Galloping prices and fear of interest rates have sent the stock markets down this year. The central banks are working at full speed to raise interest rates to curb the economy’s appetite for goods. Last week, several western central banks said that interest rates must rise steeper than expected to reduce inflation to 2 percent. – Last week was almost a week for the history books from a market perspective. Now there is real unrest in the financial markets, and it has become more intensive recently, says currency strategist Magne Østnor in DNB Markets. Fears of the tax package for the UK On Friday, the interest rate turmoil got its legs in the UK. Prices have risen 9.9 per cent over the past year, while the key interest rate was set to 2.25 per cent last week. The government nevertheless chose to announce the biggest tax cuts in 50 years, according to the BBC. The rescue package is supposed to get the British economy back on its feet, but investors fear that the politicians will make things worse by fueling inflation. – One imagines that the central bank in Great Britain will have to tighten much more, and come up with much higher interest rates than what was enough to tame inflation before Friday, he says. Finance Minister Kwasi Kwarteng presented a surprisingly large crisis package on Friday. He is new to the job, as is Prime Minister Liz Truss from the Conservative Party. Photo: Alberto Pezzali / AP When the crisis package was announced after lunchtime on Friday, the market responded by selling the pound. The exchange rate tells what the country’s money costs, measured against another country’s money. On Monday, a pound costs 1.05 dollars, and has weakened by 27 percent in the course of a week. The pound has not been weaker for almost 40 years. But against the Norwegian krone, the pound is stronger in a historical context, and costs NOK 11.5. Prices in the UK for food, among other things, have risen sharply in the past year, stealing purchasing power from the British, who have less money to spend on other goods. Photo: Frank Augstein / AP A slowdown in the world economy awaits Globally, the financial markets are also shaking. Portfolio manager Shakeb Syed at DNB sees a stronger fear that growth in the world economy will fall in the future. – You have a cocktail of various factors that make investors uncertain whether the economy and the market will withstand this, which is why investors are selling now. Syed lists several factors: All leading central banks in the world are in the process of raising interest rates quickly and brutally. The price increase is the highest in decades, and also affects consumer goods such as food, electricity and fuel. War in Europe with the Ukraine conflict causing geopolitical uncertainty and affecting commodity prices. China is still shutting down parts of the economy due to the corona virus, while at the same time the property sector with a lot of debt is heading towards collapse. Portfolio manager Shakeb Syed at DNB Markets is most excited about future price growth. Photo: Stig B. Fiksdal / DNB If there is a downturn, it will affect how much the companies earn. – This means that you, as an investor, will lose money by owning shares in those companies, so that you choose to sell ahead of time in anticipation of a decline, says Syed. Several world-leading stock exchanges have crashed this year. Both the American S&P 500 and the German Dax index have fallen 22 percent since the New Year. Germany is facing a winter of energy crisis, and it is expected that energy prices will send the economy into decline. The German Frankfurt index Dax has fallen 22 percent since the new year. Photo: STAFF / Reuters The fall on the Oslo Stock Exchange has been dampened by high oil and gas prices, but the main index is also down 8 percent so far this year. A barrel of North Sea oil costs 85 dollars on Monday. Flees to the dollar The fear in the market, on the other hand, strengthens the US dollar, according to Østnor. The dollar is linked to the world’s largest economy, and when the financial markets tremble, the dollar tends to get stronger. The dollar is the most important currency for trade and the banking system globally. – The financial market in the USA is the largest in the world. If there is one place where you think you can own things, and where it is still possible to buy and sell things, it is in the dollar market. If we look at the use of the dollar, it is by far the biggest currency, says Østnor, and continues: Currency strategist Magne Østnor in DNB Markets. Photo: Johan B. Sættem – Then it becomes easy to resort to dollars to be on the safe side. It also goes beyond the Norwegian krone, which is a small currency in a world context. One dollar now costs NOK 10.7, and has not been more expensive since the pandemic broke out.
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The British pound collapses – news Norway – Overview of news from various parts of the country
