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The IsraTransfer Report - April 2019

Looming fears of a potential recession in the United States pressured the USD/NIS rate lower in March, while Brexit came and went yet the GBP/NIS held its ground.

From the IsraTransfer Trading Desk

March was certainly a tale of two months for the USD/NIS complete with a mid-month pullback all the way down to the 3.59 level, before returning to the familiar 3.62 zone.  Since its torrid start out of the gates to start off 2019, including a run up all the way to nearly 3.79, the USD/NIS rate has slowly but surely declined.  With the exception of last month's short-lived hiccup, the rate has consistently found itself in a pretty tight range, trading for the most part between 3.60 and 3.63.

With an inverted yield curve on US debt sparking fears of impending recession, as well lower revised GDP figures in the fourth quarter of 2018, a continuation of tough times could still be in store for the US dollar.  Considering the Israeli economy appears to be still going reasonably strong, and with the US Fed staying the course with its "wait and see" policy regarding future interest rate hikes, the trend is certainly not in favor of anyone hoping for a higher rate.  That said, right around 3.60 seems to be a level of significant support, so our expectation is a month of not too much movement either way in the currency pair.  

Those who thought that March 29th would mark the end of the Brexit drama were certainly treated to a rude awakening, as the deadline came and went in what was a genuine non-event.  As it stands now, the UK is still a member of the European Union and we are no closer to a resolution once again.  Add in a potential overhaul in the British government starting at the top, and the current condition is nothing short of a true "balagan!"  With hardly much time between now and the new Brexit date of May 22nd, a "No Deal Brexit" seems increasingly likely.

Interestingly, even with all the uncertainty, sterling has actually held up better than the euro against the shekel.  Since the EUR/NIS rate began the year at 4.30 level, it now finds itself down 5.5%.  At this point, with sterling demonstrating some serious resilience in the face of all the Brexit turmoil, our expectation is that we won't be seeing the GBP/NIS rate back down below 4.70 for any extended period of time no matter what the news.  However, as long as Brexit uncertainty remains, keep in mind that moves higher will be limited too.

Stay on top of daily trading in the shekel, plus notable news, economic announcements, and more with IsraTransfer’s free Daily Shekel Report newsletter.

Israeli Economy Report Card

Upon further review 2018 was a pretty impressive year for the Israeli economy.  In his presentation of the Bank of Israel's Annual Report for 2018 new Governor, Amir Yaron, delivered a very rosy review regarding the past year, including better-than-average growth in GDP versus the rest of the word's developed countries.  Additionally, a solid labor market, highlighted by that in the private sector, helped propel real wages higher after adjustment for inflation.

However, in keeping with the theme of "April showers," Yaron did warn that some grey clouds could be on the horizon for the economy going forward.  Notable among the cautions put forward by the Governor included the expansion of the fiscal deficit in consequence to the Ministry of Finance's uptick in government spending.  As a result the deficit now stands at its highest level since 2013.  Moreover, Yaron cited Israel's low efficiency, most notably in Israel's bureaucracies, as yet another strain on the economy.  

Although the critiques appear to be long on problems, Yaron was certainly not short on solutions.  Among those put forward by the Bank of Israel included the recommendation of new labor agreements with government workers that will put a focus on more targeted performance goals.  Going a step further, and with an eye on the future, BoI also suggested a stronger investment in Israel's education system.  The central bank's results-oriented guidance called for an increase in spending per student, albeit through creative and more efficient tactics.  Proffered as a means of achieving this included more incentives for high-quality teachers to work in lower performing schools, as well as concentrating more of the budget towards early education.

The Israel Real Estate Section 

From the looks of it, election season probably wasn't the most opportune time for Minister of Finance, Moshe Kahlon, to have his performance review by the Bank of Israel.  Leading the way in the critique of Kahlon and his Ministry of Finance was a decline in home prices for the first time in a decade.  Government intervention leading to a decrease in demand earned the dubious distinction of the leading culprit behind the retreat.  Although certain regions of the country did in fact see an increase, Kahlon's  Mechir Lamishtaken program was effective in lowering the prices in areas such as Tel Aviv and the south where the vast amount of its resources have been invested.

Additionally, the Bank of Israel also placed blame squarely on the government for failing to meet its goals in the area of urban renewal projects.  The majority of these initiatives were designed to renew old living spaces in order to improve and strengthen residential buildings, as well as upgrade public areas. However, in another disappointing blow, data revealed that the government has thus far only been able to meet 88% of its 2016 targets and 65% of 2017's.  To his credit Kahlon received his reprimand with an open-mind, vowing to adopt any recommendation that will strengthen the state's economy and bolster its "social resilience."

And in case you missed it...

Israel's Million Dollar Smile

Israeli non-profit, SpaceIL could be on its way to more than just a place the history books when its Beresheet spacecraft makes its anticipated April 11th moon landing.  In addition to becoming only the fourth country to successfully land a vehicle on the moon, the non-profit is also set to earn the distinction of the first ever privately owned spacecraft to reach the lunar surface.

Fame isn't the only thing SpaceIL is poised to claim either as its Earth-shattering accomplishment is set to earn it $1 million in prize money from the XPRIZE Foundation's "Moonshot Award."  SpaceIL which was founded in 2011 cost $100 million in funding (so every little bit helps!), and was independently paid for by a host of donors including renowned philanthropist, Sheldon Adelson.  To mark the accomplishment Beresheet plans to memorialize the touchdown by taking a selfie to send back to Earth, thus completing the full run of snapshots it's been taking throughout its journey.  


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