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Market Insights
January 2021
Global Economy o A huge global race in which countries try to vaccinate their populations as quickly as possible
o It is now possible to summarize that Southeast Asia coped better. Countries from that region have deal with epidemics in the past,
learned methods of closure from the Chinese, quickly set up epidemiological research systems, responded quickly and effectively
o In the end game China was hurt the least and it feels like it came out victorious from the epidemic it brought into the world. China
increases the bet to replace the US as a world leader. The Chinese economy is set to overtake the U.S. faster than previously
anticipated, soon as 2028, after weathering the Coronavirus pandemic better than the west
o In the 12 months ending on Q3 2020, Southeast Asian countries GDP has grown by about 2%. In parallel, EU has lost over 4%.
o The main explanation for the dichotomy between the stock exchanges and the economy can be understood by counting the total
fiscal and monetary aid stimulus that stands at more than $ 20 trillion while the cumulative damage to the world economy is estimated at
about $ 7 trillion
o A record in the number of governments whose rankings were downgraded. The rating agency Fitch has made 32 such rating
downgrades, including huge lenders like Italy and Mexico. Another third of the countries ranked were given a warning against
ranking damage.
o Harvard Un., estimated that 28% of small businesses in New York, and 31% of those in New Jersey, have closed since January 2020. The
devastation that has fallen on the heads of small businesses well illustrates another problem: Is there at all an effective mechanism for
dispersing the trillions so that they will not only help huge companies but also reach the suffocating small businesses?
United Stateso US national debt-to-GDP ratio was 109%, before the arrival of COVID 19. In December 2020 the rate is 131%
o The rapid recovery recorded in the summer months came to a halt after the previous $ 3 trillion aid program that was transferred
exhausted itself. Hence, at last, a bipartisan agreement on an additional $ 900 billion aid package has huge importance
o The second wave of Coronavirus cases is furious hitting the economy as well
o Optimism, but alongside it a continued commitment to support the economy, is the tone reflected in the words of Fed Chairman, Jerome
Powell: “Yes, we see the light at the end of the tunnel, yet determined to support the economy until it recovers.” The Fed expects strong
growth (2021: 4.2%, 2022: 3.2%), and believes that this may be the beginning of a long economic cycle
o An important date is January 5th as there will be a second round of Senate elections. In this round only two senators are elected.
Republicans currently have a majority and it can be assumed that as long as they maintain it, there will be no further aid package beyond
the current one
o It became common for large companies to finance their activities relatively easily and increase leverage, due to cheap financing costs.
Background for this phenomena is solid household balances and their saving rate per disposable income that is historically high. Still,
according to Moody's, the insolvency rate of US public companies has tripled since February. According to S&P, this rate is expected to
reach 12.5% of businesses in early 2021. In addition, the agency downgraded the credit rating of 37% of S&P companies and 30% of
banks
Eurozoneo A huge wave of new Coronavirus cases, which has led to a lot of new restrictions, and has apparently pushed the economy
towards a renewed contraction, hence a double-dip recession
o The ECB has launched a fresh burst of stimulus to help the eurozone economy recover from the Coronavirus pandemic, promising
to buy €500B more (in addition to € 1.35B that was launched earlier this year) bonds over a longer period and providing extra
cheap funding for banks
o Optimism about vaccines supports risk assets and the Brexit agreement are main reasons for EUR stabilizing above 1.20
o An agreement was signed between Britain and the EU. Terms of trade between the parties will remain virtually unchanged.
The UK will be subject to European standards in the field of labor relations, environment and society. If the British government
prefers local companies it will work against a European demand for compensation. Freedom of movement will be restricted.
Britain will be able to sign trade agreements and will not be subject to the European Court of Justice. Negotiations will be held
regarding the accessibility of the financial centers to European markets. The EU will now strive for more integration that was
avoided when Britain was part of it
o Mario Draghi, former president of the ECB: "You can give a certain amount of resuscitation but at some point the companies will
be left without air, no matter how large the liquidity flow. Former central bankers recently published a report saying "there is a
growing debt and repayment crisis in companies. Many entered the Corona crisis with an unusual and particularly high level of
debt." Therefore "we reject the thought that the worst is behind us. It will be a long and lasting recession."
