Fear of inflation is receding

Strong macro figures and a declining fear of inflation led to the markets rising again in June. US long-term interest rates also fell, but future developments depend on whether inflation takes hold.

For the month as a whole, the American S&P 500 Index rose by 2.4 per cent measured in USD, while the European Stoxx 600 Index increased by 1.5 per cent measured in EUR and the Nordic VINX Index climbed 2.5 per cent measured in NOK. The Oslo Stock Exchange (OSEBX) experienced an upturn of 1.3 per cent.

Long-term interest rates fell

Despite strong inflation figures, US long-term interest rates and inflation expectations have fallen. This is in sharp contrast to developments in the first quarter, when inflation fears and the rising interest-rate level characterised the news. Future developments are linked to the discussion about whether or not the rise in inflation is temporary. Base effects, such as commodity prices and bottlenecks linked to the reopening of society, indicate a temporary increase. At the same time, future wage growth is a joker that may lead to more permanent inflation, and we will probably know more about this in the second half of the year.

A gradual reduction is expected

The US central bank (FED) is one of those that still believe the rise in inflation is temporary. Nonetheless, it now envisages that interest rates will return to normal in 2023, earlier than previously forecast. The main reasons for this are the prospects of higher inflation and growth. Currently, this institution is buying US government securities for USD 120 billion each month. This is expected to be gradually reduced, and the FED is forecast to announce this in the autumn.

Reopening threatened?

The vaccine roll-out is continuing at a steadily increasing pace in much of the world. However, the new delta variant of the virus is spreading. Countries with a high rate of delta infection include the UK, Portugal and Russia. Despite the increasing spread of infection, it appears probable that the vaccines provide a lot of protection against becoming seriously ill and admitted to hospital. So far, it is thus unlikely there will be new lockdowns or that the reopening is threatened.

The road ahead …

Despite lower inflation expectations, the global economic recovery remains strong and supports higher company earnings. Other factors such as stimulus packages from the authorities and a higher vaccine coverage also support continued strong economic growth, and in light of this shares still appear to be a good investment alternative.

«Health is like money, we never have a true idea of its value until we lose it.»
Josh Billings