Signs of stability in domestic demand in July, despite increasing restriction

ISRAEL - In Brief 26 Jul 2020 by Jonathan Katz

---

Highlights of Weekly Israel Macro Wrap Up 27.7.20:Recent data suggests that domestic demand has stabilized recently:Credit card purchases increased by 3.5% in July (through 21.7).The Google Mobility Index points to some stability in the past week.Unemployment declined to 11.8% in the last two weeks of June, but increasing restrictions in July most likely pushed this up.On the other hand, consumer confidence declined in June.Job vacancies moved slightly higher in June, but remain way below pre-Covid.The bond market: Recently, yields at the long-end of the curve have remained fairly stable despite lower US yields (benchmark). This could be due to weaker bond purchases by the BoI as well as increasing pessimism regarding the fiscal deficit, in light of an additional fiscal plan (750 ILS to every citizen) and concern regarding a renewed shutdown. FX:The shekel remained stable against the basket last week, weakening against the Euro by 1.2% but strengthening against the dollar by 0.8%. The Bank of Israel appears intent on prevent any sharp appreciation. In 1H20 the BoI purchased 10.5bn USD.Foreign investors sold 12.4bn USD in 1H20.In May, the share of foreigner ownership of government bonds increased to 6.4% (from 5.2% in April), most likely the result of Israel joining WGBI.Israeli institutions sold 2.0bn FX in 2Q20 following purchases of 12.1bn in Q1.We see macro fundamentals still shekel supportive.Politics: Social unrest has increased with several demonstrations (some violent), both in Jerusalem and Tel Aviv. The public appears dissatisfied with the government’s handling of the crisis, and of course much of the criticism is directed at Netanyahu specifically. Rumor have...