Israelo Israel's export is expected to approach an all-time high of $132B in 2020 – due to the surge of the hightech sector. 10% of
Israel's workforce is directly employed by the hightech sector (double the level employed in OECD) with even more who are
indirectly involved in hightech. On the other hand - Import has declined substantially
o The Corona crisis has accelerated technological developments at rates estimated at a jump of 5 years within a year.
The main beneficiaries are high-tech companies, and Israel, where the weight of this industry is the highest in the world.
o Direct foreign investment in Israel in 2020 is 20% higher than 2019 – approaching an estimated $25B. Mostly to high-tech
o Foreign exchange reserves as a percentage of GDP is 3rd among OECD countries. Israel's total foreign exchange reserves is
all-time high at $170B, of which $17B acquired in 2020. Notwithstanding unprecedented Dollar acquisition by Bank of Israel –
but due to the unprecedented level of foreign investment – Israel's Shekel is gaining strength: from a rate above 3.80 per US
Dollar on March 2020 to touching 3.20 on in December 2020
o Israel's public saving in 2020 has increased by 1.4% compared to 2019. National debt-to-GDP ratio was 60%, before COVID
19, compared to 66% in OECD. In December 2020 it is 77%, compared to 80% in OECD
o Peace treaties with the United Arab Emirates and Bahrain are expected to add to GDP, through agricultural and hightech
export, incoming hightech investments, oil import and mutual tourism
o First two million vaccines will be given by the end of January 2021, which will put an end to the closures and will quickly
return the Israeli economy to its original path. So far Israel is number 1 in percentage of vaccination doses administered
Global Economy
Coronavirus MeterGlobal Cases Added Per Day
0
100000
200000
300000
400000
500000
600000
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800000
21/01/2020 21/02/2020 21/03/2020 21/04/2020 21/05/2020 21/06/2020 21/07/2020 21/08/2020 21/09/2020 21/10/2020 21/11/2020 21/12/2020
• Infected more than 84 million
• Killed more than 1.84 million worldwide
• Spread to more than 200 countries
Countries loosen
lockdowns
Drastic measures to mitigate the
spread
COVID-19 VaccinationNumber of Vaccination Doses Administered per 100 People
Endless LiquidityGlobal Money Supply (M2)
The money supply roughly includes both cash and deposits that can be used almost as easily as cash
70T
75T
80T
85T
90T
95T
100T
US Economy
Core Economic Indicator
Economic Indicator Latest Figure Reference Period
Growth Rate 33.4% Q3-2020
Unemployment Rate 6.7% November-2020
Inflation Rate (Core PCE, YoY) 1.4% November-2020
Central Bank Interest Rate 0%-0.25% December-2020
10 Years Yield 0.95% December-2020
Ratio of Surplus in Current Account to GDP 2.59%- Q3-2020
Ratio of Public Debt to GDP 127.36% July-2020
Performance is Close to ExpectationsCiti Economic Surprise
-200
-150
-100
-50
0
50
100
150
200
250
300
08-15 11-15 02-16 05-16 08-16 11-16 02-17 05-17 08-17 11-17 02-18 05-18 08-18 11-18 02-19 05-19 08-19 11-19 02-20 05-20 08-20 11-20
V Shaped RecoveryISM
30
35
40
45
50
55
60
65
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Manufacturing Non- Manufacturing
The Road to Full Recovery is Still LongTotal Employment and the Monthly Change in EmploymentMillions
Thousands
152 152 152 152 151
130 133
