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Market Outlook: Inflation worries persist

Last week, financial markets in many places were shaky after the United States unveiled its April headline inflation figure. In New York, the broad S&P 500 equity index closed more than 1% lower for the week while Stockholm’s OMXS30 index lost nearly 1%. So far this week, both indices have shown only very minor fluctuations.

Surprisingly high American inflation figure

Last Wednesday the US Labor Department published its Consumer Price Index for April, which was higher than most analysts had expected. CPI inflation climbed to 4.2% year-on-year – the highest level since September 2008. The US Federal Reserve was quick to comment and tried to play down the figure by saying it was largely expected.

Stock markets reacted negatively to the US headline inflation announcement, losing ground on Wednesday but then bouncing back significantly on Friday. The overall effect on share prices last week was thus not especially large. Ten-year US Treasury yields also reacted by climbing a few basis points (hundredths of a percentage point) towards 1.70% but have now mainly dropped back below 1.65%.

Advances and setbacks in the pandemic

A number of countries in Asia are again seeing increased COVID-19 transmission and have imposed strict countermeasures and renewed restrictions. India, where the pandemic is continuing to reach alarming new levels, is also reporting lockdowns that among other things are disrupting tea production − with sharply rising prices as a consequence.

In many parts of Europe the trend of coronavirus infections is instead moving in the right direction, with England and other parts of the United Kingdom among the regions that have greatly reduced their restrictions. Since May 17, pubs and restaurants in England have been allowed to serve guests indoors. Concert venues and theatres are also reopening there. In Sweden, the spread of COVID-19 is still high in a European perspective, but there are hopes of a downturn in case numbers and hospitalisations soon.


SEB Reflections

Is the death of the office exaggerated, or inevitable?

In his latest Reflections, SEB’s Chief Strategist Johan Javeus discusses the future of office work. In the long run, a fairly large-scale death of offices feels almost inevitable. As our battle against the COVID-19 pandemic enters its final stages, we are also approaching the day when restrictions will disappear and life can revert to a more normal situation. One controversial question is whether this also means we will return to offices five days a week or continue working a lot remotely. In any case, it is clear that a large majority of employees enjoy working from home, while new technology and improved work processes make remote work increasingly easy.

Read the whole SEB Reflections article here.


Investment Outlook

Sunny stock markets – storm clouds in sight

Economic performance and earnings generation in the corporate sector have surpassed market forecasts during every quarter since the COVID-19 pandemic broke out just over a year ago. This has been in line with our hopes and forecasts, because since late spring 2020 we have chosen to overweight risk assets such as equities and corporate bonds in our portfolios. Among the positive factors we see are forecasts of a high global growth rate and earnings increases, monetary and fiscal stimulus measures and relative valuations. On the negative side are high absolute valuation levels, often already aggressive positioning among investors and high total debt.

On May 18 (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. The first of these is an in-depth look at the health care sector, which has been in the public spotlight throughout the pandemic but has been overshadowed in stock markets by an investor focus on growth stocks vs cyclical stocks. Our second in-depth theme article deals with the gaming sector, a fast-growing industry in which a number of Nordic companies have been successful.

You will find the full Investment Outlook report and various summaries here.