We cannot rule out additional monetary measures today

ISRAEL - In Brief 24 Feb 2020 by Jonathan Katz
Highlights of Weekly Report: Growth remains at potential in early 2020 The composite index increased by 0.25% m/m, similar to the pace in Q419. Revenues from the total economy increased by 2.6% saar in Q419. Nevertheless, manufacturing contracted by 0.7% saar in Q419. The PMI declined by 1.7 points in January to 50.1 on weak export orders. The labor market appears a bit less tight than one year ago. The job vacancies/labor force ratio decline to 3.47% in January from 3.55% one year ago. Inflation expectations of the major forecasters declined to 0.9% NTM following January's CPI, down from 1.1% one month ago. Foreigners have yet to increase demand for govies (through December), despite Israel joining WGBI in April. In December, foreigners owned 5.5% of total bond stock (similar to the share in August). The shekel has appreciated by 2.9% YTD against the basket. Monetary policy: We cannot rule out a rate cut today (close to 50% probability) and/or some form of QE (non-sterilized FX purchases). Our analysis is based on the fact that inflation y/y (headline and core) and inflationary expectations have declined sharply, the shekel continues to appreciate and global risks appear to have increased with the spreading coronavirus. On the other hand, growth remains decent and the labor market is tight. The Fed has yet to signal that a rate cut is imminent, and Governor Yaron has stated that he follows closely global (US especially) monetary trends. If rates remain stable, the probability of a cut on April 6th will increase. Politics: Eight days to elections and the latest polls still point to a deadlock between the left-center block and the right-wing block, with Lieberman still ...

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