Weekly review 20 November 2023: Positive mood on the markets continues


Sentiment in the investment markets remained strong last week, with positive inflation news driving stock prices up, pushing interest rates and credit spreads down and strengthening the price of the euro.

Globally, stock prices rose by almost three per cent but the appreciation of the euro reduced the returns on dollar-denominated investments by a few per cent. Therefore, euro stocks were clearly the best-performing asset class from an euro investor’s viewpoint last week.

Last week saw the publication of the US inflation figures for October, according to which the rise in prices slowed somewhat more than anticipated. Compared to last year, prices only rose by 3.2 per cent. Core inflation, i.e. inflation less food and energy prices, also fell to 4 per cent.

The main reason behind the declining inflation figures is the considerable slowdown in goods price inflation. China’s producer prices have a significant impact on US consumer prices, although trade between the countries has slightly decreased. Consumer prices in China have now fallen significantly, which can be anticipated to cause inflation in the USA to come down in the next few months.

Following the decline in inflation figures, the markets’ expectations of the direction of monetary policy also eased, and the markets no longer expect any more interest rate hikes from the central bank Fed during this interest rate cycle. Furthermore, expectations are now for a downward cycle in interest rates to start in late spring, i.e. sooner than was previously expected. In the longer term, the USA will still be faced with inflationary challenges, because a rise in housing costs only tends to manifest itself with a delay.

The much-awaited meeting between the presidents of the USA and China largely went well, although it did not lead to many concrete measures. Nevertheless, the meeting had a symbolic value for the relationship and trade between the two economic giants and, as such, it was positive also from the markets’ perspective.

Equities up, good inflation news embraced by the fixed income markets

Stock prices closed the week in positive territory across the board. The strongest performer was the Helsinki stock exchange, which started rising swiftly after a long weaker period.

In Europe, small caps have been the most significant contributor to value creation in recent weeks, while other companies have remained more or less on the same level. The shares of small caps are typically sensitive to interest rates and, as interest rates have fallen, their valuations have gone up. In the USA, growth companies have clearly been the strongest performers in equities.

The fixed income markets have experienced positive developments in recent weeks on the back of falling interest rates and tightening spreads. Last week’s best performers were euro-denominated government bonds and low-risk investment grade and higher credit risk high yield corporate bond investments. Throughout the year, the senior loan and European high yield markets have been the strongest.

Long-term government bond rates instantly reacted to the falling interest rates in the USA and the euro zone. The US 10-year government bond rate peaked at more than five per cent in October but has since fallen rapidly to 4.44 per cent. A similar drop has also been observed in Sweden’s, Germany’s and Finland’s 10-year government bonds.

What does a higher interest rate level mean?

The new interest rate cycle that started last year has begun to impact the economy by increasing the price of money. However, the full impacts of the higher interest rates are yet to be seen in the markets, as some of them may take longer to kick in. In the USA, for example, the year-on-year change in loans granted by banks has been negative during the past year. This has only happened once in the past, during the banking crisis of 2008. From the perspective of economic development, it is not a good sign that people do not borrow money. A slower pace of granting bank loans has often predicted a recession.

Non-payment of credit card debt has also increased in the USA in all age categories, especially among young adults. These figures approach the levels during the Covid crisis but they are still far from the level seen in 2008.

These statistics are a good reminder that, although the interest rate level has slightly come down in recent weeks, high interest rates have a real impact on households – something that can be expected to weigh on economic development next year.


Nothing presented here is or should be taken as an investment recommendation or solicitation to subscribe for, buy or sell securities. When making investment decisions, the investor must carefully familiarise themselves with the information given on the financial instruments and understand the related risks. The investor must base their decision on their own assessment, goals and financial situation. Risk is always inherent in investment activities. The value of the investment instruments may increase or decrease. The past performance of investment instruments is no guarantee of future performance.

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