Leiderman: Markets tend to over-react

Prof. Leo Leiderman Photo: Ella Faust
Prof. Leo Leiderman Photo: Ella Faust

Bank Hapoalim chief economic adviser Prof. Leo Leiderman expects volatility and uncertainty and thinks the Fed is unlikely to raise interest rates.

"Assuming Donald Trump has won the US presidential elections, a relatively long period of considerable economic and financial uncertainty is expected," Bank Hapoalim (TASE: POLI) chief economic adviser Prof. Leo Leiderman, told "Globes" this morning. "While Trump is expected to change economic policy, plans and details are not yet fully formed and there is also high uncertainty regarding the extent to which Trump will realize some of his past declarations," he added.

What do you mean?

For example, sharply reducing direct taxes, such as income tax for individuals and companies, might significantly raise budget deficit and government debt to GDP ratio. In addition, a new trade policy, specifically towards China and Mexico, which will focus on what Trump believes to be the protection of American jobs, might jeopardize international trade and the export of many US companies. The issue of immigration to the US will also have a long-term effect on the US economy."

And what about effects on the capital markets?

"The nature of the capital markets is to 'over react' to such surprises in the short term, but, as mentioned, the high uncertainty will continue for quite a while, which might raise capital and foreign exchange market volatility.

As for the impact of Trump's election on US interest rates, Leiderman says, "I estimate that the Fed, US Federal Reserve Bank, will not rush to raise interest soon; however, due to the high deficits expected and possibly also the higher inflation, chances of interest raises in 2017 and 2018 have increased. In addition, the dollar is expected to weaken worldwide, but political uncertainty in Europe, including uncertainty about Brexit, remains very high. Therefore, the euro will not necessarily be a safe haven for the next one-two years.

What about the impact on the dollar to shekel and interest rate in Israel?

In our foreign exchange market, the shekel is expected to gain against the dollar, but market players know that the Bank of Israel will be inclined to intervene in trade if and when it believes it is necessary. At the present, we maintain our estimate that the BoI interest rate will remain unchanged in 2017."

Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Prof. Leo Leiderman Photo: Ella Faust
Prof. Leo Leiderman Photo: Ella Faust
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