It was a bit of a downer week for the Bank of Israel, specifically when it came to their foreign currency reserves. Meanwhile, the JNF put the Ministry of Finance on the spot in making its latest appeal. Elsewhere, one of the economy’s revenue stream dried up, while the Ministry of Economy and Industry gets prepared to open the floodgates. All that plus, everyone’s eyes are on the newswire at the IsraTransfer Trading Desk. Ready to kick off the week on the right foot? Then scroll down and let’s get to it.
From the IsraTransfer Trading Desk
Global politics has certainly taken center stage recently and last week was no different, especially in wake of US President Trump’s aggressive statements and actions during and after this past week’s G7 Summit. It goes without saying that everyone is bracing for the biggest news of the week – the US and North Korea summit happening in Singapore. Not to be overlooked, however, is a jam-packed week of economic announcements that will include both the European Central Bank and US Fed interest rate decisions.
As we had mentioned a few weeks back, from a technical trading perspective, the USD/NIS exchange rate seems to have found a comfortable resting place around the 3.56 to 3.57 range, which is exactly where the exchange rate sits just hours ahead of the historic Trump-Kim meeting. Our opinion is that nothing of tremendous substance will actually result from this first meeting, and therefore we wouldn’t be surprised to see a muted reaction in the currency markets. That said, considering that the meeting features two of the world’s most unpredictable leaders, anything is possible, and as such, like the rest of the world we will be keeping a close eye on what comes out of the dialogue.
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Bank of Israel Representative Exchange Rates
For the Week of May 28th thru June 1st, 2018
|Currency||Symbol||Week High||Week Low||Week Close|
|South African Rand||ZAR/NIS||0.2849||0.2693||0.2739|
This Week’s Notable Economic Announcements
|Tuesday, June 12th||EUR||Euro-Zone ZEW Survey|
|Tuesday, June 12th||USD||Consumer Price Index|
|Wednesday, June 13th||GBP||Consumer Price Index|
|Wednesday, June 13th||USD||FOMC Rate Decision|
|Thursday, June 14th||AUD||Employment/Unemployment|
|Thursday, June 14th||EUR||ECB Rate Decision|
|Thursday, June 14th||EUR||ECB Marginal Lending Facility|
|Thursday, June 14th||EUR||ECB Deposit Facility Rate|
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Israel Economy Checkup
In disappointing news, the Israel economy was dealt a bit of a blow with the report of lower tax revenue collected by the government in the month of May. The revenues, totaling $25.1 billion USD represents a decline of nearly 5% from the same period last year. The exclusion of legislative changes, excess and tax collection, and more, plus larger than usual tax refunds led the way as the primary causes behind the drop. Given the development, the State now faces the potential for a large budget deficit. As it stands now, the cumulative deficit over the last year of 1.9% of GDP is projected to eclipse 2.9% by the end of 2018, marking a stark contrast from the years of substantially lower numbers.
Additionally, not to be overlooked, the report revealed an increase in government spending during the same period a year ago. Topping the list was a 5.8% jump in civil ministry spending since the beginning of the year, as well as a nearly 1.5% increase in defense spending.
Bank of Israel Bulletin
For the fourth consecutive month the Bank of Israel’s foreign exchange reserves have declined. As of the end of May, Bank of Israel posted holdings of $114.7 billion USD, a reduction of over $650 million USD on record as of the end of April. Behind the reasons for the drop included a revaluation that resulted in a revision downward of $803 million USD, as well as government transfers out of Israel in the neighborhood of $34 million USD. Helping to offset some of the reduced inventories included over $150 million USD acquired as part of a government purchase program designed to offset the effects of natural gas production on the exchange rate.
While the Bank’s cache of foreign currencies may be heading lower, a new choice of asset may in fact be replacing them. Previously liquidity concerns had limited the Bank to purchases only of global currencies, however, the Bank has now indicated that it may potentially look to add global real estate to its portfolio in a search for higher yielding investment instruments. Although the actual putting into action of the idea may be a way off, it may one day represent another means for the Bank of Israel to attempt to contain the shekel’s strength.
Perhaps preferential tax treatment shouldn’t only apply to those making Aliyah – at least as far as the JNF is concerned. In taking a cue from last week’s 10 year tax exemption provided to recent oleh, Roman Abramovich, the Jewish National Fund has just petitioned the government to have tax exempt status extended to it as well, citing its standing as a public benefit corporation.
The JNF has been operating tax exempt under Israel’s national institution law since the State’s founding. However, a law passed by in January stated that tax law will begin to apply to the JNF, although did provide the organization with the ability to obtain an extension on its exemption through 2020. Since then the JNF has declined the extension, resulting in the appointment by the government of a special team to handle collection of taxes from JNF. While the Israel Tax Authority stands behind its opinion that JNF could be subject to taxation, experts predict that the dispute is likely to ultimately end up in court that could drag out for years before the government could see any tax revenue from the agency.
Import Limits Raised
Good news is on the way for Israelis who go shopping outside the country, thanks to a new directive signed by the Minister of Economy and Industry expanding the limits for personal imports. Under the directive individuals will be permitted imports of up to five consumer items, or up to $1,000 (up to 30 units), whichever is greater, as long as the imports are for personal use. The good news doesn’t end there either, as personal imports for the purposes of home improvements and renovations will also be covered under the directive; thus allowing for the import of materials in larger quantities than previously allowed.
Not all are fans of the proposed legislation, however, including the Manufacturers Association and Federation of Israeli Chambers of Commerce who argue that the exemption will create an unfair advantage for overseas businesses, affording them the opportunity to sell products to Israeli consumers at more competitive prices than businesses in Israel. Additionally, the Federation of Israeli Chambers of Commerce has argued that imports of $1,000 (or 30 items), is beyond reasonable for personal imports and runs the risk of being taken advantage of for purposes other than personal. Previously, the two organizations had gone on record as opposing what now seems like a miniscule $75 VAT exemption on online purchases from overseas. The new law is currently on track to go into effect in about three weeks, so start getting your wish lists ready now.
Ok, consider yourself back in-the-know. Wishing everyone a very productive and prosperous week from IsraTransfer.
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