The World
Markets are focusing on quarterly reports
The corporate report season is well under way in the United States, with major American banks among the first out. This week’s reports will include Netflix and Tesla. In Sweden the season is taking off this week, with quarterly reports from such companies as Sandvik, ABB, Investor and Volvo.
Flash PMIs for April will be published on Friday
On April 22 S&P Global − recently merged with IHT Markit − will publish this month’s flash purchasing managers’ indices for the US, the euro area and the United Kingdom. We will probably see declining PMIs compared to the relatively high levels of recent months.
New IMF world outlook
On April 19 the International Monetary Fund released its latest World Economic Outlook. The IMF writes: “The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.”
The Nordic countries
Sweden’s spring budget is unveiled
On August 19 the government presented its Spring Fiscal Policy Bill and the Spring Amending Budget for 2022, including “both immediate investment and long-term measures to address societal challenges, at a total of SEK 35.4 billion.” Many budget items were known even before publication. The focus is on security, defence and high prices. The government is budgeting additional resources in response to continued pressures related to the pandemic.
Our market view
This year’s initial stock market downturn − driven by rising inflation − intensified when the tragic war in Ukraine began in late February. Even before the war broke out, alarmingly high inflation, continued disruptions in global supply chains and COVID-19 pandemic problems in China created headwinds for economic growth. These problems have persisted, or worsened. Inflation continues to climb both in the United States and the euro area to levels we have not seen in 30–40 years.
Rising inflation and energy costs are of course hurting household purchasing power, while the Ukraine war and other above-mentioned problems are contributing to a slowdown in economic activity. Many forecasters are also lowering their growth projections for 2022, typically halving them to around 2% for Europe and 3% globally, a downward revision by about one percentage point. We at SEB are also joining this crowd.
Gross domestic product (GDP) continues to grow at decent levels – because we entered the year in a recovery phase with good underlying growth and due to support from capital spending, especially in the energy field, and possibly from pent-up consumption needs combined with solid household savings surpluses.
The US is hiking its key interest rate
Meanwhile forecasts of central bank key rate hikes and long-term market bond yields are being adjusted upward relatively fast. Ten-year US Treasury yields, which serve as a global fixed income market benchmark, soared to above 2.9% this week.
Most forecasts also indicate that the US Federal Reserve will raise its key interest rate faster and in larger increments than usual – with the federal funds rate moving towards 2% by year-end and 2.5−3% during 2023. Given the initial situation of ultra-low interest rates and yields, rising rates can be regarded as a healthy normalisation, but if they are too large and too fast, they will probably push down the stock market mood and share valuations. There is thus a higher risk of investor disappointments.
The growth phase is not over
Yet stock exchanges have concluded that the problems are of a more or less temporary nature. Our main scenario is still that a global recession can be avoided, and that even if 2022 will probably be an off-year from a growth and corporate earnings perspective, the economic growth phase is not over. Because today’s share prices are still a bit lower than at the beginning of the year, the market has partly discounted the stronger headwinds described above.
We are thus maintaining our small overweight position in equities but are awaiting clearer signals about new developments, which we are of course following closely.