| Alex Zabrzynski, Chief Economist of Meitav Dash
| highlights:
- Current indicators indicate a continued expansion in private consumption in the economy.
- Total wages in the economy have almost closed the gap with the pre-epidemic trend.
- A low rate of problem credit in banks indicates a relatively good financial situation of households and companies.
- Bond yields in Israel have fallen sharply in the past month in the world.
- Foreign investors continued to buy shares in Israel in the third quarter as well.
- The rising morbidity in Europe has not yet hit economic activity, as it has in previous waves.
- The American economy continues to grow at a very fast pace.
- In the last month inflation has risen above forecasts in all countries in Asia and Europe.
- In our view, the markets are exaggerating the potential harm of a change in Fed policy in the economy on the one hand, and the ability to raise interest rates as it is meant to suppress inflation on the other.
| Key recommendations:
- We recommend lowering the MHM for short.
- We continue to recommend bias to the adjacent channel.
| Israel: Demand continued to grow even after the holidays
The recovery in the economy also continued in October. Credit card purchases have been significantly higher than the trend in recent months, with spending on services returning to a multi-year trend.
| Total wages in the economy recover much faster than jobs.
Average wage data in the economy are still distorted due to the excessive effect of changes in the number and composition of jobs. It is also worth waiting for the data for the month of October, when there was a sharp drop in unemployment, which is expected to be reflected in the data on wages and jobs.
The total wage paid in the economy, which ultimately defines the purchasing power of consumers, is very close to closing the gap compared to the trend, with a number of jobs still far from it.
| A decrease in problem credit indicates the nature of the financial situation in the economy
The bank credit data published by the Bank of Israel reflect a continued rapid increase in commercial credit and housing loans.
Nearly 60% of all the increase in commercial credit in the past year has been to companies in the construction and real estate industry. .
In the case of credit to households, the problematic credit rate is also declining, especially with a significant decline in the mortgage sector.
Overall, the decline in problem debt indicates an improvement in the financial condition of households and companies.
| The decline in bond yields in Israel was the sharpest in the world
In the domestic bond market, there has been a sharp decline in shekel bond yields in the past month, especially in the middle of the curve and expectations.
Even before the impact of the decline in world yields over the weekend, the decline in bond yields to and in Israel in the past month was the sharpest of all countries in the world. It is difficult to find an economic justification The shekel in the last month only closed the top ten of the strongest currencies in the world.
It makes sense to expect that a rise in inflation well above the forecasts in most countries in the world will not miss inflation in Israel either, as a change in Fed policy raises a chance for us.
The Bottom Line: In light of our estimates of interest rates and inflation, the current level of yields reflects a particularly unattractive risk-to-equity ratio. We recommend shortening the length of the bag. We recommend tilting the adjacent bus.
| Foreigners continue to buy shares in Israel
Foreign investors continued to inject money into the Israeli stock market also in the third quarter with purchases of close to $ 1 billion. In total, since the beginning of the year, they have bought shares in Israel for about $ 2.8 billion after a two-year absence from the local market.
| World: The current wave of morbidity so far has not significantly hurt economic activity
Meanwhile, despite a sharp rise in the number of patients mainly in Europe, the indicators of world economic activity in November were not significantly affected. Previous waves of morbidity have had a greater impact on global purchasing managers’ indices, particularly in the services sector.
Europe – meanwhile holds up against a wave of morbidity
| Despite a significant increase in morbidity, meanwhile, there has been no significant slowdown in activity in Europe:
- Continued to expand in November at a rate similar to the previous two months. Most surprising was an improvement in the sector.
- The rate dropped in October to 7.3% below the pre-plague level of 7.5%.
- Sentiment indices in the various sectors remained fairly stable in November.
| Inflation in Europe continues to soar
Inflation figures in Europe continued to be surprising and broadly after rising from 4.1% in October to 4.9% in November and from 2.0% to 2.6% b. The rate of increase in the producer price index rose from 16.1% to 21.9% (!) In October. In our view, the ECB is also on track to put the word “transitory” out of use.
| Asia – Activity is expanding, inflation is rising faster than forecast
Asian economies continue to recover as indicated by Purchasing Managers’ indices in manufacturing in all countries except China above 50. Exports are growing at a significantly higher rate than before the plague.
It should be noted that in Asia, too, the price indices published in Singapore, Malaysia, Vietnam, Indonesia, Thailand and Korea were higher than forecast.
| USA – The economy is growing rapidly
The US economy has shown good results in recent months. Although the number added in November was lower than forecast, in our estimation it does not indicate a weakness in the labor market. If there is already a problem, then it is probably related to a shortage of workers. This can be learned from a variety Other indicators:
The Fed’s Beige book published last week found that employment was growing at a “medium-strong” rate compared to a “moderate-moderate” in the previous October report.
A record number of workers who were not among job seekers began working in November.
The employment rate continued to rise, with the unemployment rate falling to 4.2%, much higher than forecast and almost closing the gap compared to the pre-crisis level.
The other data in the US also indicate that the economy is expanding “on steroids”. ISM indices in the services sector have climbed to an all-time high. The index is also at high levels. Companies continue to make investments on an unprecedented scale.
According to GDP Now, the US economy is expected to grow in the fourth quarter at a high rate of 9.7%.
| Markets reflect that rising interest rates will hurt growth and lower inflation
The turn he made in his reference to inflation should not have come as a surprise. A central bank operating out of rational considerations had no choice. According to forecasts, the inflation rate is expected to rise to 6.7% in November and of core inflation to 4.9%. This is not the level of inflation that the central bank can tolerate. The Fed is expected to accelerate the reduction in purchases and under the contracts to make three interest rate hikes by the end of next year.
The steepness of the US yield curve between 5 and 30 years fell to a level of 0.54%, a level that in the previous interest rate hike cycle reached only when the Fed interest rate had already risen to 1.5%. At this rate the curve can still be reversed before the Fed raises interest rates even once. It looks like an exaggerated script.
The declines in equities and bond yields reflect a relatively modest rise in interest rates that will be enough to hurt growth and suppress inflation. This scenario is possible, but in our view it is not very likely to materialize.
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The writer is the chief economist of Meitav Dash Investment House. This analysis is intended for the purpose of providing information only, and in no way should it be considered an opinion, offer, recommendation or advice / marketing for the purchase and / or holding and / or sale of securities and / or the financial assets described therein. The information contained in this review does not purport to contain all the information necessary for a potential investor and does not purport to constitute a complete analysis of all the facts and details appearing therein. This review is not a substitute for investment advice / marketing that takes into account the data and special needs of each person. Meitav Dash Brokerage, and its sister companies and other companies in the Meitav Dash Investments Ltd. group and / or stakeholders for any of the companies listed above and their clients, may have an interest in the securities and / or financial assets included in this review.