Israeli markets rally as investors sketch post-Iran conflict landscape

Business Standard

7 hours ago

Israel's shekel jumped sharply and stocks and bonds gained on Monday as investors began to shape a more favourable risk assessment for country's assets in the face of an escalating conflict with Iran.
The shekel strengthened more than 4.5per cent against the dollar in its biggest daily gain since at least 2008, snapping a four day losing streak and clawing back hefty losses suffered last week since rumours of an Israeli attack on Iran intensified. Israel launched its operation early on Friday.
The main Israeli share indices also gained, with the broad Tel Aviv 125 index up 1.9per cent in afternoon trade, extending Sunday's gains of some 0.5per cent following a weekend of punishing Israeli attacks on Iranian nuclear facilities, ballistic missile factories and military commanders that were met with Iranian strikes against Israel.
"The reaction of the local markets ... perhaps reflects the assessment that in certain scenarios this war may be a catalyst for a new status quo in the region," said Bank Hapoalim Chief Economist Victor Bahar.
Israeli officials have said the conflict will take time and won't end until the Iranian nuclear threat is removed after launching its biggest-ever military strike against its longstanding enemy on Friday. Tehran denies it wants to build nuclear weapons.
But tensions in the region have been on the rise since the war in Gaza erupted 20 months ago after Hamas-led and Iranian backed militants stormed into southern Israel. Fighting with Tehran's proxies such as Hezbollah in Lebanon and the Houthis in Yemen has intensified.
"Most of these (proxies) have been destroyed or weakened, but Iran's nuclear weapon program has remained a long-term existential threat for Israel," said Leader Capital Markets Chief Economist Jonathan Katz.
"Delaying this program significantly - and maybe a credible commitment from Iran to forgo high level nuclear enrichment - will reduce Israel's geopolitical risk premium markedly." Israel's international bonds as well as its credit default swaps - a proxy for insurance against risk of default - also saw gains on Monday but have yet to offset recent losses.
The 2120 maturity added more than 1.3 cents to bid at 66.88 cents on the dollar, Tradeweb data showed - still more than 1 cents below levels seen last Wednesday when reports of a potential imminent attack emerged.
Israel's economic performance and the macroeconomic pressures it faces have been choppy in recent years.
Data on Sunday showed the inflation rate eased more than expected to 3.1per cent. Though the central bank is expected to remain cautious and hold interest rates - possibly until early 2026.
Derivatives market is now pricing in a rate cut in mid-2026.
Earlier on Monday, first-quarter economic growth was revised up to an annualised 3.7per cent from 3.4per cent.