Why is the TASE soaring and shekel strengthening?

The Tel Aviv Stock Exchange changed direction over the past week and the shekel was rising strongly. Since the beginning of the month, the Tel Aviv 35 Index is up 8% including 5.26% over the past two sessions while the Tel Aviv 125 Index is up 8% since July 9 including 4.66% over the past two sessions. The shekel has risen sharply over the past few days and is at its strongest against the dollar since mid-June, in part because the US currency has weakened around the world, and has not fallen against the euro, which has been strengthening around the world.

However, the underperformance of the TASE index, particularly against Wall Street indices, remains significant. Since the beginning of 2023, both the Tel Aviv 35 and the Tel Aviv 125 have gained about 5%, compared to 18.6% for the S&P 500 and 37% for the Nasdaq.

The positive trend on the TASE stock exchange and the strengthening of the shekel in recent days receives a tailwind from the continuation of the positive trend on Wall Street, in part due to the encouraging inflation data that has been published recently in Israel and around the world. In Israel, it was announced last Friday that the Consumer Price Index (CPI) was unchanged in June and annual inflation fell to 4.2%. In the US, it was announced last week that the annual inflation rate fell to its lowest level in two years, from 4% in May to 3% in June.

Reports of talks to “soften” the reasonableness standards bill, which if enacted would limit the Supreme Court’s ability to review executive branch decisions, also supported gains in TASE and strengthened the shekel.

Alex Zabezhinsky, chief economist at investment house Meitav, says, “With the exception of rallies in US stock markets, there has been no economic data that could explain TASE’s rallies.

“It should be borne in mind that the performance of the local stock exchange has been severely weak since the beginning of the year. Therefore, investors are looking for reasons for gains. Any interpretation of political developments leads to the conclusion that the worst is behind us leading to increases in the stock market. Have we really crossed the bottom in terms of political events and can it not get worse? This is a difficult question to answer.”

“Reports on dialogue will feed the market.”

A source in the forex market told “Globes” that there is a change in sentiment among foreign investors. “It seems that they suddenly fell in love with the shekel again. Suddenly they don’t care about the legislation and they are sure that it is just a passing phase.”

Noam Mirovich, Senior Portfolio Manager at Migdal Capital Markets, says, “Since the beginning of the year, the performance of the local market has been weak compared to most markets in the world due to political influences, and the shekel has also shown a weakening trend during this period. In this scenario, it is clear that there will be standard deviations. In recent days, news has been published about the level of liquidity that will occur between market parties, and beyond this level of liquidity. It is relatively low.”

He adds, “There is no significant news that could provide an explanation for the increases, and it could be that market players are re-managing their positions. It is not out of the question that there was a short squeeze that pushed the market higher.”

“It is reasonable to expect the market to be volatile in the coming period

However, Mirovic asserts, “In recent months, we have already witnessed several times movements from large price increases for a few days, which were recorded due to the positive news that was published regarding the talks of politicians, and later the market turned back, which may happen this time as well.”

“Since economic data and employment indicators in the economy are good, all of this can be linked to the question marks surrounding judicial legislation,” Ronen Menachem, chief economist at Bank of Mizrahi Tefahu, Ronen Menachem, told Globes. In the market, many experts, including rating firms and the Bank of Israel, have assessed the significant effects that legislation without broad consensus could have on both economic activity and investor sentiment. Thus, when there are breaks between bills, read these intervals. Capacity Standards Bill, the market is hungry for positive headlines , which will reduce the level of fears.

However, Menachem says, “It should be noted that in light of the ongoing relationship between legislative moves and the fluctuations revolving around them – in every direction – with the continuation of protests and the rapid approach of the aforementioned second and third reading dates, it is likely that the market will be volatile in the coming period. Later, if the basic economic data of the economy will play an ever-larger role.”

Published by Globes, Israel business news – en.globes.co.il – on Jul 20, 2023.

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