| By Yonatan Katz and Leader Capital Markets economists
In the last week, yields continued to fall, despite the Fed’s 0.25% increase and Powell’s statement that no interest rate cut is expected this year.
Fears of a banking crisis clouded the markets (concern about Deutsche Bank (ETR: ) on Friday), with Yellen saying that comprehensive insurance on public deposits is not currently being considered.
All the data were positive, in particular the purchasing managers’ indices in the US and Europe.
| Israel: export data (goods and services) indicate a contraction
Both the industrial and all import components are on a shrinking trend in recent months. In December-February, industrial exports decreased by 11% on an annual basis (trend data) after an 8% decrease in the previous three months. In December-February, the import of consumer goods decreased by 4%, the import of raw materials by 22%, and the import of machinery and equipment by 16%.
A decrease in the import of consumer goods signals a weakness in private consumption and a decrease in the import of raw materials is a negative leading indicator regarding industrial production and construction in the coming months.
In January, the export of high-tech services decreased by 0.9% and decreased by 3.4% compared to the export in the fourth quarter of 22. This important engine has weakened from the second half of 2022, this is mainly due to weakness in investments in the business sector in the USA. This decrease is expected to continue and is expected to support the reduction in a current account surplus, that is, the underlying forces are less supportive of inflation b.
Moderation in economic activity supports a moderate increase of 0.25% on April 3, in particular against the background of the strengthening of the shekel (0.45% yesterday against the basket last week).
| A decrease in construction starts will moderate growth in the future
In the fourth quarter of 2022, the number of construction starts decreased to an annual rate of 58.9 thousand units, from 67 thousand in the third quarter and 73.8 thousand in the second quarter. A decrease in construction starts is not surprising given the sharp increase in the Bank of Israel interest rate, which greatly increases financing costs.
The fear of falling housing prices also affects the decision regarding the feasibility of starting a construction project. There is a correlation between construction starts and investments in residential construction and the GDP growth rate.
Looking at the second half of the year and more in 2024, a sharp drop in construction starts is expected to have a negative impact on investments and therefore also on growth. As we know, this effect is expected to be more horizontal and affect other sectors such as furniture, home equipment, planning and construction services and more.
In short, two growth engines are changing direction: exports and residential construction and are expected to greatly cloud growth in 2023-2024.
| USA: positive data
All of the economic data published last week were positive. measure PMI The composite in March rose by 3.2 points to 53.3, the highest level in the last year. There is an increase in orders and production output with an expansion in employment.
It seems that the improvement in thePMI Aligns with the index. This is an important indicator (also leading) due to its being very recent. The economist of P&S Believes that the purchasing managers’ indices represent a growth rate of 2%.
Activity in the real estate sector also improved with a 14.5% increase in sales of second-hand apartments and a 1.1% increase in mortgage applications increased by 3% in the last week and the number of job seekers decreased by one thousand people to 191 thousand. The orders for sustainable building products ( core) rose 0.2% in February after a 0.8% increase.
Indices in Europe also point to expansion with an increase of 2.1 points in the combined index to 54.1, in particular in the service sectors with weakness in industry.
It is possible that the positive economic data do not yet reflect the impact of the crisis in the banks and the expectation of the tightening of the conditions for providing credit in the world. This phenomenon is equivalent to raising interest rates (tightening of monetary conditions). Despite this, Fed members expect (on average) another rate hike of 0.25% this year. The bond market is pricing in an interest rate cut already in the third quarter.
| zoom in: theBOE Aligns with the Fed
Despite accelerating beyond expectations inUK, the central bank raised the interest rate by only 0.25% to 4.25%. In February, inflation rose by 0.3% and 10.4% a year ago (from 10.1%), compared to expectations for moderation to 9.9%.
Core inflation rose 0.4% to an annual rate of 6.2% from 5.8%.
It is important to emphasize thatUK (Similar to most of the world, but different from Israel) The food section is not included in the core index. food prices inUK increased by 18.3% a year ago! Restaurant and hospitality prices rose by 12.1% a year ago.
The prices of goods in the consumer price index accelerated to 13.4% from 13.3% and the prices of services accelerated to 6.6% from 6.0%.
At the same time, the central bank raised the interest rate “only” by 0.25% when two members (out of 9) were in favor of not changing the interest rate. In the interest rate announcement, the committee emphasized the impact of the banking crisis: SVB (NASDAQ:) and Credit Suisse Group (NYSE:) and fear of a wider global impact. The decision to raise interest rates by only 0.25% was made even though global economic data and local inflation surprised upwards.
The UK labor market remains tight and a moderate expansion in growth is now expected in the second quarter (as opposed to the expectation of stagnation in the previous decision). Although there is a trend of rising wages in the economy, the demand for new employees is decreasing:
The interest notice stated:
“The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook have risen”
The emphasis in the last sentence is ours. It seems that the increase in global risk after the collapse of several banks is now dictating global monetary policy.
although theECB There was an exception with an increase of 0.5%, but it is important to remember that the level of the basic interest rate in Europe is much lower (3.0%), the same for Switzerland (1.5%) relative to the USA andUK.
At this stage, it is likely that the Bank of Israel will also align with an interest rate increase of 0.25% next week, this in particular against the background of the sharp appreciation of the shekel at the end of last week. The interest rate announcement will highlight the increase in financial risks in the world.
At the same time, the monetary committee is expected to monitor the trend of the shekel in the coming week.
The authors are leading capital markets economists. The review is based on information published to the general public by the companies surveyed in it, as well as on assessments and estimates and other information that Lider & Co. Investment House Ltd. (“Leader & Co.”) assumes is reliable, and this without having performed independent tests in relation to the information. However, it is emphasized that Leader & Co., the authors of the review and its editors are not responsible for the reliability of the information, its completeness, the accuracy of the data contained therein or any omission, error, or other defect therein. This review does not constitute investment advice and does not constitute an invitation to purchase or an invitation to sell the securities mentioned therein. Rely on the information contained therein and it does not replace independent judgment and receiving professional advice, including from an investment advisor whose advice takes into account the data and the special needs of each person. Leader & Co., its employees and officers, the controlling owners and their subsidiaries or affiliates (“Leader Group”) may hold the securities and/or the financial assets described in the review.