Olaf Chen on today’s market: – It’s a “waiting game”

Bad numbers were good news as long as they weren’t bad enough to indicate we were in the middle of a recession. Olaf Chen, Head of Allocation and Global Interest Rates at Storebrand, says recession fears have been on a downward trend.

Together with the rest of the market, he saw the week’s buffet of US macro numbers mostly coming in weaker than expected. The stock market has appreciated it. This was the best week for the S&P 500 since June.

Chen is responsible for NOK 300 billion in client funds. In tactical deployment — the discipline within the department — timing is everything, he says.

– We have maintained a slight overweight, but we still feel we are in the late cyclical phase. This means that we are a bit skeptical, also, about prices in some markets. What drove a lot of the market higher was seven stocks around KI and Tek. If you remove the seven, there will be almost no upside in the market. The manager says it’s not really a good sign.

Not a Super Bowl

For more than a year, some market players have been talking about the coming recession in the US economy. Currently, the market is anticipating a 60% probability of a recession in the next 12 months. But for now, the soft landing narrative prevails, according to Chen, who says the question then is whether a soft landing means no landing or whether you instead extend the economic cycle.

– I’m in the last camp. The economy has reached its ceiling, no matter how distorted it is. He says it is a “waiting game”.

– Exactly what are you waiting for?

A catalyst that can lead to a negative spiral that can lead companies to start downsizing. Storebrand manager says the business cycle does not die with time.

Despite being slightly overweight in stocks, Chen sees the market at the top of the range where it should be.

– We are not bulls, but we clearly see in the very short term that there are arguments that allow the cycle to be extended to some extent, he says.

The market now places a roughly 40 percent chance that the US central bank will raise interest rates this year. At the start of the week, a probability of around 70 percent was priced in. Markets are also now betting that the Fed will cut interest rates again during the first half of the year. Chen no.

-If things stay good in the future, you can forget that the Fed will cut interest rates. I don’t think they cut in the first half of the year. I’m a believer in the “higher for longer” principle, but if a recession occurs, “all bets are off,” he says.

– It smells like a broken interest rate

All week long, investors have been fed key financial numbers. The dessert came on Friday: “the most important number of the month,” US labor market statistics for August. This was one of the very few numbers that, in isolation, was a little stronger than expected, but if you take into account the fact that the previous months were revised downward, it is clear that the labor market is cooling down.

Moreover, the unemployment rate rose from 3.5 percent to 3.8 percent, but economists point out that these numbers are associated with some noise.

US stock markets rose sharply from the start of the numbers, but after a short period of absorption, the rally more or less faded during the evening.

Chief Economist Ketil Olsen at Nordea Markets says today’s employment numbers further convince the market that the Fed will take a break from raising interest rates in September.

It smells like an interest rate crash now. We remain open to further increase. “We think inflation will not come down as easily as everyone expected,” says Olsen.

Olsen also believes that the increase in unemployment rates must be taken into account.

– I didn’t get much wisdom from today’s numbers. “It’s good, but we’re close to peaking interest rates,” he adds.

Chief Economist Marius Gunsholt Hof at Handelsbanken agrees that today’s figures reinforce the assessment that interest rates have peaked in the US.

However, there is an important inflation number remaining before the next Fed rate meeting, so we have to be a little conservative, says Hof.

Full roll in data posts

Although there were signs of the US economy beginning to slow in recent months, the central bank led by Jerome Powell left no doubt that the battle against high inflation was over.