The corona is rising again in Europe? Bad news for world stock and oil markets

by time news

| By Yonatan Katz and Economist Leader Capital Markets

At the beginning of last week, positive macro data in the US, including an increase in B and, supported stock markets and rising yields. If Biden renews Powell’s appointment.

| Macro Israel: “Reasonable” Growth Data

To understand the pace of economic expansion in the third quarter of 2021, it is important to go into more depth:

The good news:

  • Investments in residential construction rose by 13.5% in the third quarter after a 35% increase in the second quarter (on an annualized basis). Acceleration in construction activity is expected to lead to an increase in the number of completed dwellings in the future, which may ease the pressure for price increases.
  • Investments in industries (other investments, excluding residential construction) increased by 17.1% (of which, there was a 21% increase in ICT equipment).
  • Private consumption, excluding sustainable construction products, increased by 5.1%. Current consumption increased by 8.8%, and included an increase in consumption of services of about 18% (after an increase of 47% in the second quarter). Households in Israel continue to increase consumption with the removal of restrictions and the lack of a real alternative to travel abroad (in the third quarter). “Transport” consumption decreased by 62% after an increase of 228% in the second quarter. All growth (2.4% in the third quarter) and between growth excluding taxes on imports (3.5%).

The least good news:

  • The “important” export data were weak. Decreased by 5.3% in the third quarter after a decrease of 1.7% in the second quarter. In contrast, diamond exports jumped 103% and agricultural exports rose 20%.
  • Exports of high-tech services fell by 5.9% after a sharp rise of 28.4% in the second quarter and a 15% rise in the first quarter.

It will be difficult to reach a growth rate of 7% this year, after the growth rate in the second quarter was updated to 13.7% from 16.6%. Assuming that growth in the fourth quarter reaches 4% -5%, then the annual growth rate in 2021 is expected to reach 6.3%.

According to the Bank of Israel, Israel’s growth potential now stands at 3.5% -4% per year. That is, without the corona crisis, Israel was expected to grow by a cumulative 7% -8% in the years 2020-2021. In practice, Israel grew by 4% (6.3% in 2021 and 2.2% in 2020). This means that there is still a significant output gap (non-full utilization of factors of production – capital and labor), which supports a relatively moderate inflation environment, in the broad macro aspect. The GDP gap is also not expected to close in 2022, assuming growth of 5% this year.

Some important data will be published this week: Monday: Data for October, manufacturing production and revenue in the economy’s industries (September). Wednesday: Export of Services (September). Monday Interest rate decision: No change in interest rates is expected when an optimistic announcement is expected regarding the pace of economic activity, and the relatively low environment for many countries, which allows the Bank of Israel to be tolerant of. It will be interesting to see the Bank of Israel’s reference to the sharp appreciation of the shekel.

| USA: Continued expansion in private consumption

Many expected a stagnation in US consumption and entry into stagflation. But it is important to emphasize that households are sitting on an additional $ 2.3 trillion in savings, which supported a 1.7% increase in October (compared to 1% expectations). However, this is a nominal increase. When in October it rose by 0.9%, with a real increase of about 0.6%. In addition, the September figure was updated to 0.8% from 0.7%. The level of retail trade is 23% higher than on the eve of the corona. The fourth quarter is expected to be higher than the third quarter (1.6%). Acceleration in demand supports price pressures. In addition, positive growth figures are expected to support the acceleration in the tapering rate and its earlier conclusion, which will allow interest rates to rise in mid-2022.

Important macro data to be published worldwide: Second: USA: (second hand, Oct), Europe: (current), third: Indices in all important countries and regions, including USA, EU, UK (November). Wednesday: US: Disposable Income, Private Consumption and PCE Inflation (October). Core PCE inflation is very important to the Fed and is expected to accelerate to 4.1% y / y from 3.6%. Durable products (October) and sales of new homes.

| Zoom-in: Monitoring inflation threats

We see three main threats: housing (rental) prices, half-wage pressures and rising world energy prices.

At this point rental prices are rising moderately, at a rate of 2% per year with a gradual increase. We expected a sharper rise in the October index (of 2.2%), but apparently the rate of increase is expected to be very gradual. It is important to emphasize that sometimes renewing a contract with an existing and known tenant is done without raising rental prices. Most of the jumps in rental prices occur when tenants take turns. We assume that these cases are a minority in the CBS sample, and the majority of the sample represents continuous tenants. We assume a 3% increase a year ahead which will contribute 0.7% to the index.

Half-wage pressure: October continued to rise, reaching 143,000 from 136,000 in September. The business sector is looking for employees and is unable to fill many positions. Employment data: In October, the broad unemployment rate fell to 7% from 7.9% in September – there is still quite a bit of a slack in the labor market, which is expected to moderate the wage pressures. In addition, the agreement with the unions regarding the freezing of wages in the public sector until the end of 2022 is a moderating factor in wage pressures in a third of the employees in the economy. All in all: we raised the projected increase in labor cost in the model to an annual rate of 5%, which partially offset the effect of the appreciation.

World prices have fallen recently, there is an expectation of a moderation in global demand due to rising morbidity in Europe, and an expectation of a release of emergency stocks in the US. The output despite a recovery in activity and the removal of corona limits in the world.In addition, the transition to green energy (less stable energy source) reduces energy investments (for oil and gas production) in the world, while still green energy sources are not reliable enough to replace “polluting” energy.

NIS: The appreciation trend continues and is expected to moderate inflation. We assume a transmission rate of 0.15% (for every appreciation of 1% in shekels against the currency basket, an effect of an inflation moderation of 0.15% is expected). The shekel will rise by 3.9% in early November. Sharp decline in markets, this trend is expected to continue.

PDF document: Weekly Macro Review by Leader Capital Markets Economists

The authors are economists at Leader Capital Markets. The review is based on information published to the general public by the companies reviewed in it as well as estimates and estimates and other information that Lider & Co. Investment House Ltd. assumes is reliable, without conducting independent tests in relation to the information. However, it is emphasized that Lider & Co. And its editors are responsible for the reliability of the information, its completeness, the accuracy of the data contained therein or any omission, error or other defect in it. To replace independent discretion and obtain professional advice, including an investment advisor whose advice takes into account the data and special needs of each person.

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