Market Report / TASE Ends a Strong Week Quietly

Thanks to the Bank of Israel's unexpected decision to lower its base lending rate on Monday, the equities market enjoyed one of its best weeks of the year.

Israeli shares ended a positive week with barely a whimper, as the Tel Aviv Stock Exchange's benchmark TA-25 index ended virtually unchanged on Thursday.

The TA-25 traded as low as 1,224.51 points at midday, but it gradually won back most of its losses to end at 1,232.00, down a mere 0.01%. The TA-100 finished off 0.1% at 1,107.90. At NIS 1.83 billion, turnover was unusually high. Although the May Maof contract expired in the morning at 1,230 points, it contributed just NIS 390 million to the day's volume.

Thanks to the Bank of Israel's unexpected decision to lower its base lending rate by a quarter of a point on Monday, the equities market enjoyed one of its best weeks ever this year. The TA-25 advanced 1.4%, bringing its return so far this year to 3.9%. The TA-100 was up 1.5% for the week and 5.6% for the year so far.

The star performer, however, was the TA-Insurance index, which jumped 5.5%, bringing its year-to-date gains to 17.9%.

But what has been a week of joy for the share market was one of sorrow for the bond market. Wednesday's sharp drop in government bond prices continued on Thursday, with 10-year shekel bonds down 0.33% to raise yields to 3.74%. Inflation-index 10-year bonds were down 0.43%, boosting yields to 1.45%.

The Tel-Bond 20, 40 and 60 indices were also lower by as much as 0.43%.

An even bigger factor Thursday than the Bank of Israel's decision to cut interest rates was the extended decline in U.S. Treasury bond prices. Benchmark 10-year notes were last down 6/32 in price to yield 2.1% on Thursday. Those yields have surged from 1.61% at the beginning of May and reached a 13-month high of 2.24% in overnight trading on Wednesday.

Meanwhile, however, Wall Street stocks rose as the latest U.S. economic data argued for continued central bank stimulus measures, and higher confidence in the euro zone lifted European shares and the euro. FTSE EuroFirst 300 added 0.3% to 1,227.41. In the U.S., the Standard & Poor's 500 Index was 0.6% at 1,658.11, and the Nasdaq Composite Index added 0.8% at 3,494.78.

The dollar fell to a three-week low against the euro, erased all of its gains versus the yen, and also traded lower against the shekel for a second day, defying the Bank of Israel 's rate cut and tens of millions of dollars of foreign currency it bought on Wednesday. The U.S. currency slid 0.33% to a Bank of Israel rate of NIS 3.6820, while the euro edged 0.02% lower to NIS 4.7805.

Gil Bufman, chief economist at Bank Leumi, said the central bank would have to lower its base rate again if the dollar continues weakening.

"We believe there are fundamental factors supporting a shekel appreciation, among them the high level of direct foreign investment in Israeli companies, which increases the quality of foreign currency entering Israel," he said, adding that lower lending rates would also help offset the damage to economic growth from the government's austerity budget.

Shares of Babylon soared, adding 6.5% in heavy trading of more than NIS 19 million, making it the biggest gainer among TA-100 stocks. The online translation company said a review had found no faults in its user policies, easing worries by investors that a key source of advertising revenue would be jeopardized.

Other top gainers included the insurance company Phoenix, which ended 3.6% higher after reporting a 75% increase Wednesday in first-quarter net profit from a year earlier to NIS 279 million. Strauss Group also enjoyed another day of advances from a strong quarter. The food maker rose 3% on Thursday, a day after it reported a 57% jump in quarterly net to NIS 103 million.

Mellanox and EZchip, two semiconductor companies, rose 2.8% and 4.7%, respectively. Teva Pharmaceuticals was the session's volume leader, with NIS 354 million in shares changing hands, but it fell 1.3%

With reporting by Reuters. 

Bloomberg