Continued strength in the shekel during the month of July pummels exchange rates across the board, while election uncertainty has a upwardly mobile effect on Israel's housing prices.
From the IsraTransfer Trading Desk
Talk about the summer doldrums, July was a rough, rough month for the USD/NIS, GBP/NIS, EUR/NIS, and pretty much everything else across the board. The biggest culprit behind the poor performance: an absolutely buff-for-summer shekel. Although the Bank of Israel's announcement this week of no interest rate hikes on the horizon should go a long way in helping to curtail shekel strength, unfortunately that will only get us half-way there when it comes to better exchange rates.
Case in point, despite US President Trump's declarations of the strongest economy in United States history, the US dollar has continued to weaken against the shekel, defying our predictions last month that the world's strongest currency would gain its footing quicker than the Israeli one. Furthermore, after asking (to put it lightly), President Trump certainly did receive on his wish for lower interest rates, with the Fed instituting a cut this week for the first time since 2008.
Going forward, conventional wisdom should dictate that the US's easing in monetary policy would result in a weaker US dollar, however, given the strengthening of it versus the shekel in trading following the move, perhaps the news was simply already built in. Don't expect any stability in the news cycle either, especially when it comes to the ongoing United States/China trade wars. In fact, the heat got turned up yet another notch this week with President Trump ordering his top negotiators to pressure the World Trade Organization to crack down on China after the world's second largest economy declared itself a "developing nation!" All things considered, the current condition of the USD/NIS appears to be a bit oversold having come down approximately 7% since the beginning of the year, so hopefully we'll see some sort of recovery over the next few weeks.
On to sterling, where despite there being a new sheriff in town, absolutely nothing has changed with respect to being any closer to a Brexit resolution. Conversely, the conditions seem to be at their most unstable yet, with new UK Prime Minister, Boris Johnson, taking an ultra hard-line approach when it comes to negotiations, effectively cutting them off until certain pre-conditions are met. The latest of these non-starters is the Irish Backstop, which Johnson has declared he wants completely off the table.
Sadly, a No-Deal Brexit just seems more and more likely as the October 31st deadline draws closer. However, in the miraculous case that a Brexit deal is reached, considering the pummeling both sterling and the euro have endured, the good news could potentially send strength in both currencies soaring. Add in the Bank of Israel's efforts to cap shekel strength, and compelling exchange rates may be restored in a hurry.
Israel Economy Update
Just two years removed from a 10 billion NIS budget surplus, Israel's ballooning government deficit continued its reversal of fortune once again. As illustrated in the reporting of the latest data, the debt grew to an annualized 3.9% of the economy's GDP in June, representing a figure a full 1% above an initial 2019 target of 2.9%, and a revised target of approximately 3.5%.
Previously, the Bank of Israel had signaled for a tax increase as a means of reducing the debt, considering Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon's recent tax cuts and liberal spending policies are widely believed to be responsible for the economy's growing deficit. Not surprisingly, the idea has been met with resistance, especially with another election headed our way in September - par for the course in the midst of a political campaign. Don't expect much to change should Likud prevail in the fall either, as Prime Minister Netanyahu has already gone on record as being in favor of spending cuts rather than increases in taxes as a means of trimming back the debt.
Home Prices on the Move
Tensions and uncertainty aren't the only things that government elections can affect, especially when it comes to home prices in Israel. In its latest report, the Central Bureau of Statistics has found that housing prices have actually seen an increase of nearly 2% since the government's dissolution in December of 2018, reversing a four-month long downward trend prior to the parliamentary turmoil.
Unusual as it may seem the news is not altogether surprising, as analysis of the past three election cycles reveals a similar pattern dating all the way back to 2013. One of the additional catalysts behind the price increase includes an influx of "move-up buyers" into the real estate market, electing for more expensive properties over discounted ones available through the government's Mechir Lamishtaken program, which of late has actually been responsible for glut of inventory in the north.
More, More Mortgages
Demand for Mechir Lamishtaken homes may appear be stagnating in the north, but the same can't be said for elsewhere in the country. In an even more encouraging sign that real estate could be ripe for a rise, recently released June numbers revealed a record 6 billion NIS in loans taken, representing the highest amount since 2015. Having now not breached the 4 billion NIS threshold in any month since 2016, the latest anecdotal evidence points to the Ministry of Finance's Buyer Fixed Program as one of the market's leading drivers.
Additionally, June's numbers also represent the fourth largest amount of mortgages taken in a month over the past decade, with recent interest rates as low 1.6% fueling the demand. Furthermore, the numbers could also be a harbinger of more good news to come, as prior to June the 4 billion NIS per month level had not been seen during anytime spanning the period of 2016 to 2018.
"Aliyah Season" officially got off to a rousing start in July with the return home of over 200 olim from around the world. Among the countries represented in the homecoming included France and Russia, as well as Argentina, Brazil, and Venezuela. Travel accommodations were arranged by The Jewish Agency for Israel, who also announced the expectation of thousands more immigrants before the end of the summer. Mazal tov to all!
And in Case You Missed It...Innovation Nation
You can't make this stuff up, especially when it comes to Wikipedia and their global community of editors. As a matter of fact, it's something Israelis have plenty of first-hand knowledge in considering the country leads the world in the editing of the crowd-sourced encyclopedia's online entries. That achievement, along with others of distinction including the export of high tech services, investment in research and development, and more helped to propel Israel into the top ten of the Global Innovation Index. Since placing 17th in 2017, Israel finished just outside the ranks of the elite at number 11 in 2018 before successfully cracking this year's inner circle. Of note was the country's impressive third place global ranking in venture backed financing, trailing only the United States and China. Not too bad for a country of only 9 million people, or pretty much the same as the state of New Jersey!