Economic Outlook February 2016

Markets stabilize in the latter half of February

After a brutal start of the year, risk appetite returned in the latter half of February from oversold territory.  S&P 500 fell marginally, Bloomberg European 500 rose 0.50 per cent, while Japan’s Nikkei 225 fell more than 7 per cent in February. Oslo Stock Exchange managed better, and returned in excess of 2 per cent as the oil price recovered close to 7 per cent for the month. The Norwegian krone depreciated slightly against the Euro and the US dollar.

US manufacturing is still struggling with the strong dollar. The service sector is keeping up pace, with good help from the US consumer. US retail sales are strong as employment is still strong, and wage growth has picked up. It is crucial for investor’s growth assessment that the job market remains resilient.

In Europe, the job market continues to improve, as the number of unemployed is reduced with close to 1.5 million people over the last 12 months.  There are big regional differences, but the direction is clear. The United Kingdom finalized negotiations with the European Union on conditions for the country to remain an EU member. The adjustments were smaller than the British Prime Minister hoped for, but hopefully enough to convince UK voters to vote in favor of remaining a member of the European Union. European Central Bank President, Mario Draghi, continued to fuel expectations of new stimulus measures in March. In Sweden the Riksbank continued its aggressive monetary policy and announced another rate cut to -0.50 per cent in its aim to keep the Swedish krona weak.

On February 16, oil ministers from Qatar, Russia, Saudi Arabia and Venezuela agreed on a freeze in oil production at January 11th level. Short term, at least, this supported the oil price, and from this date it rose close to 20 per cent by the end of February. Still, the oil market is characterized by over-supply, and record stockpiles continue to build. SEB expect balance between demand and supply in the second half of 2016, and has a year target for oil of $45.

We keep our long-term positive view of equities; however, we continue to foresee a volatile market for risky assets. We need to see proof of global economic growth, and that this reflects into both top-line and earnings growth for companies. We will advise our clients to keep a neutral stance towards risk, but make tactical allocations when we find it appropriate.

By Hans Kristian Hals, Head of Investment Strategy