A widening fiscal deficit will require additional (but manageable) bond issuance

ISRAEL - In Brief 05 Nov 2023 by Jonathan Katz

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Geopolitics: Israel’s ground operation into Gaza continues, as do sporadic missile fire into Israel from Hamas. There is much fog regarding the war, Israel has encircled Gaza city, a major Hamas stronghold including underground tunnels. International pressure for a cease-fire is mounting as civilian casualties and suffering increases. The Hizballah leader Nasrallah fell short of committing his army to the conflict, and although this could change at any moment, a limited war in Gaza without escalation from Lebanon is viewed by the markets as relatively positive. Monetary policy: At Poalim Webinar, Deputy Governor Abir underlined the present hawkish policy aimed at supporting market stability. He sounded optimistic regarding the economy, stating that the high-tech sector is resilient and continues to function during the war (some working from home) and sees only a 11% decline in credit card purchases since the beginning of the war. He sees strong shekel fundamentals supporting shekel appreciation assuming the geopolitical risk declines. Economic data: Real-time daily data point to further gradual upward correction in private consumption into the third week of the war as more business open up. Growth in the nominal average wage decelerated to 5.6% y/y in September from 5.8% in August and 6.1% in July. Wage growth is expected to continue to slow, which will be supportive of soft inflation. Pre-war consumption growth was stronger than originally assumed, as credit card purchases increased by 3.5% saar (in real terms) in Q323 following growth of 3.4% in Q2. FX: Last week the shekel appreciated by 1.9% against the basket of currencies (by 2.3% against the dollar and by 1.8% a...