Interest rate cut in Israel at risk: forecast from Mizrahi Tefahot Bank
Chief strategist Yoni Fanning analyzes the US Fed Chair's recent stance and explains how it may impact the potential for an interest rate cut in Israel.
Yoni Fanning, chief strategist at Mizrahi Tefahot Bank, conducted a weekly economic review addressing the speech by the new Fed Chair, implications for the US economy, large fundraising by the Israeli Ministry of Finance, and local high-tech revenue.
"USA: The last full week of August shows a significant rise in yields following the new Fed Chair's ultimately hawkish speech. This is focused on the short term, with the probability of an interest rate hike in two and a half weeks rising to nearly 60%."
Beyond that, the Fed Chair notably avoided providing forward guidance regarding future policy. From a local perspective, that added probability of an interest rate hike in the US is expected, in our assessment, to weigh on the possibility of an interest rate cut in Israel the day after tomorrow.
US consumer sentiment is recording a slight recovery towards the end of August, despite energy prices remaining very high. In our assessment, there is some internalization of current fuel prices, or alternatively, a positive reaction to higher government spending ahead of the mid-term elections.
The PCE price index indicated relatively high levels in July compared to the CPI and PPI, which were relatively low. It is evident that AI is contributing to this through the stock market rally and the costs of electronic equipment, in addition to the energy impact of recent months.
In Israel: The Treasury is returning to borrow at a weekly pace of 2.8 billion NIS in September. Additionally, the 327 shekel bond will be purchased as part of the September exchange tender, given its high outstanding balance. The Bank of Israel continues with a relatively high pace of MAKAM (short-term treasury bill) issuances. It remains to be seen how this will affect market spreads at this stage.
Despite indications of moderate retail activity towards the beginning of summer, local high-tech revenue continues to show impressive performance, mainly in the services sectors, similar to the high level of activity worldwide.
