| Ofer Klein, head of the economics and research department at Harel Insurance and Finance
| The curve and its inversion – the Bank of Israel announced that it will further increase the supply of MCM
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.
That is why the Bank of Israel announced that it will further increase the supply of MCM (issuance twice a month). If the bank persists, the yield of MCM will more closely reflect the expectations of the Bank of Israel.
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
Credit card sales indices 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.
| In Europe tomorrow – the first drop in inflation in a year and a half
The month of October was the warmest 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 that will be published this week.
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 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.
| Looking for an answer in the employment report
The summaries of the recent discussions of the central bank in the USA reinforced the estimates that the majority of the members of the monetary committee support slowing down the pace in the next decisions.
and to the manufacturer that were published afterwards reinforce the assessment that the interest rate will rise in about two weeks (December 14) by only half a percentage point. We expect the governor to 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 prominent data on the subject will be published this week; The survey tomorrow and this Friday.
| 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
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 indicators to be published in the coming days will indicate 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.
The writer is the head of the economics and research department at Harel Insurance and Finance. The author(s) and/or companies in the Harel Group and/or those interested in them and/or those controlling the group, may own and/or trade, for themselves and/or for others, the securities and financial assets indicated in this review. This review should not be seen as investment marketing or a substitute for investment marketing, which takes into account the personal and special needs of each investor. What is stated in this review reflects the writer’s opinion at the time of publication, and this can change at any time and without further notice. The company will not be responsible, in any way, for damage and/or loss that will be caused, if caused, as a result of relying on this review, and also does not guarantee that relying on the information that appears in it may yield profits.