The shekel appreciates sharply, supporting lower inflation

ISRAEL - In Brief 07 Aug 2022 by Jonathan Katz

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Geopolitics: Violence escalated in the region following Israel’s striking at Islamic Jihad positions (and commanders) in Gaza and subsequent firing of some 800 missiles into Israel. Israel’s Iron Dome succeeded in neutralizing 96% of those missiles approaching populated areas. So far, Hamas has stayed out of the conflict and on Sunday evening a cease-fire was agreed upon (at 23:30). Previous rounds of escalation have had little impact on the economy and on financial markets. Any negative impact has usually been short-lived. Recent economic indicators continue to point to expansion: The Bank of Israel’s data of daily credit card purchases reflect a 1% m/m growth in July. Private consumption appears fairly strong despite the surge of Israeli traveling abroad (favoring consumption abroad). Chain store sales increased by 0.3% saar in Q222 (in real terms) following a contraction of 0.9% in Q122. Wage growth continues mostly in the private sector Average wages increased by 0.36% m/m in May. Private sector wages are up 7.5% y/y (mostly in the hi-tech and financial sectors) while public sector wages have remained flat. FX: The shekel appreciated by 1.7% against the basket of currencies last week, following a 4.3% appreciation in July. Almost all the deprecation YTD has been erased, with only 0.9% remaining. Macro fundamentals remain pro-shekel, despite the strong shekel correlation with equity market movement as witnessed in 1H22. The trade deficit in Q222 remained stable compared to Q122, while hi-tech service exports are up slightly, offsetting in part the negative tourism account. Net FDI also appear fairly solid in Q222. Hi-tech firms raised abroad 4.1bn USD in Q222 follow...