“Despite the slowdown, interest rate hikes in the US will continue”

“Despite the slowdown, interest rate hikes in the US will continue”

Tomorrow the US central bank’s interest rate decision will be published and the estimates range from 0.75% among the optimists to 1% among the pessimists. The interest rate hike in the United States will most likely lead to another interest rate hike in Israel as well, with all that implies. On Thursday the rate will also be published C of the USA to determine whether the USA is in a recession. As you remember, in the previous quarter there was already a decline in GDP, and a decline in the current quarter would also indicate a recession. (Definition of recession is two consecutive quarters of decline in GDP). The recession, by the way, is already priced in the market.

The economists of the Harel Investment House

Harel Investments






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It is estimated that the governor will emphasize that the interest rate will continue to rise consistently until the end of the year in light of the high core inflation that is hardly expected to decrease in the next 3 months. This is despite the fact that the next day they expect the growth data for the second quarter to show zero growth, and the data for the current quarter show continued weakening.

As far as Europe is concerned, Harel economists expect another increase of 0.5% in September and 1% at the end of the year despite more tangible signs of a slowdown and fears of an energy crisis. At the same time, the central bank announced a new monetary tool designed to prevent an abnormal opening of the spreads between the bonds of the countries in the bloc by purchasing bonds on the secondary market. But the spreads continued to open in light of the announcement of early elections in Italy and the conditions regarding the actual implementation of the plan.

Regarding Israel, Harel estimates that the Bank of Israel will raise the interest rate by 0.5% in the next decision as well, and that it will be around 3% at the end of the year – above the expectations reflected in the markets. The publications in the media about employee reductions in the hi-tech industry are beginning to be reflected in the official reports with a decrease in the number of vacancies for software developers. But it must be emphasized that despite the decrease, the demand for workers in the industry is still much higher than the level before the outbreak of the corona virus.

oil and gas
at Bank Leumi








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It is clarified that the process of releasing crude oil from the US strategic reserve is planned to be completed by the end of the year, and the European Union’s sanctions on Russian oil are expected to be tightened even before the end of the year, so the outlook based on these factors regarding the supply side is not positive. Much will depend on what that OPEC will do from September, when Saudi Arabia and the United Arab Emirates are currently the largest potential suppliers who can continue to increase output. In terms of demand, it is expected that refining margins will remain relatively high, so that the level of distillate prices will remain relatively high in the past and weigh on the growth of crude consumption of fuel and distillates, which is also affected from the slowdown in global growth.

Maintaining energy prices at their relatively high level is expected to burden the growth of global activity, while “destroying demand”, with the main victims expected to be countries whose economies are biased towards industry and do not have independent energy sources. These countries are also harmed by the strengthening of the dollar in the world, which contributes to a further increase in energy prices in terms of their local currency, and in particular these are emerging countries that are in a relatively dangerous situation. The expectation is that the crude Brent price will remain around $100 per barrel for the foreseeable future.

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