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Another election puts Israel’s efforts to reduce cost of living on back burner

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© Reuters. FILE PHOTO: A general view shows part of Tel Aviv, Israel June 12, 2022. Picture taken with a drone on June 12, 2022. REUTERS/Ilan Rosenberg

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By Steven Scheer

JERUSALEM (Reuters) – Israel’s economy is expected to be resilient during yet another election cycle, but households will suffer as reforms to reduce the cost of living are likely to be shelved and state spending will be scaled back until a 2023 budget is approved.

Prime Minister Naftali Bennett moved this week to dissolve parliament and call Israel’s fifth election in less than four years after infighting made the ruling coalition no longer tenable. The poll is expected to take place some time between late September and early November – which means months of policy paralysis.

The dollar-shekel rate has barely moved so far, reflecting core economic resilience to by now familiar electoral upheaval.

Fixed capital investment and private spending are on the rise and exports are expected to bounce back after a weak start to the year.

“Further political uncertainty is somewhat negative for markets, although Israel unfortunately has much experience with this scenario,” said Jonathan Katz, chief economist at Leader Capital Markets. “The major downside is the lack of fiscal reforms and policy.”

Foreign Minister Yair Lapid will head a caretaker government once an election date is decided next week. After a vote it typically takes weeks for a coalition to be formed.

“We now assume a more limited role of the government in the policy space with respect to inflation this year. We … think the Bank of Israel will be emboldened to take firmer action against inflation,” said JP Morgan economist Jessica Murray.

Inflation has reached an 11-year high of 4.1%, which is lower than most Western countries and the central bank has started to raise interest rates but public anger is growing about what Israelis see as steep price rises across goods and services.

The government had responded with planned reforms to boost construction starts and expand a discount scheme aimed at restraining rapidly rising property prices as demand continues to outstrip supply. It also announced plans to open up the food and agriculture sector to more imports rather than protecting local industry. However, these reforms and measures have yet to receive final parliamentary approval, and will now be on hold until at least next year.

Public sector wage agreements will also likely be delayed, as will an initiative to boost the minimum wage and spending on public sector infrastructure projects.

Citi economist Michel Nies said moving projects to the backburner could affect Israel’s growth potential, and fiscal and monetary policies in the longer term.

A vote on the 2023 budget, which had been expected by November, has likely been pushed back until a new government is formed.

“The collapse of the ruling coalition has significantly

increased the medium-term fiscal risks in Israel,” said Deutsche Bank (ETR:DBKGn) economist Fatih Akcelik.

BALANCED BUDGET

The economy, though, is supported by improving public finances thanks to rising tax revenue this year, which enabled the government to balance its budget in May.

“The fiscal stance is one of consolidation and this will continue through the election period and probably into next year,” Murray said.

Israel’s economy rebounded sharply from the COVID-19 crisis, growing 8.2% in 2021 and projections are for 5% growth this year and 4% in 2023.

“The strong improvement in Israel’s balance of payments has reduced the sensitivity of Israel’s economy to political developments in the region,” said Goldman Sachs (NYSE:GS) economist Tadas Gedminas.

Bank of Israel Governor Amir Yaron said on Tuesday that the country’s institutional system makes it possible for the economy to function properly during election campaigns.

“The Israeli economy has proven to have an impressive ability to grow and prosper even under conditions of uncertainty— political and otherwise,” he said.

Economy

Futures rise as easing China COVID curbs lift travel, leisure stocks

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© Reuters. A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2022. REUTERS/Brendan McDermid

By Shreyashi Sanyal

(Reuters) – Travel and leisure shares propped up U.S. stock index futures after China relaxed some COVID-19 quarantine requirements for international travelers, raising hopes of a revival in global growth.

Airlines, cruises, casinos and hotels were among the gainers in premarket trading after China’s slashing of the quarantine time for inbound travelers by half boosted hopes of a big jump in international travel and spending.

Shares of Walt Disney (NYSE:DIS) Inc rose 2.5% to top the list of gainers on the Dow Jones Industrial Average, after the company’s Shanghai Disney Resort said it would reopen the Disneyland theme park on June 30 after being shut for more than three months.

Spirit Airlines (NYSE:SAVE) and American Airlines (NASDAQ:AAL) Group Inc were the biggest gainers in the sector, rising 4% and 2% respectively.

Melco Resorts jumped 10% and led the rise in the casino sector, closely followed by Wynn Resorts (NASDAQ:WYNN), MGM Resorts (NYSE:MGM) International.

Wall Street’s main indexes started the week on soft footing after worries of surging inflation and an aggressive Federal Reserve dominated sentiment amid few market moving catalysts till the start of earnings season in two weeks.

Investors are now looking at data to determine whether the economy can withstand large interest rate hikes by the U.S. central bank to stamp out inflation.

A survey from the Conference Board is expected to show its consumer confidence index slipped to a reading of 100.4 in June, from 106.4 in May, at 10 a.m. ET.

The S&P 500 and the Nasdaq are set to post losses in June and are on course to log two straight quarterly declines for the first time since 2015.

At 6:49 a.m. ET, Dow e-minis were up 175 points, or 0.56%, S&P 500 e-minis were up 20 points, or 0.51%, and Nasdaq 100 e-minis were up 52.25 points, or 0.43%.

Nike Inc (NYSE:NKE) shed 2.8% as it forecast first-quarter revenue below estimates on expectations of more discounts and pandemic-related disruptions in China, its most profitable market.

Occidental Petroleum Corp (NYSE:OXY) climbed 3.1% after top investor Warren Buffett raised stake in the shale producer.

China ADRs also rose on Beijing easing its COVID curbs, with e-commerce firms Alibaba (NYSE:BABA).com, JD (NASDAQ:JD).com and Pinduoduo (NASDAQ:PDD) up between 1.2% and 1.4%

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Economy

Euro below $1.06 as Lagarde keeps July policy options open

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Saikat Chatterjee

LONDON (Reuters) – The Aussie and the Canadian dollar climbed on Tuesday on firmer oil prices while the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight on the central bank’s policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to check soaring inflation though economists are divided on the magnitude of the rate hike to protect a struggling economic recovery due to high oil prices.

Oil prices are up 10% in barely a week on supply constraint concerns with Brent crude holding above $117, pushing the Canadian dollar and the Australian dollar up 0.3% and 0.4% respectively. [O/R]

“Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level,” said Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London.

The euro held below $1.06 after the ECB’s Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to around 280 bps two weeks ago.

Broader currency market moves were contained in a big week for markets in economic data terms. German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday.

At the other end of the dial, higher oil prices caused the partially convertible Indian rupee to open at a record low, and fall further to 78.67 per dollar.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

Elsewhere, the offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

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Economy

China’s economy recovering but foundation not solid, premier says

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© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via video link after the closing session of the National People’s Congress (NPC) in Beijing, China March 11, 2022. REUTERS/Ryan Woo

BEIJING (Reuters) -China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilise the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

“The task of stabilising employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.

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