Ahead of the start of the trading week on Wall Street, the analysts are analyzing

On the macro level, it is no less turbulent when the interest rate figure will be published next Wednesday at 21:00 – until a week ago the contracts showed an almost 80% probability of an increase of 100 basis points, now the decision is already fixed at 75 basis points. After the decision, Fed Governor Jerome Powell will make the traditional speech and answer the journalists’ questions, and investors will examine every word after the fourth increase this year. Is the expectation for the continuation the same as the expectation? And how will he relate to the GDP figure that will be published the next day?

The GDP, therefore, will also be published this week. On Thursday at 15:30 (Israel time) the US gross domestic product figure will be published which will give a definite answer as to whether the US is in a recession, something that is almost fully reflected in the markets. What is not reflected, On Friday, the PCE (Private Consumption Expenditure Index) figure, which is also the Fed’s favorite index, will arrive along with hourly wages.

After the inflation data in the US surprised upwards and brought the market and some Fed officials to talk about an interest rate increase of 100 basis points (1%) this coming Wednesday, the last week’s data reduces some pressure from the Fed. The number of initial claims for unemployment benefits rose last week to 251,000, the highest level in the last eight months, and definitely signals a change in direction in the American labor market. A look at the total claims for unemployment benefits (that is, not only the new ones) also signals a certain relief when these rose to 1.384 million, which shows that the peak level of tightening in the labor market is probably behind us. says so Uri Greenfeld, the chief strategist of Psagot Investment House. And adds that in this sense it is worth paying attention to the recent changes in the US bond market.

Following last week’s data, the probability of an interest rate increase of 100 basis points has already dropped to only 15% and indeed it seems that the Fed will settle for an increase of 75 basis points “only”. On the other hand, the market embodies a scenario according to which the process of interest rate reductions will begin as early as March or April 2023, which may be too early. For a long time we have been recording here that the Fed will indeed be forced to stop or slow down interest rate increases in early 2023, as supply factors will lead to a dramatic drop in inflation and economic activity will slow down. However, there is a big difference between stopping interest rate increases and reducing interest rates, and it is not certain that the conditions for this will be ripe already at the beginning of the year.

It is worth remembering that monetary policy usually works like a root canal. Not in the sense that she treats the problems in depth but in the sense that you feel her pain only after the anesthesia wears off. It takes at least two quarters for the interest rate changes to affect the economy and another two quarters for the economic trend to be reflected in the labor market.

The 10-year yield to maturity in the US fell from 2.92% a week earlier to 2.75% last week, the lowest yield in the last two months. Similarly, the 2-year yield fell from 3.12% to 2.97%. The 10-year German bond yield also fell It is, although the ECB’s interest rate hike was at the high end of forecasts. Five-year inflation expectations in the US, derived from the bond market, remained stable at 2.6% per year.

according to Alkaz Zhbezhanski Chief Economist at Meitav Investment House, the global economy is rapidly weakening. The early purchasing managers’ index for the month of July were often significantly lower than the forecasts. In the United States, the services index unexpectedly dropped to 47:

He points to some more weak macro data that have been published recently, among other things the index of the leading indicators in the United States has fallen in five of the last six months, when in June it fell by 0.8% – the sharpest decline since April 2020, the Fed’s regional surveys continue to indicate a decline in activity and continues The decline in activity in the American real estate market.

Zbrzezinski also says that there are signs of easing inflation. First, the decline in economic activity as well as the easing of supply chains. In addition, the expanding crisis in the real estate industry in China which affects the index of metal prices in the world (with a certain delay) as well as the prices of other building products such as cement.

The stock market began to celebrate the end of the inflation battle with gains in the last week even though the report season provides relatively few positive surprises, and analysts reduce forecasts every week. Even more surprising is that growth stocks beat value stocks. This behavior is reminiscent of the 1970s when the peak of inflation was the time when the American stock market went from falling to rising. However, it is not certain that the central banks will be able to stop raising interest rates as quickly as the markets expect. Also, it is still difficult to assess the intensity of the slowdown and its effect on the profitability of the companies, so it is possible that the celebrations are a little too early.

In his opinion, the explanation for the market’s difficulty going down is the sharp increase in real savings (not the kind resulting from rising rates) since the 2008 crisis. The damage to the global economy due to the abnormal inflation, the monetary restraint, the war and the crisis in China could have justified a stronger decline in the stock market than has happened so far. However, there is too much money out there, preventing the markets from falling more sharply.

The additional implication of a sharp increase in household savings can perhaps explain the state of the labor market and the shortage of workers that has arisen in it. The economic situation of more Americans allows them to make changes in their lives – change their occupation, move to a part-time job, work from home or not work at all. As evidence, in the annual survey conducted by the FED regarding the financial situation of households, the percentage of adults who answered that their financial situation is at least okay increased from 62% in 2013 to 78% in 2021 – a 26% increase in less than a decade. During the Corona period, many of those whose financial situation allows to make changes “think” and decide to “realize dreams”, which continues to cause a deep shock in the labor market.

As mentioned, the tech giants Should report this week. Snapchat reports published last week that crushed the stock are causing concern in the advertising market – will we see a similar phenomenon in the advertising giants Meta and Google? In their case it could be much more destructive to the markets. Will the market slowdown reach the consumer giant Apple? And will the decrease in government budgets hurt Microsoft? Reports from Intel and Qualcomm will give more information on the chip market after Taiwan Semiconductor surprised favorably two weeks ago. These and many other questions will be answered during the week with the publication of the macro data and the results of the most important companies in the economy.

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