STOXX 600 up 0.3%
ECB cuts interest rates by 25 bps
NATO defence ministers meet
Wall Street futures edge up
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ISRAELI SHEKEL MAY NOT BE THE POSTER BOY FOR DISINFLATION STORY
The recent strength of Israeli shekel ILS= will not be a decisive factor for domestic disinflation in the near-term, predicts J.P.Morgan, but rather be likely driven by improvements in the supply side of the economy.
For this prediction, the Wall-Street brokerage hinges on the exchange rate pass-through (ERPT) estimate - the impact of changes in the exchange rate on consumer prices.
The Bank of Israel’s (BoI) estimates suggest that ERPT is quite high at close to 20%.
"This (20%) contradicts the bulk of academic research suggesting that ERPT has declined notably in EM over the past two decades, while remaining low and steady in DM," JPM added.
However, the brokerage estimates that ERPT has declined to around 10%, if not less in recent years in Israel.
Given the shekel has gained 4% against the dollar so far this year, JPM expects a 0.4 percentage point or lesser impact on inflation over the next 12 months.
"The BoI's ERPT assumptions would point to an impact (on inflation) around twice as large... As a result, we don’t think recent ILS strength will be decisive for inflation momentum in coming months," JPM said.
JPM continues to expect supply-side improvements, combined with modest growth in unit labour costs, to be the key driver of disinflation in the near term.
Israel's central bank reduced the benchmark interest rate by 25 basis points in January 2024 after inflation eased and economic growth slowed amid the Gaza war, but has kept policy steady since and said it was in no rush to ease again while inflation remained above target.
(Siddarth S)
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EARLIER ON LIVE MARKETS:
RETAIL INVESTORS TAKE ON RISKIER BETS DESPITE UNCERTAINTIES CLICK HERE
SPECULATORS STAY PUT ON WEAKENING CONSUMER CONFIDENCE - HAZELTREE CLICK HERE
EUROZONE BANK VALUATION REVIVAL TO CONTINUE - UNICREDIT CLICK HERE
QUIET START, TRAVEL SECTOR TOP FALLER CLICK HERE
BEFORE THE BELL: AWAITING THE ECB, AND NATO MEETING CLICK HERE
SWITCH 2 DEBUTS BUT NO FUN-AND-GAMES IN TRADE CLICK HERE
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