BoI Governor backtracks on his hawkish bias
Unemployment remains low and the labor market tight.
* Unemployment in Q2 2019 reached 3.9% from 4.0% in Q1 2019.
* Unemployment in the 25-64 age group reached 3.3% in Q2 2019.
* Job growth slowed in Q2 2019, and labor participation declined.
* The labor market remains tight, supportive of wage pressure.
* Weak job creation suggests economic growth is slowing.
Credit card purchases increased by 7.5% saar in Q2 2019 following 8.0% in Q1 2019.
* Households are enjoying some wage growth and full employment.
* Most PC indicators are pointing to some modest deceleration of consumption, which is supportive of weak inflationary pressure.
Trying to stem shekel appreciation, the BoI Governor stated that rates will remain stable for quite some time and that other monetary tools are available.
* The markets are not convinced that Yaron favors FX intervention.
* Last week the shekel appreciated by 0.9% (against the basket) and by 2.5% since the last rate decision on July 8.
S&P maintained Israel's AA- rating (stable outlook), but warned of political instability and fiscal slippage.
Politics: Polls continue to show that it will be difficult for Netanyahu to form a coalition, with the right wing/religious bloc (without Lieberman) receiving 55-57 mandates. Meanwhile, the smaller parties are joining forces (last week: some of the right-wing parties), but this will not change the basic breakdown. This only real feasible scenario appears to be that Netanyahu steps down, which will allow the formation of a unity government.
Important data this week: Wednesday: Average wage data for May (an important indicator of wage/inflationary pressure), as well as the Business Sector Tendency Survey (July). Someday soon (the exact date is never known in advance), July's fiscal numbers will be released. The current deficit stands at 3.9% GDP in the LTM through June.
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