Analyst Magne Østnor in DNB Markets writes on Monday that high inflation, more worried central banks and ever higher interest rates have been important reasons why both the economy and financial markets can leave a weak quarter behind.
Østnor further believes that the fear of recession has taken over for fear of inflation and interest rates. It is written that market participants are gaining more and more faith that central banks will now prioritize reducing inflation and that this will not happen without a recession as a consequence.
On the basis of this, Østnor writes that interest rates have corrected sharply. In the US, 2-year swap rates are down 70 basis points to 3.13 percent, and on Friday alone the fall was 15 basis points. This now means that the Fed will raise the key interest rate to 3.5 per cent during the year.
Key figures support the fear of recession
On Friday, it was announced that inflation in the eurozone rose by 0.5 percentage points to 8.6 per cent in June. Despite the fact that core inflation fell somewhat, Østnor believes that this is due to the German authorities’ collective and fuel support during the summer months. In the US, the ISM index for industry fell to what is now the lowest level in two years.
Furthermore, it is written that the Norwegian labor market continues to fire on all cylinders, and unemployment remains at a low 1.6 per cent. In contrast to industry in other countries, the Norwegian activity outlook is increasing according to the PMI index. DNB believes that demand is solid, and that several companies are reporting increased inventory levels as a buffer against possible delivery problems.
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