It was bye-bye baby to the month of February to buy-buy baby as we ushered in the month of March with shekel investment recommendations by two financial heavyweights. Elsewhere, the shekel’s fan club grew by two, and the Tax Authority plans the cold hard treatment for cash transactions. All that, plus Israel’s glass ceiling is sadly thicker than we think, Bank Leumi gets ready to bring down the house, and our trading desk sees things possibly improving for the US dollar. Ready to catch up on what you may have missed? Then read on and let’s get to it.
From the IsraTransfer Trading Desk
With Purim over we are looking ahead to Pesach and market momentum leading up to and during the holiday. While markets shouldn’t be too affected by fundamentals this week, especially with a light economic announcement calendar, increased volatility wouldn’t be too outrageous to see as traders in Israel start to wind down positions before the extended break.
In shekel news, the USD/NIS exchange rate continued to fall last week due to a mix of a stronger shekel, as well as politics in the US including the global ripple effect from President Trump’s proposed tariffs. Going forward, we believe that the potential meeting between President Trump and North Korea’s Kim Jong-un in May will be good for the US dollar, as currency traders seek a flight to safety in the short-term, not to mention the potential long-term upside should the meeting prove fruitful.
In sterling trading, the GBP/NIS exchange rate also suffered last week as post Brexit fears weakened sterling. This combined with the continued strengthening of the shekel in general has now pulled the rate back down to 4.75 from the highs of 4.99 that we saw only two weeks ago. Once again, we see Brexit as the primary driver behind the rate going forward, and as such continue to remain week-to-week position for the immediate-term.
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Israel Economy Snapshot
At least two major financial institutions clearly aren’t sold on Bank of Israel’s recent attempts of weakening the shekel. In a signal that NIS strength could be here to stay, both Merrill Lynch and Morgan Stanley now both recommend cracking open the wallet to purchase the Israeli currency. Citing the historic reduced effectiveness of intervention rather than monetary tightening, Merrill Lynch suggests going long on the currency. Meanwhile, Morgan Stanley suspects that Bank of Israel is actually comfortable with the current USD/NIS exchange rate and will probably look to steer clear of any more aggressive intervention in the short-term.
Conversely, Bank of Israel has gone on the record suggesting that it is indeed interested in improving the exchange rate, in fact even putting its money where its mouth is with a recent purchase of $1.8 billion USD in foreign currency. Unfortunately, however, the effects were only short-lived, leading to calls for an increase in spending amounts to the $2-3 billion USD per month range in order to successfully curb shekel strength.
Elsewhere in the economic world, the Israeli government is looking to change its perception on the global stage, namely in the eyes of the International Money Fund (IMF). On the heels of last year’s critique of Israel’s “looser” fiscal policy in the face of low inflation, the IMF now appears less than thrilled with the State’s decision to forgo reducing its debt. The remarks precede the IMF’s forthcoming preliminary report due out on March 14th, which we will certainly have our eye in the week to come.
Israel Tax Authority Crackdown
The tables are about to turn for those getting paid under it. In a newly proposed law put forward by the Israel Tax Authority, cash transactions on goods and services exceeding 8,000 NIS will soon be outlawed; resulting in punishments, including fines up to 30% of the transaction’s value, imposed on both the buyers and sellers. Although a law to this effect had already been proposed in the Knesset in 2015, it has since stalled out in the Constitution, Law and Justice Committee after passing its first reading. As a result, the Tax Authority is now working the budget department of the Ministry of Finance in a renewed attempt to advance the legislation and have it in place by the end of the month.
According a World Bank study of “shadow economies,” the Israel government is missing out on approximately $21 billion a year in tax revenue due to undeclared income. The move also signals a further desire by the government to increase transactions using credit cards, payment apps or electronic wallets, or bank transfers rather than physical currency. Additionally, as we have mentioned previously, the Bank of Israel has even begun looking into unveiling its own digital shekel in further attempts to move the population away from using cash – globally regarded as one of the main“fuels” of shadow economies.
Israel’s Imbalanced Workforce
Gender inequality in Israel’s workplace continues to be an increasing problem, in fact even more so than we reported last week regarding a lack of female participation in Israel’s vibrant entrepreneurial scene. In disappointing news to come from the Women’s International Zionist Organization (WIZO)’s first Glass Ceiling Index, a great imbalance exists in the Israeli workforce, namely at senior level positions. Per data culled from government sources, as well as research and other academic studies found that only 34.5% of senior level executive positions are held by women, with only 15.5% serving as CEO.
Adding to the unfortunate report are findings based on 2017 numbers that women earn on average 35% less than men. Even more troubling is that those with higher educations earn approximately 39% less. Sadly, the problem is not exclusive to private industry either, as the index noted an average 10,000 NIS annual wage gap between men and women in the Public Security Ministry. Although some modest progress has been made in areas such as politics, where women now comprise 27.5% of the Knesset’s Members, crystal clearly, there’s a still a long way to go.
Israel Real Estate
Israel’s over ten year-long house party looks like it may be officially wrapping up – at least according to Bank Leumi. In a statement last week, although rents should continue to rise, Israel’s second largest bank believes the wave of rising home prices for purchase will come to end this year. Among the causes being cited for the anticipated fundamental shift include the tax measures imposed on landlords such as proposed consequences for those owning three or more properties, thus resulting in the purchase of fewer rental properties.
Additionally, the Ministry of Finance’s Buyer Price program is also expected to contribute to a decrease in housing prices, as homes currently under construction are completed, and current renters begin moving in, hence, affecting an increase in supply for new renters electing to do so rather than buy, including in higher-demand areas such as Tel Aviv. Although it won’t happen overnight, Bank of Leumi’s economists do believe that the price decreases will begin to be seen by the end of 2019, and that the sustained (and substantial) downturn will last for several years.
Ok everyone, consider yourself officially caught up. Have a very prosperous week from all of us here at IsraTransfer.
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