It certainly was an eventful week in Israel’s business world, as we closed the month of January with a bang. In the currency markets, shekel exchange rates for both the US dollar and British sterling finally began showing some signs life, but now the question is if it will last… Meanwhile, heads must have rolled at the Central Bureau of Statistics, and the Knesset’s Finance Committee put Bank of Israel on notice. Plus, Israel’s angels received a bit of good news, and some extra-terrestrial activity is spotted in the Negev. Ready to find out what we mean? Read on to get started.
From the IsraTransfer Trading Desk
Perhaps we should start calling them amusement parks, as the week-in-week-out rollercoaster ride in the currency markets continued once again!
Following remarks by President Trump that he “has a lot of problems with the EU,” the US dollar remained weaker to begin the week, before firming up and lifting the USD/NIS exchange rate to 3.40 level for the next few days. Following a brief pause to catch its breath, the exchange rate resumed its climb higher, fueled by strong US economic data including notable increases in both personal consumption and “non farm payroll” job growth.
In sterling news, the GBP/NIS exchange rate hit 4.89 for the first time in 18 months. Not surprisingly, Brexit served as the main driver, with varying reports seemingly every day about how negotiations are progressing and which direction the UK should move in. The general opinion of the markets is that the whole Brexit effect on sterling has has been overplayed, which has accounted for these new highs, so we would expect sterling to come back down to the low 4.80's. However, in the longer term we could see the exchange rate resume its move back up higher, and even attempt to break through the psychological level of 5.00.
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Israel Economy Snapshot
Israel’s Central Bureau of Statistics was dealt an embarrassing blow last week after an independent investigation by Globes uncovered a major mistake in the calculation of its rental index going all the way back to 2010. As a result, the error may have distorted Israel’s Consumer Price Index for years, in addition to economic inflation figures, and even overpayments of both income and purchase taxes by the public during that time.
However, despite the mistake, sources close to the Central Bureau of Statistics have predicted that the agency will not seek to retroactively revise the Consumer Price Index from 2010, as doing would result in changing all the inflation figures from 2010 onwards. Additionally, a restatement of the CPI would also include a reversal of Israel's negative inflation from 2014 through 2016, not to mention broad legal ramifications – and that’s just scratching the surface.
If that’s not enough, further muddying the waters is that as a result of the lower (albeit incorrect) inflation figures over this time, the State has reaped some serious benefits, as in 3.5 billion NIS in interest payments it has avoided having to pay its bondholders. So, to say the government is in no rush to make good on the snafu would be nothing short of a huge understatement (pun intended).
More Shekel News
Add another group to the growing list of critics (that already includes Israel’s manufactures, hospitality industry, and farmers) of the shekel’s seemingly nonstop strengthening. In Knesset discussions last week the Finance Committee vowed to take action of its own should both the Ministry of Finance and Bank of Israel fail to step up their efforts to prevent further negative effects of the plummeting exchange rate on the business sector. In response, Bank of Israel stressed that it considers the measures it has already taken to be aggressive, and that results should start being seen in another month. Additionally, BoI considers the strengthening of other world currencies against the dollar to be a global phenomenon, and maintains that shekel strength is in reality relatively low.
Israel Tax Matters
In what is hoped to have a significant impact on the Israeli technology innovation finance sector, global crowd-funding platform, OurCrowd, announced last week that it has been granted an authorization from the Israel Tax Authority. Under this authorization, an accredited investor who makes a net investment of $10,000, in an approved OurCrowd Israeli portfolio company, and who pays income tax in Israel at the rate of 50%, will be able to write-off the investment as a tax-deductible expense, providing a $5,000 tax credit regardless of its performance.
The new authorization also aims to pave the way for Israeli “angels,” and other foreign investors who conduct taxable business in Israel to invest in startups with tax advantaged treatment. In what is being hailed as a “win-win situation,” OurCrowd Head of Government Relations and Israeli Partnerships, Ori Sobovitz, predicts “the anticipated participation of new investors and the expected growth in the scope of investment in Israeli technologies will further reinforce Israel’s status as the Startup Nation.”
Out of This World Experience
Mitzpe Ramon’s five thousand residents are about to get some out-of-town neighbors, as six Israeli Martians are getting set to move in later this month as part of groundbreaking experiment. With an assist from Israeli communications satellite operator, Spacecom, DMARS, short for Desert Mars Analog Ramon Station, will simulate life on “The Red Planet” that its project manager (and a postdoctoral fellow at Ben-Gurion University of the Negev) Dr. Hillel Rubenstein, says “pulls Israel to the forefront of space, and particularly Mars, exploration.”
Israeli engineering will be on display as the astronaut researchers will be holing up in the 15 square-meter space station (expandable up to 50 square-meters) for missions lasting several days to weeks at a time. The authenticity of the experience will extend beyond just its space management too, as the location’s geology, aridity, and isolation will provide an environment remarkably similar to the conditions there, and that will also include “blackout periods” – a planetary phenomenon where Mars passes almost directly behind the sun from the perspective of the Earth, causing difficulties in radio communication. That said, despite the rocky and less-than-spacious living conditions, “The Ramonauts” will truly be living in style, as in a nod to the Israeli fashion industry, the missions’ space suits have been designed by Alon Livne – whose roster of past clients contains some serious star power, including Lady Gaga, Kim Kardashian, Beyonce, and Rihanna.
Ok everyone, consider yourself officially caught up. Have a very prosperous week!
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