The IsraTransfer Report – August 2018
It was a take charge month in Israel business that included the economy earning some extra credit from Moody's Investors Service.
Elsewhere, the US ramps up its efforts to help the State’s banks clean up their image, while runaway GDP braces for a speed bump. Plus more, more mortgages for the Israel real estate market, and a vast e-commerce jungle blossoms in the Holy Land. Ready for your favorite month-in-review? Then scroll down and let us enrich you.
From the IsraTransfer Currency Trading Desk
The impressive run in the USD/NIS exchange rate kept its momentum going through July, closing out the month at 3.66. It now seems like an eternity since we saw it trading at 3.39 back on January 29th. Strength in the USD seems to be coming from a stream of positive fundamental economic data, namely over-performing Q1 GDP growth. Moreover, the dollar has also benefited from investors looking for safer havens to shift their money to in the wake of US President, Donald Trump’s, on-again-off-again global trade war threats.
With a Bank of Israel interest rate hike likely to occur in Q4 already baked in, the US Federal Reserve leaving interest rates alone at its most recent meeting, and the USD trading at a 16-month high against the NIS we continue to believe that further weakening potential in the shekel versus the US dollar is now somewhat limited. Although the shekel is weakening once again versus the USD following very positive comments from the US Fed about its economy’s outlook, our opinion is that there is possibly more downside than upside from here, and think for those looking to exchange their US dollars to shekels, that this might be the right time to do so.
Outside of the English football team’s unlikely success at last month’s World Cup good news in the UK has been a bit hard to come by lately. That story continued again in July, which saw the departure of several government officials from the Brexit negotiations. Adding to the British economic troubles is a continued struggling of the London property market, however, in a glimmer of good news, some experts are optimistic that it isn’t something that will spread to the rest of the country.
Looking to the month ahead, without a doubt Brexit should continue to dominate the headlines, with renewed fears that an agreement won’t be reached. Should that be the case the effects on the EU’s Gross Domestic Product could be significant, which would almost certainly be felt among a vast range of global currencies. That said, going forward, we expect volatility in sterling to remain in place, and with interest rates in the UK now at their highest since 2009 following yesterday’s hike by the BOE, in the short-term our opinion is those looking to convert to shekels to do so now, otherwise be prepared to sit tight while the markets continue its vacillating tendencies as more news gets released.
Stay on top of daily trading in the shekel, plus notable news, economic announcements and more with IsraTransfer’s free Daily Shekel Report newsletter.
Israel Economy Reversal
The Israeli economy growth spurt certainly didn’t last long. After, revising its Q1 GDP upwards less than two weeks ago, the Treasury has now officially back-tracked with a warning that Q2 growth will now be slower than expected. Following three consecutive quarters of advancement at an annualized rate of more than 4% growth, the second quarter is expected to have slowed to a relatively sluggish 2% to 2.5%.
Among the biggest items to jump off the page in what is being dubbed a “technical correction” is the discounting of one-time factors that had been driving growth in past quarters, such as unusually high car imports. All things considered, economists project economic growth to be at the standard 3% to 3.5% rate even without these isolated cases, however, a decline in private consumption during the second quarter has drawn the attention of economists – something they will no doubt be keeping an eye on moving into the latter half of 2018.
Don’t Bank on It
Exchange rates are no longer the only concerns on the minds of those looking to transfer money to Israel from overseas, as recently the compliance now required to do so has quickly made its way up the rankings. In an attempt to dispel its dubious reputation as one of the world’s top destinations for foreign tax evaders, Israel is cooperating with the US government in its fight against global money laundering. Under pressures from the United States’ Justice Department seeking to combat the massive amount of loss in tax revenue due to those transferring the funds to Israel, the government, led by Bank of Israel, is stepping up its efforts to stem the tide of the highly questionable practice.
While a full-service currency exchange company like IsraTransfer has taken the necessary steps to lighten the inconveniences clients are feeling, some industries haven’t been so lucky. In fact, high-end realtors have cited the heightened compliance requirements as a major hindrance in their ability to close deals, namely due foreign buyers preferring to walk away from purchases rather than be subjected to what they consider overly invasive government inquiries. Furthermore, cases have also been reported of banks actually closing customer accounts for unsatisfactory answers to the source of the funds they are holding.
To date, the probe has resulted in the recovery of over $11 billion in tax revenue by the United States Internal Revenue Service from approximately 100 banks around the world. Additionally, the crackdown extends beyond just foreign bank accounts too, including American citizens owning foreign corporations that require special forms to be filed annually, or risk facing fines in excess of $10,000. With that in mind, each case is subjective so definitely consult with your tax advisor to learn more about how or if you could be affected.
Israel Mortgage Market Update
Historically a busy time in the mortgage market, summer in Israel stayed true to its reputation with banking experts predicting the taking of new mortgages to reach nearly 5.5 billion NIS in the month of July. The impressive statistic represents an almost 20% increase in the monthly average over the past year, fueled in part by the introduction of new properties in the Buyer Fixed Price Plan now entering the market.
Despite actual mortgage interest rates remaining flat, in many cases the same as they were for the past six months, demand in 2018 apparently seems to be growing. One additional reason for the renewed appetite appears to be large banks reaching Bank of Israel’s capital adequacy ratio targets, thus allowing them to be more aggressive in halting mortgage rate hikes, and creating increased competition. While it’s definitely too early to deem this year a big success yet, the healthy rebound in performance from a lackluster 2017 is certainly reason to believe that more good news could be on the horizon.
And in case you missed it….
The Israel E-conomy
Israel e-commerce is ready for prime time, as evidenced by the overwhelming participation by Sabras in Amazon’s Prime Day. Over 20,000 shoppers generated an estimated 8 million NIS in just 36 hours from the company’s signature deep discount event. Moving forward Amazon is now gearing up for what it expects to be a massive continuation of Israel’s seemingly insatiable appetite for online shopping. In fact, 50,000 packages ordered on Amazon during their free-delivery initiative have already been fulfilled in only the past few days!