| Ofer Klein, head of the economics and research department at Harel Insurance and Finance
| Unlike the world in Israel, most companies are still optimistic
Wages that continue to rise and the expected labor agreements in the public sector support the continuation and continuation of interest rate increases.
A survey of business trends by the CBS for November showed that the sentiment of companies (current and future) remained positive in all industries (even though most of them reported a decrease in sales). This is in contrast to similar surveys around the world that show a slowdown in activity in Europe, Asia and the USA (with lower intensity). The survey also shows that the demand for workers remains positive in all industries, but it is decreasing.
The actual data from the labor market showed that in September and October (initial estimate) Israelis remained almost unchanged compared to the previous months. But contrary to the headlines in the press, the number of people employed in the high-tech industry remained relatively stable (until September) compared to a (slight) decrease in the number of people employed in the other industries.
The average salary of Israeli employees increased by about 4 percent in the last 12 months (slightly lower than the rate of inflation) with rapid salary growth in the business sector alongside stagnation in the public sector. We expect a reduction in the gaps next year after signing a wage agreement in the public sector. Something that will continue to support service inflation and high interest rates over time.
| The members of the Monetary Committee unanimously supported an interest rate increase of “only” half a percentage point
The summaries of the discussions from the last one showed that the members of the Monetary Committee unanimously supported an interest rate increase of half a percentage point. From the summaries it appears (as expected) that the process of interest rate increases will continue in the following decisions as well, something that in our estimation is not yet fully embodied in the bond market. In addition, it is likely that the Bank of Israel’s increased MCM issuances will contribute to the increase in yields in the short term.
| The double-digit growth in the export of services, which we have become accustomed to in recent years, is moderating
Israel’s services rose in September to a new record (according to seasonally adjusted data) and the figures for the previous two months were updated upwards. At the same time, the export of services in the high-tech industries (about 60% of the total export of services) recorded a decrease for the second month in a row. After years of double-digit growth, we expect a slowdown in the export of high-tech services against the background of the expected recession in the US and Europe during the next year.
However, we believe that Israeli hi-tech is relatively more resistant to a crisis such as the dot-com crisis in the late 2000s due to a greater variety and wider access to funding sources.
| The Central Bank of Australia raised the interest rate (only) by 0.25 percent, but in a relatively hawkish announcement signaled that the process of raising the interest rate is not over yet
The Reserve Bank of Australia raised it for the eighth time in a row to 3.1 percent, the highest level in about a decade. Again, the interest rate increased by only 0.25 percentage point.
However, the governor noted the high inflation (which they estimate will rise slightly), the strength of the economy and the tight labor market as factors favoring further interest rate increases, but not necessarily at the rapid rate we saw in the second half of the year in light of signs of a slowdown in the local and global economy (Australia is very exposed to China) alongside the influence The increase in the cumulative interest on private consumption and the housing market that will be more pronounced during the next year.
| Despite a strong employment report in the US, in our estimation the central bank will raise the interest rate “only” by half a percentage point next week. (on December 14)
The initial for November was mostly positive when about 263,000 new jobs were added, but the figures for the previous two months were slightly revised downwards. Looking by branches, there was a decrease in the number of jobs in the retail branches, in light of the decrease in product consumption, along with a continued increase in the number of employees in the tourism and hospitality branches.
It remains at 3.7 percent, but this is alongside a decrease in the participation rate. The average surprised upward accelerating to 5.1 percent in the last 12 months. But the average weekly wage moderated as a result of a decrease in the number of working hours, evidence that demand is moderating. This can also be seen in the vacancy data for September, which decreased by 3 percent (the level is still high).
Bottom line, despite the strong employment report, we believe that the central bank will increase “only” by half a percentage point next Wednesday in light of mixed data from the labor market, the decline and weakening of the industrial sector as we saw in the Purchasing Managers’ Index for November, which dropped to 49 points, indicating a slight contraction.
| Inflation in the Eurozone has fallen more than expected, but it is still very high
In our estimation, the central bank will raise the rate by 0.5 to 0.75 percentage points next week (on December 15)
The warmer than expected winter in Europe contributed to a sharp drop in electricity prices (wholesale) and led to a drop in to 30.8 percent (42% in September), the lowest rate since the beginning of the year.
This decrease began to seep into which decreased more than expected in November (according to the initial estimate) and inflation decreased to 10 percent. Nevertheless, in our estimation, this will not stop the central bank in the Eurozone from raising the interest rate by half to 0.75 percentage point next week and signaling that the process is not over yet.
| Does the protest have an effect?
As we emphasized recently, it is likely that the Chinese government will accelerate the reduction of the corona restrictions in light of the increasing weak data and the continuation of the local protest.
In the last week, reports have increased that in various regions of China the strict corona restrictions have been reduced. In our estimation, the trend will continue, but the pace will be determined according to the progress of the additional round of vaccinations. Meanwhile, the increase in morbidity alongside the restrictions (and the concerns of businesses and households) continues to harm local consumption. This is also according to an index for the service industries in November which continued to indicate a contraction for the third month in a row when it dropped to 46 points.
The writer is the head of the economics and research department at Harel Insurance and Finance. The author(s) and/or companies in the Harel Group and/or those interested in them and/or those controlling the group, may own and/or trade, for themselves and/or for others, the securities and financial assets indicated in this review. This review should not be seen as investment marketing or a substitute for investment marketing, which takes into account the personal and special needs of each investor. What is stated in this review reflects the writer’s opinion at the time of publication, and this can change at any time and without further notice. The company will not be responsible, in any way, for damage and/or loss that will be caused, if caused, as a result of relying on this review, and also does not guarantee that relying on the information that appears in it may yield profits.