Disinflation continues in the US.
Headline inflation dropped sharply and by more than expected from September to October, going from 3.7% to 3.2%. At just 4%, core inflation also came in lower than economists' forecasts. These readings are a further sign that inflation is returning to more normal levels in the States. That's good news for investors, who seem more and more convinced that the US Federal Reserve (Fed) has finished tightening its monetary policy.
A further rate hike by the Fed in December is unlikely at this point. The year-end rally therefore looks set to continue, although we can't rule out a brief consolidation after the sharp gains recorded in recent weeks.
Sweden - the worst should be behind us
With inflation surging and the prospect of a recession looming, Sweden is grappling with a sharp rise in social inequality as more of the country's poorest households fall into poverty. Could this mean that the Swedish model has run its course? One of the main reasons for the current trend is that the country's central bank – the Riksbanken – has brought in a series of rate hikes to tame inflation, which peaked at 10% in December 2022. These tighter lending conditions have weighed more on households in Sweden than on those in other European countries, because Swedish households tend to have higher debt levels and more variable-rate mortgages. Rising wages have helped to soften the blow, but there's more to it than that: Sweden's international purchasing power has been weakened by the sharp depreciation in the Swedish krona, which has lost 30% against the euro over the past ten years – a trend that has accelerated in the last 12 months. There are several reasons for this decline. When global markets are rattled by heightened geopolitical uncertainty – such as the war in Ukraine – investors tend to go for more stable currencies and reduce their exposure to peripheral currencies like the Swedish krona. There have also been concerns that problems in the country's property sector could lead to a more widespread crisis. At the same time, however, the current situation has been a boon for Swedish exporters, who've become much more competitive as the currency weakens. They’re set to do well when the economy picks up.
In recent years, the Swedish stock market has lagged behind its European peers. Investors have been put off by the problems in the property sector. But Sweden's earnings season has just come to an end and it turned out to be better than expected, which has led to earnings forecasts being upgraded. Lastly, the krona has picked up since central banks, including the Riksbanken, made it clear that their monetary tightening was nearing an end, and investors now seem more upbeat about the country's economic outlook. We think that this will be good news for the stock market, especially if there's also a decline in yields. In the meantime, the krona's recent uptick will help to shore up economic growth and corporate earnings. And we now stand ready to increase our exposure to this market soon.
This week's figure
This is the rate at which China's retail sales grew year on year in October. The figure came in higher than expected and topped the September reading of 5.5%, – two signs that consumer spending may be stabilising.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
