Weekly Macro and Market Review – by Alex Zabrzynski, Chief Economist of Meitav Dash
The Israeli economy continues to grow at a rapid pace
GDP in Israel rose by only 2.4% in the third quarter. However, the main components grew at a high rate. Exports rose by 7.5% and investments by 14.8%. Private consumption, which grew at a low rate of 0.7%, was mainly affected by the decline in consumption of durable goods. Food and apparel after very high growth in the first half of the year.
Overall, GDP in the economy has not yet returned to the pre-crisis trend line. It is expected to close the gap in the coming year, which did not happen after the crises that have occurred in recent decades. Private consumption is still about 6% behind the pre-crisis trend, the most prominent manifestation of the recovery and optimism of the business sector is reflected in rapid growth in investments, with the exception of investments in vehicles. In recent quarters, investment in construction has accelerated, particularly in residential construction. Since the outbreak of the plague, there has been a real jump in investments in information and communication equipment, in parallel with the continued rapid growth in intellectual property. Investments in these areas are expected to lead to improved productivity and growth.
Bottom line: The economy continues to grow at a rapid pace. Growth relies on a variety of areas, including private consumption, investment and exports. The growth rate this year is expected to be about 6.2%.
Panic signs of forex holders
Not only is the behavior in the bond market not entirely in line with the publication of the price index, but also of the shekel. The latest index effectively eliminates the chance of a rise in interest rates in Israel, the shekel was supposed to weaken. Apparently, the strengthening of the shekel this time did not happen against the background of a change in interest rate expectations.
A week ago, we showed that the main reason for the shekel’s behavior in recent years was hedging transactions by institutional investors. Nevertheless, it seems that another dominant factor was involved in the recent strengthening.
Both facts can give a hint of this: 1. The strengthening of the shekel took place against the background of the increase in the trading volumes of local investors, when the turnover of foreigners actually decreased. 2. The strengthening of the shekel occurred while declining trading volumes in swap transactions and an increase in turnover of conversion transactions. In general, the strengthening of the shekel in the past year was accompanied by an increase in swap transactions against the background of institutional investor activity.
Bottom line: It is possible that most of the recent strengthening of the shekel was not caused by hedging transactions, but by urgent conversions of Israeli foreign exchange holders in light of the rapid fall in the exchange rate and the break of historical record levels.
Europe has entered a new wave. What are the possible consequences?
Some European countries have again entered restrictions and closures at various levels due to morbidity:
Previous waves of illness have caused the European economy to slide into negative growth.
The euro weakened rapidly against the backdrop of declining yields between the US and Europe reflecting expectations of changes in interest rates. We are not sure it will continue over time. In our estimation, inflation in Europe will continue to rise. The ECB will have to restrain its policy in the coming year, which may lead to a reversal of the trend in the European currency. In contrast, as the euro strengthened, European stock performance was relatively inferior to the global stock index, and since mid-2020 the Consumer Cyclical, Utilities, Materials and Financial sectors have outperformed periods of rising morbidity in Europe. Health services, current consumption and technology
Growth in the US economy is accelerating
U.S. economic data reflects an acceleration in growth in the fourth quarter. The Leading Indicators Index rose at a high pace in October, retail sales continue to reflect strong demand for products, although it is unclear what effect price increases will have on them. The Fed for November published last week the component that reflects the price level continued to rise. Supply increase and relief are expected in disruptions.
In the US, too, there has been an increase in the number of patients in many countries. Unlike in Europe, the experience of the epidemic on the stock market in the past year clearly illustrates that there are only two sectors whose performance relative to the stock index was clearly affected by a number of patients. Compared to inferior performance of energy stocks.