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The capital market in Israel
Everything is fine, so start worrying: Market review in Israel and around the world
The economy maintains stability, the shekel strengthens and vaccines are on the way.
So why do we have cause for concern in Israel and around the world?
Bank Hapoalim economists with the weekly survey
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economy
Bank Hapoalim economists
Sunday, 22 November 2020, 15:52
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The main points of the review
The economy grew in the third quarter of the year at a high annual rate of 37.9%.
The level of GDP in the third quarter was only 1.4% lower than in the corresponding quarter last year, but private consumption fell by 9.7% during this period and investment in fixed assets by 10.8%.
The economy maintains a relatively high level of activity, but this is happening with the help of non-sustainable factors, such as the closure of the sky and a very expansionary fiscal policy that cannot be sustained over time.
The shekel continued to strengthen last week at 0.5% against the dollar and slightly less than against the basket.
The appreciation pressures are expected to weaken only when the economy opens up, private consumption will increase and imports will be seen to increase.
The publication of the effectiveness of vaccines has raised inflation expectations, assuming that a return to routine will raise prices.
We expect inflation at a rate of 0.5% in the next 12 months, which is higher than that embodied in today's market (zero).
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Israel
The stores opened and activity increased (Photo: Niv Aharonson)
The opening of street stores increased trading activity last week, and this was reflected in an increase in credit card purchases.
The economy grew in the third quarter of the year at a high annual rate of 37.9%, after a sharp contraction in the previous two quarters.
The level of GDP in the third quarter is only 1.4% lower than in the corresponding quarter last year.
The moderate decline in GDP is slightly misleading, private consumption fell by 9.7% during this period and investment in fixed assets by 10.8%.
A sharp increase in the surplus of exports (exports less imports) and an increase in public consumption offset the effect of the decline in private consumption and investment.
The half-full glass is that relatively the economy maintains a high level of activity, the half-empty glass is that it happens with the help of non-sustainable factors, such as closing the sky and a very expansionary fiscal policy that cannot be sustained over time.
Cash flows in circulation have risen at a rapid rate of 19% since the beginning of the year, reaching NIS 104 billion in October.
The increase in cash balances is not directly related to the fact that the Bank of Israel "prints" money while increasing its assets (bonds and foreign exchange).
It is also not related to the zero interest rate, as it has been low for years.
The increase reflects the preferences of the public, households and businesses, to increase the balances of the guests.
The change in public preferences may have been influenced by the concern of some households, who use cash for consumption, the lack of mobility during closures, and therefore accumulated more cash, and perhaps also the result of an increase in the black economy using cash.
We do not think that the increase in cash holdings is an indication that it will be used later for consumption, or that it is a signal of future inflationary pressures.
The shekel continued to strengthen last week at 0.5% against the dollar and slightly less than against the basket.
The shekel against the dollar is the strongest since 2008. Israel's exports of goods and services, excluding tourism, were barely affected by the crisis, and the current account surplus increased.
The Bank of Israel's foreign exchange purchases have already reached $ 15 billion by the end of October. The appreciation pressures are expected to weaken only when the economy opens up, private consumption increases and imports increase. The yeast.
The price index for October rose by 0.3%, due to seasonal factors only.
The publication of the effectiveness of vaccines has raised inflation expectations, assuming that a return to routine will raise prices.
We believe that there will be a certain increase in the prices of services, which are not measured on a regular basis during this period, such as travel abroad, accommodation in the country and the like.
Commodity prices are already on the rise in the world, and it is likely to reach us next year as well.
On the other hand, the appreciation of the shekel will continue to moderate the rise in import prices, and it is also difficult to see rental prices rising at double-digit levels of unemployment.
We expect inflation at a rate of 0.5% in the next 12 months, which is higher than that embodied in today's market (zero).
In the long run, world commodity prices may continue to rise both due to de-globalization processes, and rising production costs in emerging markets.
Central banks will be very patient with a moderate rise in inflation, and policies will remain broad, which also supports higher inflation over time.
The capital market embodies an average inflation of about 1% for the next five years, and 1.3% for a period of ten years.
Given the uncertainties noted, and the expected response (or lack of response) of central banks, the inflation inherent in the market seems to us reasonable and perhaps even low.
Third quarter data show that the economy is growing rapidly as restrictions are lifted.
For the Bank of Israel, this means that the limit on GDP is on the supply side, and monetary policy, at this stage, can have less of an effect on the growth path.
We therefore estimate that the Monetary Committee will be satisfied with the tools it has used so far, ie mainly bond and foreign exchange purchases.
The value of the government bond market increased by NIS 65 billion from the beginning of the year to September, of which the Bank of Israel increased its holding by NIS 34 billion.
The other entities that have increased their holdings are the commercial and foreign banks.
