Bank Leumi predicts that the shekel's depreciation against the dollar will continue in the short term, after the shekel-dollar exchange rate rose 5.8% last week. The shekel's depreciation was boosted by the September Consumer Price Index (CPI), which remained unchanged, and was felt to increase the likelihood of another interest rate cut. The bank attributes the shekel's depreciation to the dollar's strengthening in international markets since the dollar is still perceived as a safe currency.
The September CPI reading of 0% was below market expectations of a 0.4% rise. The lack of change in prices signifies the pending slowdown and the drop in prices for oil and commodities, which began in September and is continuing in October. The 0% CPI also reinforced expectations that the Bank of Israel will make another interest rate cut on top of the extraordinary mid-month cut of 50 basis points, which came into effect last week.
Worries about a global slowdown that will encompass Israel, as well as falling oil and commodities prices, and the zero September CPI have slashed capital market 12-month inflation expectations to 0.55% from 1.25% last week.
Bank Leumi also says that trading on the TASE will continue to be volatile in the short term with a strong correlation to swings on international markets. The bank believes that many stocks are now traded at below their economic value, but that trading on the TASE will be affected more by macroeconomic figures resulting from the global slowdown, as well as fear levels.
Bank Leumi prefers investment in medium and long-term shekel bonds. Bonds will again be the focus of attention this week. The Tel Bond indices have been fluctuating as much as stock indices of late: the Tel Bond Index rose 2.73% last week and the Tel Bond 40 Index rose 3.87%.
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2008
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