After a delayed start because of the activation of the "circuit breaker" mechanism, trading on the Tel Aviv Stock Exchange opened on a clear downward trend this morning, against a background of steep falls on world markets. In New York yesterday, the Dow Jones Industrial Average closed 4.6% off, and futures contracts do not indicate optimism. Traders are comforting themselves with the idea that the falls represent a correction to the rises recorded at the beginning of the year.
The Tel Aviv 35 Index is currently down 2.12%; the Tel Aviv 125 Index is down 2.11%; and the Bluetech Gobal Index is down 3.02%. This follows more moderate falls yesterday. Among leading stocks, Israel Chemicals is down 0.78%; Frutarom is down 3.55%; Bank Hapoalim is down 1.60%; Bank Leumi is down 2.02%; and Tower Semiconductor is down 3.83%. Bezeq parent company B Communications is down 6.27%.
The shekel-dollar exchange rate is up 0.63% in comparison with yesterday's representative rate, at NIS 3.4638/$.
Lior Faust, head of the foreign currency desk at Leumi Capital Markets, said of the market declines, "We all knew it was coming, we just weren't sure when, but January is over. We have had the statements by the central banks in Europe and the US, and their optimism about interest rate rises is starting to percolate through to the stock markets."
On the bond market, Faust said, "Yields are already rising, and the yield on US 10-year T-bonds long ago crossed the critical 2.6% resistance level. And then came the US employment figures on Friday, showing a long-awaited improvement not just in job numbers but also in hourly wages, signaling that inflation is around the corner. The yield on the 10-year bond shot up to 2.88%, and it did not look as though there was anything to stop it on its way to 3% - certainly not incoming US Federal Reserve chair Jerome Powell, who is considered more hawkish than outgoing chair Janet Yellen. That was the signal for the stock exchanges, which took over the driver's seat on the markets, and have meanwhile shoved the interest rate and foreign currency markets into the back seat. We are therefore getting a market that is running to cash, and buying dollars, and also gold, in anticipation of the storm."
On possible moves by the Federal Reserve, Faust said, "All the new chairperson has to do on his first day in the post (what a reception) is to damp expectations of interest rate rises. The problem is that it's not certain that he will want to give up the reins so quickly. The market is waiting for a signal from him, and will continue to hemorrhage until a white flag is raised. The trillion dollar question is whether Powell wants to stabilize the market - and when? Perhaps he will prefer to let the hot air escape from the balloon? World economies are in relatively good shape. There is no reason that it should not finish even today. The key is with the Fed, and depends on its readiness perhaps to allow a little inflation at the expense of halting the hemorrhaging on the market."
Published by Globes [online], Israel business news - www.globes-online.com - on February 6, 2018
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