Elevated escalation risks in the North impacts markets

ISRAEL - In Brief 28 Jul 2024 by Jonathan Katz

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Geopolitics: 12 young people were killed and many more wounded by a missile fired by Hizballah on a Druze village in the Northern Golan Heights. Markets declined sharply on Sunday as this has increased the possibility of a significant escalation in the North. Meanwhile, cease-fire talks with Hamas will be renewed this week. The labor market remains tight Detailed labor data in June point to an additional eight thousand employees in June (seasonally adjusted). Unemployment (official definition, seasonally adjusted) declined to 3.2% in June from 3.4% last month. A tight market has supported wage growth of 6%-6.5%, not in line with the inflation target. The number of hotel over-night occupancies declined to 11.3 ml in the first half of 2024 from 11.8ml this time last year. Occupancies by Israelis increased to 10.4ml from 6.8ml, which foreigners reduced their occupancies to 1.0ml from 5.1ml. Total room occupancy reached 63%. Increased demand from Israelis has pushed hotel prices up by 7.5% y/y. The PMI declined slightly but remained in expansionary territory (52.1) in June with strong domestic demand (orders). The bond market: The media is reporting the likelihood of a delay of part of the 14bn USD additional aid from the US due to bureaucratic reasons. This could push the fiscal deficit up to 7.6% GDP this year, above the 6.6% target. It is not clear whether the MoF will increase the monthly bond issuance as a result. On the other hand, initial data regarding tax revenues in July point to a high level of revenues, above the initial MoF estimate. In the first half the year, tax revenues exceeded target by some 20bn ILS. Foreigners continued to reduce their exposure to Isra...