Discount Bank Releases Weekly Review on Global Markets and Israeli Economy
Discount Bank reviews global and Israeli economic trends, noting the Bank of Israel rate cut to 3.25%, ongoing US inflation debates, and robust high-tech export growth in June 2026.
Einat Meir, head of the economic department at Discount Bank, released her weekly economic review analyzing global market trends and the Israeli economy.
Global Markets and Central Banks
In the United States, a Federal Reserve official stated that if the August inflation report does not show sufficient moderation, an interest rate hike should be considered as early as the September meeting. This stance reflects ongoing concerns over inflationary risks and aligns with the hawkish message delivered by the Fed Chair a week ago. Conversely, another official noted that inflation is gradually easing and interest rates are currently at an appropriate level, suggesting no immediate need for a hike. Markets are currently pricing in a 58% probability of a rate hike in September. August labor market data remained robust, with 162,000 new jobs added and upward revisions for the previous two months. The unemployment rate held steady at 4.1%, despite a rise in the labor participation rate to 61.6%.
In the eurozone, headline inflation rose to 3.3% in August, up from 2.9% in July, driven by higher energy prices. Meanwhile, core inflation moderated to 2.4%, indicating that underlying price pressures remain contained. Despite this, European Central Bank officials express support for a potential rate hike amid fears that rising energy costs could spark further inflation. Markets are pricing in a 97% probability of a rate hike at the end of the week and two additional increases over the coming year.
In Japan, the yen surged sharply by 2.5% against the US dollar to 156 yen, and continued to strengthen at the start of the week to 153.3 yen. This appreciation is supported by strong data showing a faster-than-expected rise in real wages, growing expectations for an interest rate hike to 1.25% at the upcoming meeting, and remarks from the US Treasury Secretary expressing a preference for Japan to raise rates rather than intervene directly in currency markets. In China, August foreign trade data pointed to continued rapid expansion, with exports jumping 25% year-over-year, fueled by global demand for electronic components tied to the artificial intelligence revolution and rising vehicle shipments.
Israeli Economy and Monetary Policy
«A further decline in inflation will support additional interest rate cuts.»
Bank of Israel lowered its benchmark interest rate by 25 basis points to 3.25%, following the moderation of inflation toward the lower bound of the target range and moderate economic growth in the first half of 2026. In an interview following the rate decision, the Deputy Governor noted that further inflation declines will support additional cuts. Seasonally adjusted credit card purchases for July indicate a slight moderation in private consumption, reflecting a 1.0% decline in total purchases, though marking a 1.5% expansion over the past year. A sharp drop was recorded in flight bookings, which contracted by 6.2%, representing a correction following a surge in April and May driven by early summer bookings.
Simultaneously, industrial goods purchases recorded a slight monthly decline of 1.1%. This data reinforces the picture of moderating demand at the start of the third quarter, though it constitutes only a mild correction following strong recoveries in May and June. In June 2026, service exports expanded by 8.1% compared to the previous month. High-tech service exports, which account for 80% of total service exports, grew by 5.3%, capping a 24.2% annual expansion. These figures demonstrate that the high-tech sector continues to grow consistently despite the strengthening of the shekel.
Government Bond Markets
In the global sovereign debt market, rising yield pressures and uncertainty regarding Fed policy pushed US two-year and ten-year Treasury yields higher by 2.-6 basis points, respectively. President Trump warned that if interest rates rise, he would implement higher tariffs, a move that could fuel inflation and prevent further monetary easing. In Israel, despite markets pricing in a 50% probability of a rate cut last week, the actual reduction did not alter rate expectations, with markets pricing less than a 50% chance of another cut. Yields on two-year Israeli government bonds edged down following the rate cut, while long-term yields rose by 10 basis points in tandem with US Treasuries, widening the yield spread between US and Israeli debt.
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