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Stockholm market recovers strongly

TT/The Local · 23 May 2006, 10:27

Published: 23 May 2006 10:27 GMT+02:00

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Monday's falls were the largest in Stockholm since the terror attacks of September 11th 2001. On Tuesday, however, the market rallied. The recovery was led by commodities, which had been hit hardest by Monday's falls.

However, the market was still lower than two weeks ago, and analysts were saying that share prices could fall further.

"It is impossible to say," said Martin Guri, chief analyst at bank SEB.

"Changes in values from day to day are always most turbulent, so to speak, it is random," he said.

"But this is a recovery after the severe downturn and many analysts and advisers are coming out with strong recommendations to buy today."

He added that the fundamentals of the stock market remained unchanged.

"The world actually looks like it did two weeks ago. If you've got money in your account it is a good time to buy."

The falling stock market could be good news for homeowners. Experts say that the falls of recent days are likely to lead to lower mortgage interest rates.

Long-term market interest rates have fallen substantially since share prices started falling two weeks ago. For example, rates on ten year Swedish government bonds have fallen from 3.97 percent on 11th May to 3.8 percent on Moday. The reason is that many investors have sold shares and moved their money to bonds.

"When people leave the stock market they get cash, and they have to do something with the money," said Barbro Wickman-Parak of state-owned lender SBAB.

When long-term market rates fall the mortgage companies long-term borrowing becomes cheaper. This in turn gives the companies room to reduce their fixed interest rates.

"They have fallen as the stock market has fallen, so it is very possible that mortgage rates will fall. But I don't know when," said Wickman-Parak.

Fear of increased inflation in the US, and therefore the prospect of higher interest rates in the world's largest economy, led to the heavy falls in share prices.

Ironically the fall, if it continues, could lead to the Swedish Riksbank being unable to raise Swedish rates as quickly as the market had expected. This could lead to variable mortgage rates also being affected.

Story continues below…

"This could mean a risk that we don't get the strong growth that we've been expecting, and this would mean that central banks have to adapt their policies to the new information," said Wickman-Parak.

She said that she still expected an interest rate rise when the Riksbank holds its monetary policy meeting in June.

"But if the falls continue during the summer, maybe then the Riksbank will think again about how fast to raise rates.

Commodities, the big losers on Monday, were leading the recovery after the market opened on Tuesday.

TT/The Local (news@thelocal.se)

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