Israeli shares slide, shekel weakens as Gaza tensions soar

Mood in Tel Aviv Stock Exchange is also dampened by Monday’s US share slide; if fighting is prolonged then risk to market will increase in short term, Leumi economists say

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

A stock market ticker in the lobby of the Tel Aviv Stock Exchange, March 15, 2020. (Flash90)
A stock market ticker in the lobby of the Tel Aviv Stock Exchange, March 15, 2020. (Flash90)

Shares in Israel declined and its currency weakened on Tuesday as massive rocket barrages from the Gaza Strip, fired at southern Israel cities and border communities, dampened the mood of investors in Tel Aviv. Sentiment on the stock exchange was clouded further by drops on Wall Street on Monday on concerns of a rise in inflation, and amid a decline in shares in Asia on Tuesday.

The “significant escalation” in the south has affected trading on the Tel Aviv Stock Exchange, which follows the “sharp price declines” on Monday in the US and Asian shares on Tuesday morning, Leumi Capital Markets economists Dudi Reznik and Kobby Levi said in a note on Tuesday morning.

“If the current round of fighting is short and limited, then the prevailing assumption is that the domestic stock market will return relatively quickly to where it was before the exchange of fire began. Investors’ concern is that they are slipping into a long and exhausting round of fighting,” the economists wrote in a text message to The Times of Israel later in the day.

The benchmark TA-125 index was trading 2.7% lower at 3:46 p.m. in Tel Aviv, while the TA-35 index of blue-chip companies was down 2.6%. The shekel weakened 0.7% against the dollar and was at NIS 3.28 to the greenback in Tuesday afternoon trading. The currency began to weaken Monday night, “in parallel with the escalation in the security situation, and continues to weaken today,” the economists said.

The shekel weakened against the euro by 1% to about 4.00 shekels to the euro, and by 0.9% against the pound sterling, to NIS 4.64 to the pound, a two-year record, they said.

“The security escalation is a negative trigger that supports the weakening of the shekel, in addition to the foreign exchange purchasing activity that the Bank of Israel has carried out in the market in recent months,” the economists said.

“Past experience teaches us that the weakening of the shekel around geopolitical tensions is short-term and transient,” they said. “Despite this, it is possible that the peak of the event is still ahead of us, and an escalation may weaken the shekel even further.”

“But at the end of the campaign,” the economists added, “the basic forces and foreign investment will continue to support the strengthening of the shekel.”

Palestinian terror groups in the Gaza Strip fired a massive barrage of rockets at southern Israel throughout Tuesday, killing two people and wounding dozens and drawing deadly retaliatory airstrikes from the Israel Defense Forces.

The assaults continued a night of almost constant rocket fire on Israeli communities near the Gaza Strip and as the IDF conducted strikes on more than 100 targets in the coastal enclave, as part of what it has called “Operation Guardian of the Walls,” the military said. The previous day saw a major outbreak of violence from Gaza, including rare rocket fire on Jerusalem, where Palestinians have been clashing with police for days.

On Monday, the Nasdaq declined 2.6% and recorded its worst trading day in two months. Other major indices also declined, with the Dow Jones sliding 0.1% and the S&P 500 weakening 1%. On Tuesday Asian stocks declined as well, on rising inflation concerns and speculation that interest rates could rise.

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