| Amir Kahanovitz, Chief Economist, Phoenix-Excellence |
In the US, they jumped 1.7% higher than expected in October, rose above expectations, the leading indicators index accelerated faster than expected and overall the City of Macros surprise index has returned to positive territory in recent days and still has crack marks in the markets.
The price of petroleum fell on Friday to $ 75 a barrel, compared to $ 87 at the end of October. According to Goldman economists, this is a sharp drop from what would have been obtained if the United States had implemented the idea of releasing oil from its emergency reserves.
In shekel terms, this is a more significant decline that, if it persists until the end of the month, will affect cooling in December. Along with the decline in oil, we also saw significant declines in stock market futures, bond yields and commodity prices, with Austria announcing a general closure in the background and fears it would be adopted in other EU countries.
The yield fell to 1.52%, but towards the end of trading rose slightly after Fed Vice President Richard Clarida replied it might be appropriate for the Fed to discuss next month accelerating the rate of declining purchases if the data by then continues to describe an acceleration in inflation and jobs growth.
Further pressure to correct yields may have come from a statement by two Democratic senators that they oppose extending the appointment of Federal Reserve Chairman Jerome Powell to a second term, as he “refuses to recognize climate change”, and indications from Germany that they will not rush a comprehensive closure. Existing today to get vaccinated.
| The madness of the fall in real returns
The significant drop in the price of oil was apparently not enough to cool inflation expectations in the market, when faced with the fear that closures would also further disrupt the production and supply chain. Deutsche Bank (DE 🙂 strategist Jim Reid estimates that even if pressure to cool prices comes we will still see negative real returns and the market response to such a change will come through a drop in nominal yields, in a way that for example the 10-year yield will fall below one percent. He argues that an increase in the real return will not leave the Fed with a choice but to intervene in a moderate increase outline since the alternative would be a crash of all risk assets. It is interesting in this context to see that the yield curve slopes continue to decline sharply, and especially those in the long run, such as the 5-10.
Tomorrow the Bank of Israel against the background of a cooling of half-inflation in the October index, the continued sharp jump since the previous decision, the UK’s withdrawal from rising interest rates, an increase in September (October published tomorrow) and a severe corona outbreak in Europe.
It seems that the bank can still justify not reducing interest rates, but it will be difficult for it to justify the termination of the bond and foreign exchange purchase program that it has in fact already launched. A withdrawal from the contraction will put pressure on local yields to fall and the shekel to weaken.
The author is the Chief Economist of Phoenix-Excellence. This review is provided as a service to readers only, and should not be construed as an offer, recommendation, substitute for the reader’s professional judgment or investment advice or investment marketing, purchase and / or sale and / or holding of the securities and / or financial assets mentioned or of securities and / Or any other financial assets.