New, higher interest rate peak

For the month as a whole, the US S&P 500 Index dropped 2.4 per cent measured in USD, while the European Stoxx 600 Index rose 1.9 per cent measured in EUR, the Nordic VINX Index climbed 4.9 per cent measured in NOK, and the Oslo Stock Exchange saw an upturn of 3.8 per cent.

The flip side of the coin

January was marked by optimism about the economic outlook, particularly due to the reopening of China and better-than-expected developments in the European economy. Global growth estimates increased yet again in February, supported by strong labour-market figures and the industry barometer for the US service sector. The flip side of the coin is that this does not lessen the pressure on wage growth and inflation. As a result, we have seen that the markets now expect a further round of interest rate hikes. In the US, three further interest rate hikes by the Federal Reserve have now been priced in, and this has helped to suppress the upturn in the stock market. 

No recession?

The debate about whether we will have a "hard landing" or "soft landing" appears  to have shifted and the general consensus now seems to be a "no landing". The recession scenario has therefore been pushed further into  the second half of the year, and possibly even into 2024. The factors mentioned in the section above support continued good economic conditions. If we also see a bottoming out of sentiment  indicators for the manufacturing industry (such as the ISM barometer of US manufacturing activity), this will reinforce the belief in a postponed recession. At the same time, it will also support the likelihood of further interest rate hikes.

Reverse currency war

High inflation in the eurozone has led the European Central Bank (ECB) to adopt a particularly "hawkish" stance. In total, a 1.5 per cent higher interest rate from the ECB is now being priced in for 2023. Combined with the improved energy situation in Europe, the euro has therefore strengthened significantly from its lowest levels last autumn. The Norwegian and Swedish krone in particular have depreciated against the euro, driven by the widening interest rate differential. Thus, in order not to increase inflationary pressures in Norway and Sweden, we may see a "reverse currency war" in which Norway’s central bank, Norges Bank, and Sweden’s central bank, Riksbank, must compensate for the interest rate gap in order to avoid excessive inflationary impulses via the currency channel. 

The road ahead

In February, global shares fell almost 2 per cent measured by the MSCI World Index in local currency, but they have still risen 4.6 per cent so far this year. The drop in the market appears to have mainly been driven by rising interest rates. At the same time, the economy remains strong and a recession seems to have been postponed. In total, therefore, shares still appear to be a good investment alternative. The upturn since the trough last summer is also a reminder of the value of saving over the long term.