| Victor Behar, Director of the Economics Department at Bank Hapoalim, and Hapoalim Economists
| highlights:
- The consumer confidence index has been stable over the past three months, compared to a sample decline in the US index.
- The rise in the consumer price index in the US was almost three times higher than in Israel in the past year.
- At this stage, the markets embody the risk of high global inflation, under the assumption that the world’s central banks will continue not to show determination in the fight against inflation.
- The Bank of Israel’s major purchases have so far managed to halt the strengthening of the shekel, which returned to a level of NIS 3.1 to the dollar over the weekend.
- The correlation between the exchange rate and the stock indices will dictate the trend in the near term, and it is likely that the Bank of Israel will significantly reduce its purchases in 2022.
| Israel: The consumer confidence index has been stable over the past three months
The Consumer Confidence Index published by Bank Hapoalim and KANTAR rose by 0.5 basis points in November 2021. The gap between the perception of the current situation and the future situation is widening. The current situation was affected by the effect of wealth created as a result of an increase in the value of assets, as well as an increase in wages and the number of jobs in the market. On the other hand, we see a gradual decline in the expectations index, which means an estimate that some of the positive factors will not be with us in six months. The latest economic indicators published by the CBS back up consumers’ feelings about the current situation: the labor market has become tight, falling to 4.7% (not including those leaving the labor market following the corona), and the average wage in the economy is now about 10% higher than The period before the corona.
| What can we learn from the US index items released this weekend?
The rise in the US was almost three times higher than in Israel in the past year. The appreciation of the shekel and natural gas prices explain a large part of the gap.
If you look at the housing section, for example, in the United States prices have risen by 3.8% in the past year, while in Israel they have risen by half of that – 1.9%. In these two sections it is difficult for us to explain the large gaps, and if we rely on the index in the US then we may see an accelerated increase in these sections in the coming months. Food prices have risen in the US by 6.1% and in Israel by only 3.2%, Explained for example in the increase and increase in competition between marketing networks.
The bond market embodies average inflation in Israel at a rate of 2.5% per year for the next five years, slightly lower than the derivative inflation in the United States, which stands at 2.8% during this period. At this stage, the markets embody the risk of high global inflation, under the assumption that the world’s central banks will continue not to show determination in the fight against inflation.
| The Bank of Israel purchased another $ 4 billion in November
That’s already $ 30 billion announced at the beginning of the year. The large purchases have so far managed at most to slow down the strengthening of the shekel, which returned to a level of about NIS 3.1 per dollar over the weekend. The major foreign exchange sellers continue to be the institutional entities that hedge capital gains abroad. The correlation between the exchange rate and the stock indices will dictate the trend in the near term, and it is likely that the Bank of Israel will significantly reduce its purchases in 2022.
| Global: Annual inflation of 6.8% in the US and 4.9% in Europe
Central banks are still printing money, a scenario that would have seemed imaginary two years ago. The inflation figure has failed to disable exchange rate rises, if it is because it was expected, and perhaps more than that due to the assessment that central banks are not going to react decisively. Inflation per se is not bad news for markets as long as interest rates do not respond.
The indices, the Nasdaq, rose by 4%, 3.8% and 3.6%, respectively. The CSI300 index in China rose by 3.9%, and the other Asian stock indices also rose, albeit at lower rates than those in China. The markets were affected, among other things, by updated estimates of the moderate risks, relative to what was previously expected, of the corona’s omicron strain.
| US: Annual inflation in November climbed to 6.8% from 6.2% in October
At 4.9% compared to 4.5% in October. Annual inflation is the highest recorded in the last four decades. Among the factors that have contributed to the sharp price increases in the last 12 months, were the disruptions in the supply chain that contributed to the increase in the prices of tradable products, the increase in energy prices, the increase in wages and the effect of the low base from last year. Inflation expectations derived from the bond market recorded a very moderate increase. In the weekly summary, five-year inflation expectations rose from 2.75% last week to 2.80% and ten-year expectations rose from 2.44% to 2.48%. The yield on US government bond yields “B has risen from 1.34% to 1.48%. The yield curve in the US remains relatively flat, and markets are now pricing three interest rate hikes in 2022 that will begin in the middle of next year. This coming Wednesday, the Fed will publish the interest rate decision, including updating the macro forecast and the interest rate hike forecast of the Fed members (Dots). The rate of decline in bond purchases is expected to increase as early as this month, and the Fed members’ forecast is expected to point to 2 to 3 rate hikes during 2022.
| A sharp increase in the number of job vacancies
According to data from the Ministry of Labor, unemployment benefits have dropped to 184,000, the level beaten since 1969, and the total demand for unemployment benefits has also decreased. On the other hand, the number of vacancies rose to 11 million, a sharper increase than expected, while a sharp increase in the number of vacancies in the hotel and services industries. The gap between the number of job vacancies and the number of unemployment seekers continues to grow, reaching 4.2 million jobs in October. The high demand for workers may accelerate the rate of wage growth in the US and lead to a further rise in the inflation environment. The decline in consumer confidence has been halted. The first estimate of the University of Michigan Consumer Confidence Index for December rose 3 points, above the forecast, to 70.4 points. In the two components of the index: the perception of the current situation and the future situation.The rise this month was recorded after a decade of a decade low in the index recorded in the previous month, but despite the rise this month the level of the index is still very low.
| Europe: Britain, Denmark and Norway tighten restrictions on activity
As a result of an increase in corona infections, in the UK many workers were asked to return to work from home and the obligation to wear masks in public places was reinstated. Following on from other European countries also in Denmark and Norway the restrictions have tightened in the last week. The Santix investor confidence index, which was apparently affected by the rise in morbidity and tightening of restrictions on operations in Europe, continued to fall in December. A similar trend was also recorded in Germany. The survey for the current situation declined sharply, while the survey of observations showed only a moderate decline. In Germany, there was a 6.9% decrease in new orders from factories in October, compared to 1.0% in October last year. Although industrial production in Germany rose by 2.8% in October, its annual level was 0.6% lower.
| Japan:
In the latest update released, it fell at an annual rate of 3.6% in the third quarter of this year. This is above the first estimate of a 3% decrease. Private consumption has fallen beyond forecast, mainly as a result of the spread of the corona. The producer price index rose 9% in annual terms under the influence of supply chain disruptions.
| China:
In the last 12 months ending in November, it rose by 2.3% and the producer price index rose by 12.9%. These increases were affected, among other things, by the relatively low base in the same month last year. The Chinese Academy of Social Sciences, a government research institute, has released a growth forecast of 5.3% for 2022 after an estimated growth of 8% this year. The Central Bank announced a reduction of the banks’ liquidity rate by 50 basis points, to a level of 11.5%. Starting December 15th. In the real estate sector, concerns about the insolvency of other companies continue, after last week the rating agency Fitch downgraded Abergrand’s credit rating to “limited insolvency”, after it did not repay its debts on the dollar bonds, in the amount of 82 million dollar.
In the PDF document: the full weekly review of Bank Hapoalim economists
The authors of the review are Bank Hapoalim economists. The review is based on data and information that were visible to the public. The data and information used to prepare it were assumed to be correct, without Bank Hapoalim Ltd. conducting independent tests in relation to the data and information. This review does not verify or confirm their correctness. This review is for informational purposes only, and does not purport to be a full analysis of all facts and all circumstances surrounding it. The information on which the review is based and opinions may change from time to time, without any further notice or publication. Of any investor. This article should not be construed as investment advice or a substitute for investment advice that takes into account the data, needs and special investment goals of each person, and should not be acted upon unless Independent opinion.