Israeli Stock Market Reacts Positively to Ceasefire Progress and Hostage Release Deal

The recent steps toward a ceasefire agreement and the release of Israeli hostages have sparked optimism in the Israeli market, leading to a rise of over 1% in the leading Tel Aviv Stock Exchange indices. This positive momentum reflects growing investor confidence that a long-term de-escalation in the security situation could have favorable implications for Israel’s economy.

Despite ongoing volatility, especially with the expected entry of President-elect Donald Trump into the White House, analysts remain optimistic. Zvi Stepak, founder of Meitav Investment House, notes that the Israeli stock market is currently cheaper than other markets, and this trend may continue. With improving financial results from Israeli companies, Stepak anticipates further positive developments as the year progresses.

If the ceasefire deal holds and the release of all hostages occurs, market sources believe the Israeli risk premium will decrease, leading to further strengthening of the shekel, moderating bond yields, and rises in the stock market.

Shekel Strengthens as Progress Continues

The Israeli shekel has already appreciated by 4% against the US dollar over the past year, with significant strengthening observed in the final weeks of 2024 as progress was made on the hostage deal. As of January 2025, the shekel-dollar exchange rate stands at NIS 3.60/$, and derivatives trading suggests further appreciation to NIS 3.57/$.

Inflation and Interest Rate Expectations

As inflation remains a concern, Bank Hapoalim’s economic survey highlights the steep price rises in everyday goods. The bank expects the Consumer Price Index (CPI) for January to show a significant increase, largely due to hikes in local property taxes and VAT. However, as inflation moderates in the coming months, analysts predict the Bank of Israel may start cutting interest rates in the second half of 2025, potentially lowering rates to 4% by year’s end.

This optimistic outlook for Israel’s economy, combined with a declining risk premium and potential monetary easing, makes for a promising start to the year for both the Israeli stock market and its currency.