Global politics takes center stage as the currency market’s biggest driver, and in real estate news, data shows a firming up of the housing market in August.
Plus, big budget surpluses have some top Israel heavyweights set to slug it out, the Finance Minister becomes a real company man, and Chag season wraps up with one last holiday. What are we talking about? Keep reading…
From the Currency Exchange Trading Desk
There are many things that affect exchange rates ranging from jobs data, inflation reports, and interest rate decision, but politics is a big reason for movements in exchange rates at present. (it is not the only one, but does have a huge presence in what we are currently seeing).
In the US things are never quiet politically, and the last week was no exception. Former Trump campaign chairman and officials have received indictments for a number of issues but most importantly conspiracy against the United States.
But why does this impact the US dollar?
It means President Trumps time is taken up by the political issues rather than moving ahead with plans for the economy which include tax reforms. The tax reforms are important for the dollar as the new incentives could bring over $2 billion dollars currently held offshore back to the US.. This would have a very positive impact for the US dollar
Elsewhere, in Europe we have two major political issues occurring at the moment, one new and one old.
The old is Brexit, with negotiations dragging out, and the UK preparing for a hard Brexit. The Bank of England (actually the MPC to be precise) is expected to raise interest rates at their meeting on Thursday. This would be the first time in a DECADE that interest rates have been hiked. It is so widely expected, that if it does not happen we would likely see the sterling vs. shekel exchange rate fall as a result. If rates are hiked as expected, we will probably see a small jump in the exchange rate, but much of this has already been priced in to the rate.
In Europe, the new is Catalonia, as we are seeing a real mess in Spain, especially last week when with Catalonia claiming its independence from Spain, and then for Madrid retaking control of all local authorities. We saw the Euro hit the lowest we have seen against the Shekel for four months. As such, it is still our opinion that the Euro is too strong and should not even be above 4.00 (which it has been since July).
Israel Economy Snapshot
There was no shortage of good news at Israel’s October cabinet meeting. Strong economic data showed unemployment at an unprecedented low level, and those in the lower 10% income category benefiting more from growth than the upper 10%.
Among other things, 2017 surplus tax collection is now projected to exceed 16 billion NIS after a cut in the tax rate on dividends from personal service corporations resulted in a 13 billion NIS one-time jump in tax revenues. An additional 4 billion NIS also resulted from taxes paid by Israeli shareholders in Mobileye, which sold to Intel for $15.3 billion. How the funds will be distributed could be contentious with the Finance Ministry, Defense Ministry, and Prime Minister all seeking significant amounts for their own plans, as well as salary increments demanded by the teachers’ unions, high school teachers, and others.
Meanwhile, another 3.5 billion NIS in reserves designed as a protective mechanism in the framework of the budget were released to the government. Per the two-year budget law, if at the end of 2017, the projected 2018 budget deficit does not exceed the legislated target, the NIS 3.5 billion reserve in the 2018 budget can be released. Discussions are planned over the coming weeks regarding use of the reserve.
In response to tax reforms currently being discussed in the US, Israel Prime Minister Benjamin Netanyahu and Minister of Finance Moshe Kahlon have proposed a further substantial cut in Israel’s corporate tax rate. The Finance Minister also went on to tell US Treasury Secretary, Steven Mnuchin, that “Israel will adapt to any corporate tax measure taken by the US.” The plan is not without its critics, however, as the Bank of Israel contends that a tax cut now will result in a tax increase again in 2019, and argues that such fluctuations are bad for the business sector.
Israel Real Estate
According to Israel’s Central Bureau of Statistics, new home sales have begun to firm with contractors reporting August sales of over two thousand homes. The central district led the way with over six hundred new homes sold, along with over two hundred homes sold in the Jerusalem district versus ninety nine in July.