Market Review: Trading Open Expectations and Geopolitical Impact
The trading week in Tel Aviv opens with an 'English opening' expectation due to chip stock declines on Wall Street. Global markets are reacting to Iran's signals of de-escalation, leading to a 5% drop in oil prices.
1. Stock Markets
The trading week in Tel Aviv will open this morning with an expectation of an 'English opening', as dual-listed stocks return with an unusual negative arbitrage gap of about 1.7%. The gap stems from the significant pressures that chip stocks on Wall Street absorbed over the weekend. Chip stocks Nova, Camtek, and Tower will lose about 6%, 7.5%, and 10.4%, respectively. Elbit Systems, Teva, and Enlight Renewable Energy will lose between 2% and 3%, while Ormat will weaken by nearly 6%. Palo Alto will also lose about 2%, although it is not yet included in the stock exchange indices and therefore will not affect them. On the other hand, software stocks Nice and Formula Systems are expected to climb by over 3% and 4%, respectively.
In global markets, trading will open against the backdrop of reports that Iran is signaling it will stop attacks if the American truce continues. The signals to calm the spirits in the Gulf led to a sharp retreat of about 5% in oil prices; the contract for Brent crude oil fell to about 92 dollars per barrel, while American oil (WTI) retreated to a level of about 84.7 dollars.
The calming of spirits comes after five months of fighting and a renewed rise in fuel prices in the last two weeks. The American administration understands that further escalation could drag the Middle East into a wide war, paralyze trade in the Strait of Hormuz, and ignite a global energy crisis.
2. Bond Market
The wave of yield increases in global bond markets last week continued to radiate strongly to the local market as well. In Israel, the yield on 10-year government bonds is approaching the 4% level, while a steepening of the yield curve is being recorded. The country's risk premium, embodied in bond spreads, rose slightly to over 90 basis points — but economists estimate that most of the pressure came from global trends and not just from local factors.
"The bond market in Israel also stood out in its performance relative to the world," explains Alex Zabezhinsky, chief economist at Meitav. "Against the backdrop of the rise in yields in the world, the yield on Israel's 10-year government bond rose in the last month at a relatively moderate rate compared to most countries. The rise was influenced, among other things, by activity in the IRS market where foreign investors are particularly active — sometimes as part of their global activity and not necessarily for reasons related to Israel."
3. Commodities and Currency Markets
The geopolitical escalation in the Middle East last week continued to radiate strongly to the commodities and currency markets. Against the declines on Wall Street and the rise in the risk premium, there was a flight of investors towards "safe haven" assets. The dollar in the world strengthened (the DXY index rose by about 0.7%), while the shekel weakened last week by about 0.3% and its continuous rate was set at 3.05 shekels. This morning, the dollar weakened against the local currency and is trading with a decline of 0.26% around the level of 3.041 shekels.
