"Although the interest rate is expected to rise in the coming months, the market is pricing the rises too aggressively. The process of returning to interest rate equilibrium will be slower than in the past, and will be characterized by prolonged pauses in view of the high vulnerability to financial and real economy shocks to global growth," says Leader Capital Markets macro strategist Rafi Gozlan.
Gozlan says that the market seems to have over-weighted the first part of the Bank of Israel's interest rate announcement, which refocused on the domestic market, especially inflation, and under-weighted concerns about possible upheavals affecting global growth.
Gozlan believes that the Bank of Israel will not be satisfied with one interest rate hike, and the interest rate will reach 1.25% within a few months, after which it will stay stable for a lengthy period.
In view of the strong correlation between the Israeli corporate bond market, and foreign markets, and the low margins, Gozlan believes that the Tel Aviv Stock Exchange (TASE) Tel-Bond 20 Index will probably achieve a higher return than the Tel-Bond 40 Index in the short term.
In its weekly market survey, Union Bank says, "Compared with prices for unlinked government shekel bonds, the shares on the TASE are reasonably priced. The direction of trading this week will be affected by macroeconomic reports and the publication of financial reports by leading Israeli companies."
Union Bank predicts that inflation will be 2.4% over the next 12 months, and will be over 4% in 2009.
It finds that the closest support level for the shekel-dollar exchange rate is NIS 3.789/$ and the next support level is NIS 3.74/$. The closest resistance level is NIS 3.832/$.
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2009
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