The shekel will react to progress surrounding a possible Saudi deal

ISRAEL - In Brief 26 Sep 2023 by Jonathan Katz
Geopolitics: Last week, the shekel appreciated by 0.7% against the basket of currencies, despite declining global equities (usually correlated with shekel weakness as institutions must purchase FX in order to maintain their FX exposure target). This appreciation is due in part to increasing optimism regarding a potential Saudi-Israel-US deal in which relations with the Saudi Arabia and Israel will be normalized. This follows the Netanyahu-Biden meeting in NY. The direction of the shekel in the coming month will be crucial in the next rate decision (as well as September’s CPI print). Further shekel appreciation could postpone tightening, in addition to a similar global monetary trend of “wait and see” (Fed, BoE, SNB). Demand for new workers increases slightly Demand for new workers (job vacancies) increased slightly in August by 1% m/m to 119k) following a steady decline since July 2022 (151k). This is the first reversal (albeit modest) in the downward demand for new workers, and this supports our assessment that growth remains fairly steady and the labor market rather tight (unemployment down to 3.1% in August, sa) supportive of wage/inflation pressure. The demand (job vacancies/supply (no. of unemployed) ratio for labor increased to 0.80 in August, compared to 0.68 pre-Covid, in other words the labor market is tightening. This is will be a supportive factor for further monetary tightening, if other conditions (CPI print in Sept, the direction of the shekel) also tip the scales for a rate hike on 23.10. Declining housing inventory will keep rental prices elevated Residential housing completions remained low in Q223 actually declining to 53.7k units from 55.4k in Q123 a...

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