| Ofer Klein, Head of the Economics and Research Division at Harel Insurance and Finance
On Wednesday, it will be published for the month of November, which in our estimation is expected to remain unchanged, with the sharp rise in the price of fuel being offset by a fall in holiday prices and a fall in fruit and vegetable prices. It should be noted that there is uncertainty about the magnitude of the impact of taxation on one-time tools on actual prices.
| In Israel: run to real estate before the tax goes up and on the way enrich the state treasury
Also in November, the state’s tax revenues were high and stood at about NIS 36 billion, so that in total (almost) the annual revenues this year are about 18 percent higher than in 2019 (before the corona). Contributing to this were the improvement in economic activity, the acceleration in the high-tech industry and the rises in the stock markets. In the last two months there has also been a sharp increase in real estate taxation in light of a significant increase in the number of transactions, probably in response to the expectation of an increase in the purchase tax (which has indeed materialized). At the same time, government spending rose at a more moderate pace so that the deficit as a percentage of GDP fell to 4.6 percent. We estimate that the deficit will rise next month (December expenses are high), but will continue the downward trend at the beginning of next year, which supports Israel’s credit rating and the continued strengthening of the shekel. In our opinion, the completion of the Bank of Israel’s bond purchases this month will not affect yields in light of the continued decline in the government deficit.
| The asymmetry in Bank of Israel purchases may increase volatility in the foreign exchange market
Of the Bank of Israel increased in November to $ 4 billion, the highest level in the last six months. This did not prevent the appreciation of the shekel supported by an increase in the current account surplus of the balance of payments along with a rapid rise in overseas stock markets. We still expect the shekel to continue appreciating in the medium term, / Bank of Israel sales that occur in light of rapid appreciation but not in response to rapid devaluation. The appreciation of the shekel reduces imported inflation and will allow the Bank of Israel to remain patient and not raise interest rates.
| Worldwide: High inflation will move the central bank
In the US, it rose as expected to 6.8 percent in November, a 40-year high when household demand faced supply difficulties, while energy prices skyrocketed. We expect the US Federal Reserve tomorrow to update upwards to 2 interest rate hikes next year. At the same time, with a high probability the bank will announce that it plans to accelerate, the big question is whether and how it will address the uncertainty arising from the omicron variant.
| Governors Week
The focus this week will be on the US Federal Reserve, but it is worth remembering that the world’s major central banks will also publish interest rate decisions this week (before leaving for the long Christmas break). In our estimation he will announce the termination of the emergency purchase plan in the first quarter of 2022. An hour earlier will in our estimation leave the interest rate unchanged, despite the high inflation and signals of interest rate hike already in the previous announcement. The Central Bank’s interest rate decision in Japan We expect the Bank to announce that the emergency purchase plan will end as planned in the first quarter of 2022.
This week saw further interest rate hikes in Hungary and Russia in light of inflation that crossed central bank targets (8.4% in Russia and 7.4% in Hungary) and the devaluation of local currencies. On the other hand, the Swiss central bank will leave the negative territory unchanged in light of the strength of the local currency and relatively low inflation (1.5% inflation).
| Currency too strong
China is working the other way around – unlike the US Federal Reserve in China this week reduced the large commercials by half a percentage point (= to reduce interest rates), in order to increase liquidity in the markets.
Despite the reduction of the central bank’s reserve equivalent (corresponding to the reduction in interest rates), the Chinese renminbi (yuan) continued to strengthen in the past week as well. The strength of China’s exports of goods (reached another peak in November) along with the disappearance of outbound tourism contributed to the strengthening of the currency this year, in addition to which in recent weeks there has also been an increase in foreign investment. The strength of the currency contributed to this in China is lower compared to other countries in the world (similar to Israel) and stands at 2.3 percent in November, below the central bank target of 3 percent. However, in the future, we see fewer factors supporting the continued strengthening of the currency in them: the slowdown in China’s economy and the opposing monetary policy of the Chinese central bank, which is expanding (slowly), compared to its US counterpart, which is expected to shrink.
The author is the head of the Economics and Research Division at Harel Insurance and Finance. The author (s) and / or members of the Harel Group and / or interested parties in them and / or the controlling shareholders of the Group, may hold and / or trade, for themselves and / or for others, the securities and financial assets specified in this review. This review should not be construed as investment marketing or an alternative to investment marketing, which takes into account the personal and special needs of each investor. What is stated in this review reflects the opinion of the author at the time of publication, and this may change at any time and without further notice. The Company will not be liable, in any form, for any damage and / or loss caused, if any, as a result of relying on this review, nor does it warrant that relying on the information contained therein may yield profits.