The market is not expected to respond significantly to the election – the capital market

Yesterday’s elections in Israel revolved more than ever around the economic issue, with major proposals for change. And yet, even if a right-wing or center-left government is eventually formed, the market is not expected to respond significantly. In general, investors do not give much credit to politicians but respond spotty to any plan or reform to the body. So it is likely that the domestic market will continue to operate in line with the global trend.

The trend of rotation in the stock market is showing cracks – since the end of last year, the phenomenon of rotation has stood out in the stock markets, with “value” stocks beating “growth” stocks. The increases in value stocks were led by the energy sector, following the price of oil. The rotation led to many effects, including a jump in inflation expectations, a jump in the yield curve and, by the way, a rearrangement of the table of investment managers’ rankings. Skeptics fear that the run for value stocks has also relied on the “run after stocks lagged” trend. In the last two weeks this trend is starting to limp as the price of oil fell by 13%, its sharpest decline since April 2020. The value stocks following it started to decline while growth stocks showed stability, so the rotation trend started to crack, or is it just taking air ?:

The drop in the price of oil is supported by a cocktail of explanations, Including the failure of the vaccination campaign in Europe, the rise of oil inventories in China to record levels, after the Chinese have used the last few months to accumulate strategic inventory, even in the US crude inventory continues to swell, rising last week by almost 3 million barrels. Another explanatory factor is the dollar. March (against DXY), which completed the best quarter of a year for him, which lowers oil in dollar terms. The speculative trend also calmed down as investors reduced the weight of commodities in their portfolios. In fact, the drop in oil prices could probably have been more significant without attacks on Saudi production And disruptions in the Suez Canal crossing (a ship stalled and blocked). But the issue with oil has always been more complex when it involves the OPEC + cartel, which may next week in its May decision-making decision do more to stem the decline.

To what extent will the shortage of chips be reflected in the consumer price index? – The global shortage of chips has caused an interesting phenomenon of shortage without their noticeable price increase. According to the US Bureau of Statistics, chip prices have risen in price by only 4%, but the problem is difficult to achieve. It is about 5% of the cost of car production, so the choice of companies not to increase product prices but to prefer shortages may at some point paradoxically lead to a more significant increase in prices of their products in the secondary market. Holds inventory for half a year and are able to absorb a certain rate from the rise in prices, an absorption whose potential is waning …

And what about inflation?
An outbreak of inflation is widely regarded in the context of interest rates, Powell went on to argue yesterday that this is temporary inflation, but not much is being said about the great danger of inflation – a decline in consumer confidence, to the point of curbing consumption. That is, how will consumers react to the emerging phenomenon of price increases in many consumer products? If we take into account that consumption accounts for about 70% of US GDP, its containment could very quickly complicate 2021.

“85% increase in yields since the beginning of the year happened during trading in Japan” – Morgan Stanley economists draw our attention to the fact that since the beginning of the year, 85% of the cumulative decline in US bond futures occurred overnight, ie in Japan trading hours. In other words, Japan is almost responsible Alone to jump in yields this year. They claim “there is good reason to believe that the sale from Japan will not last … into April.” Before them were two main reasons to get rid of US bonds, the first is the yields there fell to levels closer to the Japanese and the second is the Nikkei. 225, who awoke from a coma of several decades. The move of shifting towards Japanese stocks and bonds will probably be completed by their estimation by the end of the fiscal year in Japan, which ends on March 31.

Today, the Bank of Israel will publish its composite index for February, which will shed more light on the impact of the third closure on the local economy.

The author is the macro economist of Excellence Investment House