Economic Outlook September 2015

Uncertainty amid global growth prospects and when the first rate hike from Fed will come

September turned out to be another month with global equity prices falling. Of the main global stock exchanges, Japan’s Nikkei 225 dived as much as 7.95 per cent. S & P 500 and Bloomberg European 500 ended the September down 2.64 per cent and 3.98 per cent respectively. Oslo Stock Exchange fell 2.07 per cent. All numbers are in local currency. Norwegian kroner depreciated more than 2.5 per cent against both USD and EUR.

Global leading indicators have leveled off over the last quarter, mainly driven by China and other emerging markets. This pattern is also evident in global manufacturing PMI where developed markets are holding up relatively well while the emerging world is falling.

The US domestic economy remains robust with strong statistics from the housing market, consumer confidence and durable goods sales. However, the exporting part of the economy is hurting from a strong currency. This in addition to weaker growth prospects globally, made the Fed take a global perspective, and they decided to put the first rate hike since 2006 on hold at its meeting on the 17th of September. The decision gave more fuel to the uncertainty concerning global growth.

Norges Bank surprised markets by cutting the key deposit rate by 0.25 per cent to record low 0.75 per cent. The central bank was also dovish by signaling it is likely to follow up with yet another 0.25 per cent cut during the first half of 2016. The Norwegian krone fell sharply after the announcement.

Despite paler growth outlook, we still favor equities over bonds. Within equities we choose to overweight Europe as the economic upswing are broadening out and the common markets PMI’s continue to be strong. 

By Hans Kristian Hals, Head of Investment Strategy