Amir Yaron Governor of the Bank of Israel (Flash 90 photo, vecteezy)
In a weekly review by Ofer Klein, head of the economics and research department at Harel Insurance and Finance, he referred to what he defined as ‘the curve and its inverse’. The Bank of Israel has announced that it will further increase the supply of the MCM (today the tender). If the Bank persists, this increases the chance that we will see an inverted curve in Israel as well.
About a month ago, the Bank of Israel significantly increased the issuance of MCM in order to reduce the amount of money and the gaps between the declared interest rate and the actual effective interest rate. The gaps are still significant especially when compared to interest rate swaps as a result of large MCM purchases by foreign investors who hold close to half of the supply.
More in-
That is why the Bank of Israel announced that it will further increase the supply of the MCM (issuance twice a month). If the bank persists, the yield of the MCM will more closely reflect the expected development of the Bank of Israel’s interest rate. This increases the chance that we will also see an inverted curve in Israel, when the short-term yields will be affected by the continued rise in interest rates, which we estimate has not ended, and the long-term yields will be affected by the decrease in yields abroad in light of the increasing chances of a recession.
Buying but less – the indicators of total credit card sales continued to rise, but the pace slowed down significantly
The indices of total credit card sales continued to rise in October as well, but the pace slowed significantly compared to the same period last year. The revenue figures for the sectors of the economy (according to VAT data) for September were also positive, but they also point to a slowdown in the rate of growth. Looking ahead, we expect continued moderation especially next year in light of the Bank of Israel’s rapid increase in interest rates.
Tomorrow in Europe – the first drop in inflation in a year and a half. This swallow does not herald the coming of spring. The month of October was the hottest in years in Europe, in light of this there was an increase in natural gas stocks and an easing in wholesale electricity prices which, in parallel with the continued decline in global shipping prices, will lead to the first drop in a year and a half in inflation that will be published tomorrow.
In the future, the intensity of the winter will determine the rate of reduction of gas stocks and the price they will have to pay to refill them. This is also reflected in the Purchasing Managers’ Index for the Eurozone for November, which stood at 47.8 points, a figure that indicates that the continent is entering a recession, but for now not severe.
In the USA – looking for an answer in the employment report
The summaries of the recent deliberations of the US central bank reinforced the estimates that the majority of the members of the monetary committee support slowing the rate of interest rate increases in the following decisions. The consumer and producer price indices that were published afterwards reinforce the estimate that the interest rate will rise in about two weeks (December 14) by only half a percentage point. We expect the governor will signal this in his speech to Congress this week. The bank’s next dilemma at which level to stop is still open and depends on the inflation and labor market data, when the most prominent data on the subject will be published this week: the vacancy survey tomorrow and the employment report this Friday.
In China-pushing for change. It is likely that the unrest in China will accelerate the government to end the zero tolerance policy for Corona faster than planned. Meanwhile, the Central Bank of China announced an easing of the banks’ liquidity requirement by a quarter of a percentage point
Demonstrations in China in city centers are not a common event, therefore the latest reports on the subject highlight the intensity of the citizens’ frustration with the government’s insistence on the zero-tolerance policy for Corona. The lack of public support for closures along with advanced vaccinations were the main reasons why most countries in the world ended the restrictions. It is likely that the unrest in China will accelerate the government to end the policy faster than it had planned, but that does not mean that it will be soon especially in view of the low vaccination rate of the older population.
The restrictions continue to harm local and global growth and it is likely that the purchasing managers’ indices that will be published in the coming days will point to the contraction of GDP in the current quarter. In response, the Central Bank of China announced an easing of the banks’ liquidity requirement by a quarter of a percentage point (equivalent to lowering interest rates) after a similar move in April, and the government announced easing of financing for companies in the construction industry. But this is not enough to encourage growth given the restrictions and negative sentiment.
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