Mizrahi Tefahot Bank Releases Weekly Economic Review on Global and Local Markets
Mizrahi Tefahot Chief Strategist Fanni Yoni analyzes US economic curves, Israeli fuel prices and labor tightness, trade deficits, and UK inflation trends.
Global Markets and US Economy
Fanni Yoni, Chief Strategist at Mizrahi Tefahot Bank, released a weekly economic review addressing the dramatic shifts in the US economy, fuel price drops in Israel, labor market data, and the inflation and interest rate situation in the UK.
"US: The hawkish monetary move by central banks last week mostly brings about a moderation in the steepness of curves worldwide. In the US, this brings us to a 2v10 at the level of 20 bps – still higher than what we saw in recent years. But from a historical perspective of recent decades, it is certainly something consistent with or at least close to pre-recession environments."
Indicators for US activity, on the other hand, continue to be notably robust, with an increase in retail sales during August. Nonetheless, given rising energy prices on one hand and the lack of a general increase in goods prices on the other, we estimate that to some extent there is a desire here to front-run fears of price increases, whether these materialize or not.
Israeli Economy and Labor Market
Israel: The reduction of the excise tax during the month naturally raises questions regarding fuel prices at the station in practice in the near future. However, including yesterday's drops and this morning's increases, looking solely at global oil prices and refining margins indicates an inflationary potential of about 0.3% from this direction, which may materialize in one political reality or another.
Local labor market data seemingly point to a very tight level in August. Conversely, we prefer to remember that there is a significant influence here of August flight motivations. On the contrary, flexibility in broad demand for workers points to potential for expansion in available manpower for the private sector later on.
Balance of Payments and UK Inflation
Local balance of payments data, however, continue to point to a current account deficit in the second quarter, marking the second consecutive quarter. This also joins a larger deficit in the trade balance into August. However, in both cases, it is evident that there is an impact from global energy prices / AI Capex. We estimate that a correction could be significant in both respects.
UK: The inflation picture certainly reflects those rising energy prices. As in 2022, there is also a slight lag in electricity prices due to late price fixing. On the other hand, the Bank of England (BoE) refrained from a rate hike, yet it is evident that it remains hawkish and generally focused on preventing a significant rise in long-term yields.
