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Market Outlook: A cautious week in stock markets

Last week the broad S&P 500 equity index in the United States lost 1.7%, while the Stockholm All-Share Index (OMXSPI) retreated by 1.4%. In the fixed income market, the 10-year US Treasury yield meanwhile rose from 1.322 to 1.341% but dropped back below 1.30% on Monday and Tuesday, September 13-14. Stock markets began the week slightly lower.

ECB announcement: Moderately lower pace of net PEPP purchases

In line with our expectations, the European Central Bank (ECB) decided to reduce its net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) during the fourth quarter of 2021. According to ECB President Christine Lagarde, the economic recovery will allow a “moderately lower pace” of asset purchases compared to the current approximately EUR 80 billion per month. Lagarde also emphasised the flexibility of the programme and the possibility of increasing asset purchases again if necessary.

Home price expectations among Swedish households rebound slightly

SEB’s Housing Price Indicator, which measures the percentage of respondents who believe prices will rise minus those who expect them to fall, rebounded slightly from 39 in August to 41 in September, according to figures published this past Monday. Swedish households now expect the repo rate (currently 0%) to stand at 0.55% a year from now, compared to 0.48% in last month’s survey. This increase in key rate expectations may reflect a belief that Sweden's Riksbank will undertake some monetary policy tightening after a period of powerful stimulus measures, according to SEB’s household economist, Américo Fernández.

Worth watching this week

After last week’s focus on Europe, markets have turned their attention again to the US. Yesterday the Bureau of Labor Statistics announced that consumer price index (CPI) inflation had risen by 0.3% between July and August, for a year-on-year increase of 5.3%. CPI less food and energy rose 4.0% during the year to August. US industrial production figures will be released on September 15 (today) and US retail sales statistics on September 16. China is releasing industrial production and retail sales figures on September 15.

New Investment Outlook report has been published

On September 14 (yesterday), we published the latest issue of our quarterly Investment Outlook report, where you can read more about our forecasts for equities, fixed income investments and other asset classes as well as theme articles on interesting current trends. For further information, see below.

 

Our market view

Positioning ahead of normalisation

So far, 2021 has offered many surprises. Among other things, we can be happy that the corporate sector has engineered a phenomenal earnings recovery, which is the main reason why stock market returns have been so strong. The capital market is adapting to new conditions as we move from the dramatic recovery phase to more normal growth and inflation. We expect fiscal and monetary policy to move in the same direction, with stimulus measures slowly being dismantled. This will decrease market potential, but we still consider it positive.

Among the positive factors are forecasts of a high global economic growth rate and corporate earnings increases, stimulative monetary and fiscal policies and relative valuations. Among negative factors are high absolute valuation levels, investors’ often already aggressive positioning and high total debt. In this environment, we have chosen to reduce risk somewhat in our model portfolios.

Full report on seb.se/investmenoutlookreport

A focus on the green transition, bond yields and digital education

In addition to the usual review of financial market conditions, Investment Outlook includes theme articles on current topics. In the first theme article our experts provide an in-depth look at the global green transition: its status, ambitions and what investment opportunities may arise. Our second theme article examines long-term bond yields and answers the question “Where are yields headed?” The third and final theme article delves into digital education, which has played a vital role during the lockdowns resulting from the worldwide COVID-19 pandemic.