The nervousness in the stock market continues. After declining by about 3% with the opening of the trading week on the Tel Aviv Stock Exchange – in light of the falls on Wall Street last weekend – the leading indices continued to fall on Monday by 1.5% -2% in parallel with the weakness in European stock markets, where investors fear Among other things, from a further escalation in tensions between Russia and the West and a war in Ukraine. Thus, the Tel Aviv-35 index – which climbed to a peak of 2,071 points on January 13 – fell in just seven trading days by more than 7%.
Investors in Israel and around the world will be closely following the publication of the reports in the US in the coming days (including Microsoft, Intel, Tesla and Apple) and of course will wait for the Fed’s announcement on Wednesday regarding US monetary policy.
According to Rafi Gozlan, chief economist at IBI Investment House, “In the interest rate decision this coming Wednesday, the Fed (US Federal Reserve, KJ) is expected to continue to prepare the markets for raising interest rates in March, and possibly provide clarifications regarding To the manner and timing of the balance reduction.
“We estimate that beyond that the Fed is not expected to adopt a more hawkish tone, because in recent days the markets have started to do the work for it, meaning the tightening of financial conditions is helping the Fed to moderate the inflation environment,” he writes.
However, he adds, “it is important to note that there is a marked difference between the current period and episodes of negative sentiment and deterioration in financial conditions over the past decade, and that is the level of inflation. Over the past decade monetary policy The rise in inflation.
“Therefore, when there was a deterioration in fiscal conditions, it was immediately followed by a halt in restraining policies or a shift to expansionary policies. Today, however, policies are aimed at lowering the inflation environment, which has risen significantly above the target. Because today a step down in the inflation environment is also required.
“While prolonged deterioration in financial conditions is likely to lead to a negative wealth effect, and at some point also to declining commodity prices, i.e. moderation in commodity inflation, moderation in wage half and services inflation are often slower processes. In the financial terms, and therefore prevents the transition to a more favorable monetary policy. “
According to Gozlan, the macro picture in the US continues to support at this stage the continuation of the rising real interest rate trend that has characterized the last few weeks. In our opinion, the upward trend in the real interest rate is also expected to be accompanied by an increase in nominal interest rates (especially in the short-to-medium term) and later to be led by the decline in the inflation environment. “
Regarding the local bond market, Gozlan writes that “it seems that it continues to respond only partially to developments in the world. The increase in declines in the US stock markets has translated in recent trading days to halt the rise in yields in the long parts of the world, while declining inflation expectations.
“On the other hand, the domestic market in recent days has been characterized by rising yields along the entire length of the curve, partly in response to the higher-than-expected rise in the December index. We continue to assess “At the same time as giving excess weight to the shekel channel over the index, especially in the medium-long term to maturity.”