gas, Johansen says.
The European Union is coming up with its plans for what to do if gas from Russia fails the day before, on Wednesday.
– These have so far been unrealistic and in my opinion games of the fair, says Johansen.
The nightlife industry has almost recovered: – Big backlog in the corporate market
You can get a bang in the Oslo Stock Exchange
On the last working day of the week, a group of interesting personalities from the world’s Purchasing Managers arrive.
– How is the industry? Johansen says the PMIs are over 50 so far, which means continued growth, but the trend is negative.
The Purchasing Managers’ Indexes (PMIs) tell how large the proportion of Purchasing Managers in various companies reported increased or decreased activity for their company in the next month. A value of 50 means that there are 50/50 positive and negative PMIs, while a value greater than that means a preponderance of positives.
– We’re following closely. If the US Federal Reserve wants to make a “soft landing”, it will have to stop the decline in the PMI before 50. Below that is an indicator of recession, Johansen says.
So far, the market has counted itself in a recession for the next 6 to 18 months, according to Danske Bank’s chief strategist.
Short-term interest rates have gone up so much, while long-term interest rates have gone down, that we have an inverted interest rate curve. At the same time, the prices of many commodities have fallen, such as the price of oil, which is now $100 per barrel of North Sea oil. Surprisingly, Johansen says, the stock is doing relatively well.
– Do you think there could be a backlash on the stock?
– I don’t think we’ve seen the bottom yet.
– If there is a global recession, commodity prices drop a lot, and that could be a downside for the Oslo Stock Exchange, says Johansen.
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