Amir Kahanovitz Chief Economist, Phoenix-Excellence
23/11/2021
In electing Fed Chairman President Biden he had to make some sort of monetary decision, whether to continue with Powell for a second term knowing that he intends to start raising interest rates in 2022, thus achieving some relief over the inflationary pressures threatening his tenure, or to elect Liel Brinard. More “ionic” and thus more concerned with supporting growth and more favorable financing conditions for its infrastructure package. Short-term US bond yields jumped, the market began to confidently embody two rate hikes (July and November) and even a good chance for a third. But the market will price that Biden made the wrong monetary decision when, despite rising short interest rate expectations, inflation expectations did not really fall (those for 10 years only from 2.65% to 2.63%), which supports the claim that inflation is less related to demand but more to supply. Has fallen, signaling a slowdown in the economy, the dollar has strengthened globally and the stock market has reacted to the decline (especially technology stocks whose pricing is sensitive to long-term interest rates) – the technology sector in the S & P500 lost 1.7% yesterday. These declines are more pronounced when they occur despite a series of trades in the industry that have pushed some of the companies to sharp rises.
Apart from Powell’s appointment, another explanation for the rise in yields yesterday was two weak government issuances, in two-year and five-year bonds. Dropped from 64.8% to 56.9%. The demand for the short lessons of the curve seems to have eroded. But there are also those who probably buy:
Morgan Stanley: There will be no interest rate hikes in 2022 – according to the head of quantitative research at the bank, two motives will lead the Fed to finally avoid the hikes. The first is a decline in core inflation (PCE) that will begin to be reflected in the markets as early as March and no later than June, and the second is an increase in labor force participation. In addition, they claim that credit valuations leave a small margin for error, and any small strain will weigh on yields, especially in the mortgage field where there is also pressure from the decline in Fed and bank purchases.
Yesterday, as part of the interest rate decision, the Bank of Israel continued to be very “June,” but for some reason that was not enough for the shekel, which reacted stronger. The Bank went on to say that no matter how fast and impressive growth still exists in the medium term, no matter how much interest rates rise in Eastern Europe they are in a different environment from us, that even if inflation rises above the target it distinguishes between small or “significant”, no matter how much unemployment (Yesterday to 5.0%) he will also continue to look at retirees from the labor market (possibly even some retirees who will never return), even the completed foreign exchange purchase program he intends to continue under a different name, and soaring apartment prices? It does not matter that wage rate The apartment is moderate. In other words, it will be very difficult to see Israel raise interest rates in the coming years to levels higher than their pre-crisis level, while in the United States the market is priced at almost a decade. When we remember the level before the crisis was 0.25%. The Bank of Israel is also not worried about wage inflation:
“Wage inflation” is not prominent in Israel – the Bank of Israel hinted yesterday in the interest rate decision that it is not concerned about wage inflation, which is considered worldwide as a factor that may allow inflation to persist beyond the period of disruptions. According to him: The excess demand for labor has so far not been reflected in the increase in the average wage increase rate and looking ahead, even more recently the certainty in the field of * wages has increased thanks to the “package deal” that regulates wage increases in large parts of the economy. It should be noted that according to our follow-up in labor-intensive items in the consumer price index, we did see an acceleration in prices, such as restaurants, haircuts, help at home … to a rate of about 3.5%, but it is certainly possible due in part to a base effect. The trend forward.
Also in the context of inflation, the price of oil, one of the main inflation engines in the world, remained stable yesterday despite reports from the US, China, India, Japan and Korea, to jointly announce tomorrow the release of oil from their strategic reserves (according to a Bloomberg report). In restraining the price drop was the OPEC cartel which announced that it would respond to any such increase in supply with a similar cut in its outputs.
This week is Thanksgiving in the US, which is characterized for most years by low trading volumes and stability. Today, Markit’s Purchasing Managers’ Indices in the US and Europe will be released.
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