Markets in the United States and Europe rallied this week to new highs after the expected signing of an agreement to end the war in Iran raised hopes that the Strait of Hormuz will reopen. The Dow Jones and the European Stoxx index both set fresh records, and oil prices dropped sharply, with Brent falling more than 5% since the start of the week and slipping below $80 a barrel for the first time since March.
Tel Aviv moved in the opposite direction, with its main indexes falling about 3% to 5% over two trading days. The Tel Aviv Stock Exchange said the local market had “disconnected from the trend abroad” and was focused on absorbing the new security reality created by the emerging U.S.-Iran deal. Ronen Menachem, chief economist at Mizrahi Tefahot Bank, said the difference stems from different market priorities: abroad, investors are focused only on oil prices, while in Israel “the emphases are completely different.”
Menachem said Israel’s gas production has already insulated it from much of the global energy shock during the war, so it is benefiting less now as prices fall. He also said the deal does not necessarily meet all of Israel’s expectations, pointing to unresolved questions about the nuclear issue, Lebanon, and future U.S.-Israel relations. Those doubts, he said, are weighing on local sentiment. Israel’s revised GDP estimate also added pressure, with the Central Bureau of Statistics now assessing the damage from Operation “Rage of the Lion” at a 3.8% drop in output, compared with 3.3% a month earlier.
Menachem warned against drawing conclusions too quickly after only two days of trading. He said it is too soon to know whether the decline is healthy profit-taking or a real turn, and too early to say Israel has decoupled from global markets. He added that traders are also waiting for the U.S. Federal Reserve rate decision later Wednesday, the first under new chair Kevin Warsh, and for the Bank of Israel’s rate decision in early July, both of which could bring more volatility.