138 140 141 142 142 143
115
120
125
130
135
140
145
150
155
11/2019 12/2019 01/2020 02/2020 03/2020 04/2020 05/2020 06/2020 07/2020 08/2020 09/2020 10/2020 11/2020
261 184 214 251
-1,373
-20,787
2,725 4,781
1,761 1,493 672 638 245
-25,000
-20,000
-15,000
-10,000
-5,000
-
5,000
10,000
11/2019 12/2019 01/2020 02/2020 03/2020 04/2020 05/2020 06/2020 07/2020 08/2020 09/2020 10/2020 11/2020
First Indications of Price Pressures
0.0
0.5
1.0
1.5
2.0
2.5
3.0
11-09 05-10 11-10 05-11 11-11 05-12 11-12 05-13 11-13 05-14 11-14 05-15 11-15 05-16 11-16 05-17 11-17 05-18 11-18 05-19 11-19 05-20 11-20
US Breakeven 5 Year Inflation Core PCE Rate (YoY)
Fed Inflation Target
Long Term Yields Start Rising10YR Treasury Yield to Maturity
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
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11-11 05-12 11-12 05-13 11-13 05-14 11-14 05-15 11-15 05-16 11-16 05-17 11-17 05-18 11-18 05-19 11-19 05-20 11-20
US Treasury Yield Curve
0
0.1
0.2
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0.4
0.5
0.6
0.7
0.8
0.9
1
0Y 2Y 4Y 6Y 8Y 10Y
Current 3-Months Ago 6-Months Ago
Ultra Accommodative Monetary ConditionsChicago Feds National Financial Condition Index (NFCI)
The NFCI provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets and the traditional and “shadow” banking systems. Negative values have been historically associated with looser-than-average financial conditions
-1
-0.8
-0.6
-0.4
-0.2
0
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1
04-11
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10-16
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10-17
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10-18
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10-19
04-20
10-20
Housing Market Sentiment is at a Record HighUS Housing Market Index (NAHB)
20
30
40
50
60
70
80
90
Robust Activity in Housing MarketExisting Home Sales (Left) and New Home Sales (Right)
Thousands Thousands
0
200
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0
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8000
US Dollar Fell to 3 Years LowUS Dollar Index (DXY)
85.0
87.0
89.0
91.0
93.0
95.0
97.0
99.0
101.0
103.0
105.0
11-16 02-17 05-17 08-17 11-17 02-18 05-18 08-18 11-18 02-19 05-19 08-19 11-19 02-20 05-20 08-20 11-20
The Fed Enables the V Shaped RecoveryTotal Factors Supplying Reserve Funds (Weekly Average) in USD Trillionsand Personal Saving as % of Personal Income
Total factors supplying reserve funds are the sum of "Reserve Bank credit," "gold stock," the "special drawing right certificate account" and "Treasury currency outstanding”
Trillions
0
5
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-
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02/2003 02/2004 02/2005 02/2006 02/2007 02/2008 02/2009 02/2010 02/2011 02/2012 02/2013 02/2014 02/2015 02/2016 02/2017 02/2018 02/2019 02/2020
PX Last US Personal Saving as a % of Disposable Personal IncomeTotal Factors Supplying
The Consumers are Still Worried About the FutureUniversity of Michigan Consumer Sentiment Index
60
65
70
75
80
85
90
95
100
105
110
Eurozone Economy
Core Economic Indicator
Economic Indicator Latest Figure Reference Period
Growth Rate 60.0% Q3-2020
Unemployment Rate 8.4% October-2020
Inflation Rate (Core, YoY) 0.2% November-2020
Central Bank Interest Rate 0.00% December-2020
10 Years Yield (Germany) 0.57%- December-2020
