| Alex Zbzinski, the chief economist of Meitav Dash |
| Israel: The business survey reflects stable growth
The survey of business trends by the CBS does not reflect a noticeable deterioration in the activity of companies in all branches. Businesses report further easing of the shortage of workers, equipment and raw materials. In fact, the severity of the shortage has almost returned to the level it was before the pandemic.
The companies do not report any particular difficulty in orders for the local market, both in industry and in the service sector. The limitation of lack of export orders has increased in the information and communication industry.
| The decrease in tax collection is expected to continue
The government’s GDP decreased from 0.6% in December to 0.3% in January. The interesting part of the Ministry of Finance’s monthly report is in the revenue chapter. In January, in real terms, they decreased by 12% compared to January 2022. In particular, the collection of direct taxes decreased by 17%. In taxes The indirect collection decreased by 4%.
The total annual collection is still significantly higher than the long-term trend, but the annual rate has started to decrease, mainly in direct taxes. Part of the decline occurs because of the weakness in high-tech activity, especially in exits. Also, the collection from the capital market decreased and a real decrease of 31% was recorded in the collection of real estate taxes.
We estimate that the decrease in the annual rate of tax collection will continue due to a considerable weakness in the activity of the major tax generators – hi-tech and real estate. The condition of the labor market is relatively good and wages continue to rise, but the rate of increase of total wages in the economy is decreasing, especially in real terms.
Also, a significant update of the tax rates from the beginning of the year following the high inflation is also expected to reduce tax collection. We will also add that at the beginning of the year the Ministry of Finance managed to cancel the tax on the disposable dishes and subsidize some of the price reductions, which will lead to a loss of revenue to the state coffers.
| The shekel is divorced from-S&P 500
The relationship between the exchange rate and the American stock market, resulting from hedging transactions of Israeli investments going abroad, which has existed for the past five years, has recently changed. In the past three weeks, the American stock market has risen by 3%. In accordance with normal behavior, the rate of the shekel in relation to the dollar was Should strengthen by about 1%. Instead, the shekel weakened by about 4%.
If the change in the shekel’s behavior pattern persists, it may affect in different ways:
- The relationship contributed significantly to the decrease in inflation in Israel in the last five years. In the pattern of behavior that has existed in recent years, an annual increase of 10% in American stocks leads to a decrease of about 0.3%-0.4% in Israel. Assuming that the stock market should rise over time under normal circumstances, severing the connection between the shekel and the American stock market will contribute to higher inflation in Israel in the future.
- The decrease in inflation due to the strength of the shekel led the Bank of Israel to maintain a zero interest rate and intervene in the foreign exchange market.
- The behavior of the shekel supported the increase in consumption by Israelis abroad, but hurt exporters.
- The strength of the shekel increased the attractiveness of investing in various financial channels in Israel for foreign investors.
| Additional points:
- In the last two weeks, the price of coal in the world markets dropped by about 40%. The increase in the price of electricity from the beginning of 2022, which was mainly based on an increase in the price, added about 0.4% to the price index, including the increase in price last January. If the reduction in the price of coal persists, in the next update of the electricity tariff it may drop significantly.
- Investors in Israel raised the forecasts for the rise of the Bank of Israel. The future interest rate for 3 months in 12 months increased in the last month from about 3.65% to about 3.9%.
| world: Economic Data
Last week was particularly sparse in economic data, yet there were some interesting publications:
- In the US, the bank credit survey conducted by the Fed every quarter was published. The findings of the survey show a significant tightening of credit conditions for all types of borrowers. The tightening of credit conditions for businesses was greater than for households. At the same time, the banks reported a significant decrease in, especially for business credit. The data The graphs look dramatic, but you have to take into account that these are changes relatively to the previous period which was characterized by a very significant easing of credit conditions and an unusual increase in credit demand.
- Credit granting data from the American banks meanwhile show record growth rates in all types of credit in the last year compared to the last decade.
- According to the data published by the Fed branch in Atlanta, the American economy grew in January at the same annual rate as the previous month, compared to the decrease in the rate of increase in the average hourly wage that was published two weeks ago. The Fed figure neutralizes changes in the mix of workers. Therefore, it reflects the changes in wages more accurately.
The rate of voluntary departure from the workplace, which is a preliminary indicator of changes in wages, remains high for the time being, which is expected to support further wage increases.
- In December, Japan recorded a sharp increase in the annual growth rate to 4.8%, the highest since the first half of the 1990s. The incumbent governor, who is expected to be replaced in two months, has stated several times that inflation in Japan will decrease without the central bank having to act because there is no unusual increase in wages. It seems that now the chance of an increase in Japan has increased, which may give an additional boost to the increase in bond yields in the world.
| Supervision of the Hague market“H
Many speeches by the governors of the Fed and other central banks in the world in the last week have returned investors to a somewhat more realistic assessment of the risks of inflation and interest rates:
- Bond yields rose all over the world. In the US they rose along the entire curve at almost the same rate.
- Expectations for an increase in interest rates in the US have strengthened in particular. Expectations for interest rates at the end of 2023 embodied in contracts, which only a week ago stood at about 4.5%, rose to a record of about 5% and almost closed the gap against the Fed’s interest rate forecasts of 5.1%. Also the expectations for interest rates At the end of 2024, the rates embodied in the contracts increased significantly and reached about 3.5%, but they are still relatively low compared to the Fed’s forecast for an interest rate of 4.1%.
- Implied inflation expectations rose quite sharply. In the US, two-year expectations rose in the last month by about 0.7% to 2.7%. In France, they rose by 0.4% to 3%. Long-term inflation expectations also rose significantly. The fear of inflation is also reflected in the highest trading turnover of the last year that was recently recorded in bonds in the US.
- The increase in inflation expectations was supported, among other things, by the increase in oil prices, which strengthened after Russia’s announcement about cutting oil production to the extent of 0.5% of global GDP. The demand for oil from China is also increasing rapidly. Oil imports to China in December were the highest since January 2022.
| It turns out that the inflation environment in the US“b higher than we thought
Another factor that affected inflation expectations and the American bond market was the update of the seasonality factors of the consumer price index that was published on Friday. Apparently, the publication should not be of interest beyond the circle of inflation forecasters. However, this time, the update was particularly significant and should have a strong impact on the perception of inflation of the economists, investors and probably the Fed as well.
The change was made only to the seasonality coefficients, so the annual inflation rate did not change. However, as a result of the update, the rate in the first half of last year decreased and in the second half increased.
As a result, the inflation rate based on the last 4 indices of 2022 in annual terms rose after the seasonality update from 2.4% to 3.7%. Rate increased from 4.2% to 4.8%.
The Fed certainly examines the current rate of inflation based on the latest seasonally adjusted indices and cites it many times, including in the Governor’s speeches. For him, updating the seasonality factors strengthens the support for the increases.
The writer is chief economist of the 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, proposal, recommendation or consulting/marketing for the purchase and/or possession and/or sale of securities and/or the financial assets described therein. The information contained in this review does not claim to contain all the information needed by a potential investor and does not claim to be a complete analysis of all the facts and details contained therein. This review is not a substitute for investment advice/marketing that takes into account each person’s data and special needs. Meitav Dash Brokerage, and sister companies and other companies in the Meitav Dash Investments Ltd. group and/or interested parties to any of the companies listed above and their clients, may have an interest in the securities and/or financial assets included in this review.