| Ronan Menachem, chief market economist of Mizrahi Tefahot
of the USA published at the end of last week, disturbed the stock markets and caused at least part of the decline in stock prices and the increase in yield yields on .
The index rose 0.3% in November – more than the expected increase of two tenths. The annual rate of 7.4% was also a bit higher than expected. In my opinion, the reaction to the index was an overreaction, for the following reasons:
First, the closeness of the figure to the announcement of the Federal Bank on Wednesday this week. Most of the market expects and hopes that this time the interest rate will rise by only half a percent, and any data that does not support this – clouds it. In normal times, this index is more negligible.
Second, there is not that much of a relationship between the producer price index and, certainly not when they are examined at monthly frequencies. The producer index tends to be more volatile.
Third, although the annual rate was a bit disappointing, compared to the previous month it decreased (it was 8.1%), thus joining the downward trend of the consumer price index in the US from the last period.
Finally, Fed Chairman Jerome already made it clear in his speech right before the start of the silence that only a really disappointing figure, certainly not the one published on Friday, would change his mind about the slowdown in interest rate hikes, probably as early as this month.
In the bottom line, as long as this is the figure that was “responsible” for the drop in the shares, it is likely that they will correct at the beginning of the week.
However, it should be remembered that until the important interest rate announcement on Wednesday, the tension in the market will be high – therefore the volatility before (and after the figure, depending on its nature) will also remain high.
This time the vigilance is higher than usual, because together with the interest rate announcement, the Fed will also publish a new economic forecast for inflation, growth and interest rates in the US. This will be the last reading of the direction towards the beginning of 2023, which will show whether the Fed fears a recession and how much it expects inflation to drop.
Also, the members of the Fed will each outline the interest rate path they see for the next year or two, and this will show whether the American central bank expects the interest rate to remain at its high level at the end of the process, or is already thinking about reducing it towards the end of 2023 or the beginning of 2024.
In the meantime, on Tuesday, the day before the interest rate announcement, will also be published in the US – and its annual rate is expected to register a further decrease. This figure, the Fed’s announcement and its various forecasts, will have more importance for the market than the change in the producer price index. They will have a great impact On the sentiment with which the market will go for the end of the year holiday.
The writer is Chief Market Economist of Bank Mizrahi Tefahot. This review is not intended to be a substitute for investment marketing that takes into account the data and the special needs of each person.