16/10/2012 Weekly Macroeconomic Review Expectations derived from the capital market Our forecast Inflation in the coming months Inflation through September 2013 CPI (average annual rate) Inflation through September 2012 CPI (average annual rate) October 0.3% November 0.0% 6.2% 6.4% 2.4% 2.3% Bank of Israel interest rate, 6 months ahead Dollar exchange rate, 6 months ahead 2.15% )down 0.05( ILS 3.85 (up 0.7%) 2.00% ILS 3.85 Highlights Israel Surprising CPI, lowered by Trachtenberg. The consumer price index for September was unchanged, in contrast to expectations of an 0.5 percent change. According to the survey of household income and expenses in 2011, the average household has a routine monthly deficit. US Positive data. A steep increase in the consumer confidence index. A surprising decrease in the number of applications for unemployment benefits. Eurozone Improvement in industrial production. Other world news Foreign-trade data in China are improving, and the yuan continues to gain strength. Brazil's central bank lowered the interest rate by 0.25 percentage points, to 7.25 percent.
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Israel The consumer price index for September was unchanged; our estimate was 0.5 percent, like the median forecast. Relative to our forecast, education prices were significantly lower than expected, apparently due to the Trachtenberg reform and the method of measurement of pre-elementary education prices by the Central Bureau of Statistics; this price dropped sharply, by 16 percent. Inflation in the last 12 months stands at 2.1 percent, in the middle of the target range (1-3 percent). The September CPI is low even without the adjustment in pre-elementary education prices, despite the VAT hike on September 1. This also indicates that many retailers chose to postpone price increases until after the Jewish holidays. Prices of tenant-owned homes rose relatively sharply again this month, by 0.6 percent. The increase in prices of homes was recently renewed, with a 2.9 percent rise in the last six months. According to the meeting minutes of the monetary committee, the Bank of Israel also finds this troubling. However, looking at a longer period, prices of homes were up by just 1.4 percent in the last twelve months. 5% Inflation during the last 12 months 4% 3% 2% 1% 0% We estimate that there is a high probability that the Bank of Israel will maintain the interest rate unchanged again at its coming decision, and in the next few months. Still, the probability of a reduction in the interest rate during 2013 appears higher than the probability of an increase. In view of the data on demand for mortgages and the continued rise of housing prices, the Bank of Israel may conceivably apply additional macro-prudential measures in the mortgage industry.
Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 According to a survey of household income and expenses, households' average consumption of fruits and vegetables showed a real decrease in 2011 (negative 3.2 percent), as did consumption of housing services (negative 2.2 percent). By contrast, households' expenses for home furnishings and equipment and for health care increased, by 16.7 percent and 7.6 percent respectively. The survey also indicated that in 2011, households in Israel operated under a routine monthly deficit of about ILS 1,600. Total credit-card purchases by private clients increased by 0.8 percent in August and by 2.6 percent from January to August. The increase in August followed three months of 0.2 percent monthly increases. Notable increases in purchases occurred in August in the items of clothing and footwear (6 percent); medical services and medications (7.9 percent); and fuel, electricity, and gas (2.7 percent). Total credit-card purchases decreased in transportation equipment and services (- 2.1 percent) and in communications equipment and services (-3.4 percent). The consumer confidence index in the United States rose sharply in October, to 83.1 points (according to the initial estimate), far better than expected, reaching its highest level since 2007. 120 United States UNIVERSITY OF MICHIGAN SURVEY OF CONSUMER CONFIDENCE (PRESENT SENTIMENT) 110 100 90 80 70 Average plus 1 std. dev. 60 Average Average minus 1 std. dev. 50 According to the latest publication, the number of Americans applying for unemployment benefits fell to 339,000, much better than expected and the lowest level since 2008, although publications indicate that a significant part of the decrease derived from data of a single state.
Jan-99 Jun-99 Nov-99 Apr-00 Sep-00 Feb-01 Jul-01 Dec-01 May-02 Oct-02 Mar-03 Aug-03 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Based on the Fed's Beige Book for September, economic conditions in the various districts have not changed substantially since last month, pointing to continued moderate economic expansion. Private consumption rose minimally, but sales of automobiles improved. The housing market has remained the main ray of light in recent reports, with a slight improvement compared to last month. Euro zone Industrial production in the Eurozone rose by 0.6 percent in August, far above expectations for the second consecutive month. Nonetheless, production is 2.9 percent lower than it was in August last year; the IMF estimates 0.4 percent GDP contraction in 2012 and minimal expansion of 0.2 percent in 2013. 115 Euro Zone: Industrial production (index, 2005=100, Seasonally adjusted) 110 105 100 95 90 85 European Union (27 countries) Euro area (17 countries) 80 Fashionably late, S&P downgraded its credit rating for Spain to BBB-, with a Negative outlook similar to the Baa3 rating by Moody's. The rating agency noted that the riots, the political disputes between the federal government and the provinces, the sharp recession, and the contraction of credit in Spain contributed to its decision.
More in the world Foreign-trade data in China were far better than expected, for the second consecutive month. In the twelve months through September, exports grew by 9.9 percent, while imports expanded by 2.4 percent. However, it is apparent that the long-term trend is still downward. According to the IMF, GDP will grow by 7.8 percent in 2012, the lowest rate since 1999, and by 8.2 percent in 2013. In addition, recent actions by the Fed and the ECB, along with the expectation of additional stimulus measures from the new government in China, contributed to appreciation of the yuan over the last two months. 100% 80% China - Trade (change in the last 12 months) Exports Imports 60% 40% 20% 0% -20% -40% -60% Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Brazil's central bank lowered the interest rate by 0.25 percentage points to 7.25 percent, as expected; like the Fed, the bank stated it would maintain an expansionary policy for a long period, in view of the complexity and uncertainty surrounding global growth. Our forecast of cumulative changes in price indices during the coming three months Forecast change, September 2012 index to December 2012 index Consumer Prices Index (CPI) Housing component in the CPI (mainly rental prices) Prices of Owner- Occupied Dwellings Price Index of Inputs in Residential Building Wholesale Price Index of Manufacturing (excl. Fuel) 0.4% -0.8% 0.7% -0.6% 0.4%
Important Announcements in the Coming Week The CBS will publish its third national accounts estimate on Tuesday, October 16. The consumer price index will be published in the United States. The CBS will publish findings of the business trends survey and the consumer confidence survey for September on Wednesday, October 17. The growth rate for the third quarter of 2012 will be published in China on Thursday, October 18. This review is posted online at www.harel-finance.co.il/macro in Hebrew and at www.harel-group.com/finance in English. Please address comments or questions to Mr. Ofer Klein at oferkl@harel-ins.co.il If you would like to be removed from the Harel Group mailing list, please let us know in a reply to this e-mail. This review reflects our opinion at the date of publication. Our opinion may change at any time without additional notice. The company shall not be liable in any manner for any damage and/or loss caused by the use of this review, and makes no commitment that reliance on the information appearing in this document is likely to generate profits. The company removes liability from the group, the employees of the company, and the employees of the companies in the group with regard to any claim and/or argument made based on the statements herein. The company and/or its related companies and/or its controlling parties and/or the interested parties of any of these may hold and/or trade, on their own behalf and/or on behalf of others, securities and financial assets mentioned in this review. This review shall not be considered as investment marketing or a substitute for investment marketing or a substitute for independent tax advice. This review is not adapted to the investment goals or the unique personal needs of each investor. The authors may hold and/or trade, on their own behalf and/or on behalf of others, securities and financial assets mentioned in this review.