Market Report

Benchmark Index Hits Two-year High on Fed Announcement

Bezeq leads the way for stocks as bond yields slide.

The Tel Aviv Stock Exchange's benchmark TA-25 index touched a two-year high on Sunday in a delayed reaction to the U.S. Federal Reserve's surprise decision to delay scaling back its stimulus program.

With trading resuming after a lengthy four-day break, the TA-25 climbed just over 1% to 1,252.98 points. Turnover was a relatively low NIS 757.1 million, but that could be explained by the short trading session due to the Sukkot holiday and the absence of vacationing investors. The broader TA-100 index rose as well, although only by 0.6% to 1,129.62.

Bond prices were also up sharply on the Fed decision. The government's Shahar bond for 10 years jumped 0.97%, trimming the yield to just 3.84%. For its inflation-linked Galil bond for the same term, the rise was 0.7%, leaving the yield at 1.71%. The Tel Bond 20, 40 and 60 indices gained as much as 0.29%.

Bond prices were also propped up by expectations that the Bank of Israel might lower its base lending rate with its Monetary Council meeting on Monday.

The Fed decision also caused the dollar to weaken sharply against the shekel on Friday, losing 0.9% to a Bank of Israel rate of NIS 3.5040, a two-year low for the greenback. The euro strengthened 0.45% to NIS 4.7433.

Fed Chairman Ben Bernanke on Wednesday took the markets by surprise by refusing to commit to reducing the bond purchases this year, and instead went out of his way to stress the program was "not on a preset course." In June he had said the Fed expected to cut back before year’s end.

Investors initially responded by propelling U.S. stocks to record highs and driving down bond yields. But by Friday they fell as the markets puzzled over the Federal Reserve's decision to maintain its stimulus measures as they heard opposing viewpoints from top Fed officials.

St. Louis Federal Reserve Bank President James Bullard said low inflation meant the Fed can be patient in deciding when to scale back its pace of asset purchases. But Kansas City Federal Reserve Bank President Esther George sharply criticized the decision, warning it sowed confusion. 

The Dow Jones industrial average fell on Friday 1.2% to 15,451.09, the S&P500 lost 0.7% to 1,709.92 and the Nasdaq Composite dropped 0.4%, to 3,774.728. The FTSEurofirst 300 closed down 0.3% at 1,262.61 points on Friday, having hit its highest level since mid-2008 in the previous session.

Bezeq rose 3.7% as NIS 97.6 million of its shares changed hands, making it the most active stock of the day and bringing its gain since the start of the year to 65%. B Communication's, Shaul Elovitch's investment vehicle and the Bezeq's controlling shareholder, soared 13.6%.

Babylon, the online translation, company rose 2.2% after it said on Sunday that it was not going to go ahead with a planned initial public offering and instead focus on its merger talks with IronSource.

Among other tech stocks, Nice Systems advanced 3.7%, but Allot Communications dropped 6.2% and EZchip, after briefly rallying last week after the company said Cisco would continue buying its products, plunged 6.2% on Sunday. Defense electronics maker Elbit Systems ended 4.6% higher in heavy trading of more than NIS 24 million.

In biotech, trading was mixed. Clal Biotechnology was the top performer among TA-100 stocks on Sunday with a rise of 6.2% after one of its closely held units, CureTech, said it raised $4 million from investors. Mazor Robotics, a maker of a robotic guidance systems used in spine surgery, dropped more than 9% after it said it planned to raise some $46 million in a Wall Street share offering.

Reuters contributed to this report.

Reuters