Ratio of Surplus in Current Account to GDP 2.00% Q3-2020
Ratio of Public Debt to GDP 95.10% Q2-2020
Policy Makers are Changing the Economic PictureCiti Economic Surprise
-320
-220
-120
-20
80
180
280
01-16 04-16 07-16 10-16 01-17 04-17 07-17 10-17 01-18 04-18 07-18 10-18 01-19 04-19 07-19 10-19 01-20 04-20 07-20 10-20
The Second Wave is Hitting Mostly the ServicesManufacturing and Non-Manufacturing PMI
10.0
20.0
30.0
40.0
50.0
60.0
70.0
12-17 03-18 06-18 09-18 12-18 03-19 06-19 09-19 12-19 03-20 06-20 09-20
Manufacturing Non-Manufacturing
Second Wave Consumer HesitanceEuro Area Economic Sentiment
60
70
80
90
100
110
120
02/2016 05/2016 08/2016 11/2016 02/2017 05/2017 08/2017 11/2017 02/2018 05/2018 08/2018 11/2018 02/2019 05/2019 08/2019 11/2019 02/2020 05/2020 08/2020 11/2020
The Inflation is Still SubduedCPI and Core CPI (YoY)
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
11/11 05/12 11/12 05/13 11/13 05/14 11/14 05/15 11/15 05/16 11/16 05/17 11/17 05/18 11/18 05/19 11/19 05/20 11/20
CORE CPI CPI
Fiscal Consolidation = Yield Convergence10YR Government Bond Yield
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
05-15 08-15 11-15 02-16 05-16 08-16 11-16 02-17 05-17 08-17 11-17 02-18 05-18 08-18 11-18 02-19 05-19 08-19 11-19 02-20 05-20 08-20 11-20
Germany Italy France Spain
The Euro is Resilient to the Second WaveEUR Index (Left) EURUSD (Right)
1
1.05
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
75
80
85
90
95
100
EUR Index EURUSD
Israel Economy
Core Economic Indicator
Economic Indicator Latest Figure Reference Period
Growth Rate 38.90% Q3-2020
Unemployment Rate 4.8% November-2020
Inflation Rate (YoY) 0.6%- November-2020
Central Bank Interest Rate 0.10% December-2020
10 Years Yield 0.77% December-2020
Ratio of Surplus in Current Account to GDP 4.88% Q3-2020
Ratio of Public Debt to GDP 61.00% Q4-2017
Continuing DeflationCPI (YoY)
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
All Time Low Courtesy of the BOI10YR Government Bond Yield
0
1
2
3
4
5
6
11-2010 11-2011 11-2012 11-2013 11-2014 11-2015 11-2016 11-2017 11-2018 11-2019 11-2020
The Yield Curve is Getting SteeperGovernment Bond Yield Curve
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0Y 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y
Current 3-Months Ago 6-Months Ago
The Hedging Cost Continues to ShrinkUSDILS 1YR Forward Premium
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
11/2007 11/2008 11/2009 11/2010 11/2011 11/2012 11/2013 11/2014 11/2015 11/2016 11/2017 11/2018 11/2019 11/2020
The Shekel is at an All Time HighUSDILS (Left) BOI Nominal Effective Rate (Right)
70
75
80
85
90
95
100
105
11-15 05-16 11-16 05-17 11-17 05-18 11-18 05-19 11-19 05-20 11-20
3.1
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3.8
3.9
4
USDILS BoI Nominal Effective Exchange Rate
Index SummaryDate 30/11/2020 31/12/2020 Change
USDILS 3.3072 3.2127 -2.86%
EURILS 3.945 3.9252 -0.50%
GBPILS 4.4067 4.3915 -0.34%
EURUSD 1.1927 1.2216 2.42%
GBPUSD 1.3323 1.367 2.60%
USDJPY 104.31 103.25 -1.02%
DXY 91.869 89.937 -2.10%
USDILS BOI Nominal Effective Rate 77.67614 76.49706 -1.52%
Date 30/11/2020 31/12/2020 Change
TA-125 1,513 1,568 3.63%
S&P 500 3,622 3,756 3.71%
DAX 13,291 13,719 3.22%
FTSE 6,266 6,461 3.10%
HANG SENG 26,341 27,231 3.38%
NIKKEI 225 26,434 27,444 3.82%
GOLD 1,777 1,898 6.83%
Crude OIL WTI 45.34 48.52 7.01%
CRB 484.39 510.72 5.44%
