Following the Bank of Israel’s “ionic” interest rate decision earlier this week, which helped weaken the shekel, Governor Yaron was interviewed by Reuters on Tuesday and raised the “pigeons” to another level when the peak was that he was even Not sure the interest rate tool is relevant to inflation: “It is not clear whether monetary policy is still effective in influencing inflation, given globalization, the ability to buy online that lowers prices, and the advancement of technology that makes production and consumption more efficient.” According to him, the yields on the Bank of Israel’s quotas deepened into the negative territory and the shekel fell sharply against the currency basket, and especially against the dollar, which soared around the world against a “hawkish” pad and weakness in Asia and Europe:
US yields jumped yesterday to a record high since pre-Corona following the release of strong macro data, These include the acceleration of consumer prices (PCE) from an annual change of 4.4% to 5.0%, a slight increase in the Consumer Confidence Survey of the University of Michigan, a higher than expected increase in household income and expenditure data, a marked decrease in unemployment benefit seekers, especially after the Fed. It emerged that a number of members support a faster completion of the bond purchase program:
The Fed protocol tried to be balanced but caught most of the attention The willingness of some members to accelerate the pace of shrinking bond purchases – From the minutes: “Fed members see in most cases the high level of inflation reflects factors that are expected to be temporary, but estimated that the inflation pressures may last longer than previously estimated.” “Because of the continuing uncertainty about supply chain developments, production logistics and the course of the virus. Several participants stressed that a patient attitude towards incoming data remains appropriate to allow a careful assessment of supply chain developments and their implications for the labor market and inflation.” However, some Fed members have expressed concern that the high level of inflation will provoke an increase in long-term inflation expectations which could make it difficult for the commission to achieve 2 per cent inflation in the long run. A number of members suggested ending the bond purchase plan more quickly to leave the Fed flexible, so that if necessary the interest rate hikes could be brought forward. Stricter than those they are looking for to reduce bond purchases.
The rise in short-term yields is burdensome – Yesterday’s rise in short-term yields in the US was not reflected in the long-term yields either, when in very long yields they even tended to decline, which caused the curve slopes to continue to moderate. The reaction of world stock markets to rising yields and curvature of curves is unclear as domestic factors mix with them: US stock market struggles to continue to rise despite fantastic macro data, in Europe the market is prone to declines. Against the backdrop of negative indications mainly from China, including the fact that the Chinese government has urged local governments to step up investment to address the slowdown in growth, and a Bloomberg agency publication that the Chinese city of Chengdu (16 million residents) has sought to alleviate real estate cash shortages , Which raises concerns that beneath the surface the problem is big.
US flooded with homes for sale – U.S. home sales data for the past few months have been significantly updated downward and it turns out that as of the end of October there were 389,000 new homes for sale in the U.S., the largest number in 13 years. This is not yet their pre-subframe level, so these stood at over 500,000, but at the current pace of construction is approaching them. At the current sales rate it will take 6.3 months to sell the supply, compared to 3.6 months at the beginning of the year. It is possible that developers see the rising prices and prefer to wait with the sale. As homes enter the market the pressure on rising rental prices may be reversed downwards.
Today, the Bank of Israel will publish the combined index of economic activity in the economy in October. But it seems that no matter how much he surprises and where, the bank does not dare to raise interest rates, when he wants to see the shekel continue to calm down.
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