Faith, hope and the central banks

The stock markets rose further in October, while global industry figures continued to fall. Simultaneously, the central banks are fueling the upswing with interest-rate cuts and new quantitative measures.

For the month as a whole, the US S&P 500 Index increased by 2.2 per cent measured in USD, while the European Stoxx 600 Index rose by 1.1 per cent measured in EUR and the Nordic VINX Index climbed by 5.3 per cent measured in NOK. Here in Norway, the Oslo Stock Exchange (OSEBX) increased by 1.3 per cent.

Weaker manufacturing industry

Global macro figures continue to fall at the beginning of the year's last quarter. Following a synchronised upturn, developments are partly as expected. It was especially forecast that the effects of Trump's tax cuts would slowly disappear. Global manufacturing figures are falling the most clearly, with few signs of a reversal if we look at details like orders and stocks. At the same time, the labour-market and consumption figures are still good. These differences cannot last over time. We will either see a reversal in global manufacturing or the other figures will also weaken. The financial markets regard a reversal in the manufacturing sector as the more likely of these.

Active central banks

The US central bank (Fed) cut the interest rate further in October. This took place at the same time as unemployment in the USA was reported to be a record-low 3.5 per cent – the lowest since 1969. At the interest-rate meeting, the head of the Fed indicated there would be an interest-rate pause, and market players now believe there will be one more interest-rate cut before the summer of 2020. The European Central Bank will re-start its printing press in November, and will from then on offer to buy 20 billion euros' worth of bonds each month without a fixed end-date.

Trade agreement "phase 1"

Faith and hope seem to be the best description of the expectations regarding a trade agreement between the USA and China. Following the escalation this summer, the tariff increase was postponed in what is now called "phase 1" of a potential agreement. As usual, there are few details and nothing very specific to report, but Trump has pointed to the APEC meeting in November as being when a possible agreement might be reached. This may seem to be too early, especially if there is any truth in the speculation that Trump will keep the tariff war warm for the start of the election campaign next year.

The road ahead …

We are in a period where the stock markets are being influenced to a greater degree than "normal" by the central banks' policies and stimulus measures. Investors' preferences change often and suddenly, and this is challenging for active managers. However, the alternatives to shares still do not appear to be very attractive.

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