The shekel continues to appreciate in the medium term, but in our estimation volatility will increase due to the reduction of the very expansionary monetary policy in the United States and due to the asymmetries in Bank of Israel purchases / sales.
Global Macro Overview – Harel Insurance Economists
Governors’ Week – in the next four days The world’s largest central banks will issue significant interest rate decisions – could be “interesting”
Inflation in the US rose as expected to 6.8 per cent in November, a 40-year high when household demand faced supply difficulties, while energy prices soared. In our estimation, the US Federal Reserve will lead tomorrow (Wednesday) to update upwards the interest rate forecast for 2 interest rate hikes next year. At the same time, with a high probability the bank will announce that it plans to accelerate the reduction of the acquisition plan, the big question is whether and how it will address the uncertainty arising from the omicron variant.
The rest of the world’s major central banks will also issue interest rate decisions this week before heading out for the long Christmas break. On Thursday Central Bank of the Eurozone Will leave the interest rate unchanged and signal that it does not intend to change it soon in light of the increase in morbidity, but in our estimation will announce the termination of the emergency purchase plan in the first quarter of 2022. An hour earlier The Bank of England In our opinion, the interest rate will remain unchanged, despite the high inflation and signals of an interest rate increase in the previous announcement. When the fall in energy prices, the rise in morbidity and the tightening of restrictions will delay the rise in interest rates for next year. On Friday we will hear the interest rate decision of Central Bank of Japan. We expect the Bank to announce that the emergency purchase plan will end as planned in the first quarter of 2022. This week we will see further interest rate increases In Hungary andin Russia In light of inflation, which exceeded central bank targets, 8.4% in Russia and 7.4% in Hungary and the depreciation of local currencies. On the other hand, the central bank In Switzerland Will leave the interest rate unchanged in the negative territory in light of the strength of the local currency and inflation relatively low 1.5% inflation.
China is working the other way around – Unlike the US Federal Reserve, China this week reduced its reserve ratio to large commercial banks by half a percentage point, similar to a reduction in interest rates, in order to increase liquidity in the markets.
Despite the reduction in the central bank’s reserve ratio corresponding to the reduction in the Chinese currency (yuan) interest rate, it 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 has contributed to the fact that inflation 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 central bank in China, which is expanding slowly, compared to its US counterpart, which is expected to shrink.
In the country
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 the sum of the almost 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 that has actually 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. In our estimation, the deficit will rise next month in December, with high expenses, 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
The Bank of Israel’s foreign exchange purchases increased to $ 4 billion in November, the highest level in the last six months. We still expect the shekel to continue appreciating in the medium term, but in our estimation volatility will increase due to the reduction of the very broad monetary policy in the US and the asymmetry in Bank of Israel purchases / sales that occurs in light of rapid appreciation but not in response to rapid depreciation. Stay patient and do not raise interest rates.
Consumer price index for November
Tomorrow (Wednesday) will be published Consumer price index for November Which we expect to remain unchanged, with the sharp rise in fuel prices offset by declining holiday prices and declining 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