The public and institutional investors, who are the deep pockets that are supposed to finance the government, have reduced holdings in government bonds. The government's ability to continue financing the deficit at low prices therefore depends in our opinion on Bank of Israel bond purchases.
global
The number of those infected only increased.
Corona treatment in the United States (Photo: Reuters)
The vaccine is already on the horizon, but in the meantime there has been an alarming increase in the number of people infected with the virus worldwide.
In the US, the daily number of diagnoses reached a peak of about 200,000 over the weekend, almost double the daily figure less than three weeks ago and there is a fear of further acceleration in infections towards this weekend, following Thanksgiving. In order to curb virus infections, many US countries are increasing The restrictions on gatherings and even impose a closure.
In New York State, for example, the entire education system has moved to distance learning, and in the state of California a night curfew has been imposed.
Europe is also seeing an increase in the number of people infected, and many countries, such as England, France, and Germany, will decide this week whether to extend and even tighten the existing restrictions on various activities.
The capital markets have been affected in the past week by these developments
.
A mixed trend was recorded last week in global stock indices.
In the weekly summary, the Dow Jones and S & P500 indices fell by about 0.7%, and the cracking index rose by 0.2%.
In Europe, the Eurostock 50 index rose by about 1%.
In Asia, Taiwan and South Korea shares rose 3.3% and 2.4%, respectively, while China's major stock indices rose 1% to 2%.
In the currency markets, the dollar continued its weakening trend, and the exchange rate against the foreign index returned to its low level in the last 28 months.
Prices of agricultural goods and metals continued to rise, and since the beginning of November there has been an increase of about 7.5% on average.
Free trade agreement between 15 leading countries in Asia:
the RCEP.
After a decade of intense discussions, the world's largest international trade agreement has been signed, led by China, Japan, South Korea, Australia, New Zealand and other Asian countries.
The member states represent close to a third of the world's population and about 30% of world GDP, a rate that is expected to increase in the coming years.
India's leaders have decided not to join the agreement in the meantime, fearing that increasing free trade will hurt the country's manufacturing and employment industries.
The trade agreement provides for a gradual reduction in the tariff rates imposed on imports from the countries participating in the agreement.
In addition, the agreement includes clauses relating to the regulation of intellectual property rights, communications services, financial services, and professional services.
The agreement strengthens China's position as a leader in the region, and highlights the US lack of trade agreements in the Asia region.
USA: The construction industry continues to demonstrate strength.
Construction starts rose by 4.9% in October from the previous month, to 1.53 million units.
Sales of existing homes also rose at an impressive rate of 4.3% in October and stood at 6.85 million homes.
There was also an increase in the confidence index of contractors who enjoy an increase in demand in light of the low mortgage interest rate and the increasing trend of moving from city centers to the suburbs.
The excess demand for apartments is also reflected in a 15.5% increase in the median price for homes of all types relative to October last year.
Indicators of economic activity over the past month show that the increase in morbidity is already reflected in the economic data.
Retail sales rose in October at a rate lower than the forecast of 0.3% compared to the previous month, a slowdown in the growth rate compared to previous months.
There was also a slight increase in the number of new weekly applications for unemployment benefits, to 742,000.
Will not extend the program.
Manuchin (Photo: Evan Vucci, AP)
U.S. Treasury Secretary Manuchin surprised by announcement of his decision not to extend the program in which the Treasury cooperates with the Fed and acquires corporate debt and municipal debt.
In a letter sent to the central bank, Manuchin announced his intention not to extend the plan, which is due to expire at the end of December.
In his letter, the finance minister asked the Fed to return to the treasury $ 455 billion allocated to the project that was not used.
Some of the plans that are expected to cease operations at the end of December are the acquisition program in the corporate bond markets, the acquisition program in the municipal bond market and the Fed's lending program for small businesses.
It is difficult to know the background to this demand, it may be due to the assessment that the markets have already stabilized and there is no need for these incentives.
The Biden administration, along the way, has actually supported increasing incentives, so it may be working to bring them back.
Eurozone - the consumer confidence index is down again.
The increase in morbidity and recurrence of closures and restrictions on movement are already evident in the various indicators of activity.
The consumer confidence index for November fell this month and is now close to the level recorded in May.
The consumer price index for October rose by 0.2% and core inflation in the last 12 months remained at 0.2%.
Japan: GDP rose 21.4% year-on-year in the third quarter.
Japan's foreign trade was the main driver of growth, with a significant increase in exports and a decline in imports. Private consumption rose during the quarter, but was largely offset by a decline in housing investment. And the Olympic Committee is interested in holding the Olympics in Japan from the end of July to the end of August 2021. Taking the precautions that will be required according to the corona situation in the world at that time.
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