Global Market Turmoil Hits Tel Aviv Stock Exchange Amid Rising Oil Prices and Fed Concerns

The Tel Aviv Stock Exchange was expected to open with mixed trading on Tuesday, mirroring global market uncertainty. Wall Street had retreated from recent highs, and Asian markets showed slight declines. Persistent increases in oil prices and a hawkish tone from the US Federal Reserve's latest meeting minutes were seen as potential dampeners on trading.

Dual-listed Israeli stocks were set to return to the local exchange with minor arbitrage gaps. Companies like Camtek, Nice, and Tower were anticipated to see slight gains, while Palo Alto, Nova, and Ormat were expected to experience similar modest losses. The previous day saw significant volatility on global exchanges, with a negative trend emerging early and spreading from Asia to Europe and Wall Street. This was attributed to reports of Iran increasing attacks on tankers in the Strait of Hormuz, which, combined with rising oil prices and bond yields, triggered a sell-off.

The TA-35 index experienced its worst trading day since June, plummeting 2.4%, while the TA-90 index fell approximately 2.1% to a more than one-year low. All sector indices closed in the red, led by defense stocks, which dropped 4.4%, followed by insurance (4.3%), technology (3.6%), biomedical (3%), and finance (2.9%).

Despite the TA-125 index showing gains for the year, a paradox emerged as most individual stocks within it declined. Next Vision saw a sharp drop of over 10%, erasing about NIS 5.7 billion in market value over two days due to a large sale by investment fund Fidelity. Chip stocks like Camtek and Tower also experienced significant declines. Conversely, Gilat recovered during the day, posting gains after securing follow-on orders exceeding $10 million from a major satellite operator.

Separately, the cancellation of a gas deal between NewMed Energy and Dalia Power Station continued to draw attention. Although the Competition Authority approved all terms, NewMed insists on canceling the deal, with the reasons remaining unclear. This deal involved the sale of stakes in the Leviathan gas field by NewMed (45%) and Ratio (15%), excluding Chevron (40%).

Globally, Asian markets opened lower, influenced by Wall Street's decline and a surge in US bond yields to a 24-year high. Samsung reported a nearly ninefold increase in operating profit for the quarter, though slightly below analyst expectations, with its stock falling about 1%. US stock futures were stable after a record-breaking streak ended, with high oil prices fueling inflation concerns that could prompt further Fed rate hikes. Brent crude oil hovered around $100 per barrel, with traders weighing increased Iranian attacks in the Strait of Hormuz against stable Middle Eastern oil flows.

In bond markets, US 10-year Treasury yields recovered from intraday lows after a $39 billion auction but remained near their highest levels since 2002. Investors worldwide are demanding higher compensation for holding bonds due to inflation fears, government spending, and increased corporate debt issuance for AI infrastructure. Financial markets are pricing in a high probability of another Fed rate hike by the end of 2026. Analysts noted that bond markets are presenting a significant challenge to stock markets, which have largely benefited from low yields for decades. The yield on 10-year Treasuries rose from 5.16% to 5.27% in the past week, while the two-year yield slightly decreased. This steepening of the yield curve suggests investors are demanding a higher risk premium for long-term holdings. The bond market's turmoil has impacted most stock markets, with the exception of AI-related stocks. The strengthening dollar has also affected emerging markets and corporate bonds.

In currency and commodities markets, the Israeli Shekel traded stably at 3.065 per dollar. The US Dollar Index (DXY) climbed about 0.4% to an eight-month high, driven by rising oil prices and Middle East tensions, which are pushing investors towards safe-haven assets. The Euro fell 0.6% against the dollar, reaching its lowest point since May 2025, weighed down by energy prices, France's fiscal challenges, and political risks. Oil prices saw a morning increase, with Brent crude rising 2% to $102 per barrel, following reports of intensified Iranian attacks on oil tankers in the Strait of Hormuz. These attacks have led to a surge in shipping rates, with the cost of transporting oil from the Persian Gulf to China reaching a daily peak of $1.3 million. A tropical storm approaching the Gulf of Mexico also contributed to market concerns.

Regarding macroeconomic outlooks, senior Federal Reserve officials anticipate another interest rate hike by year-end, according to minutes from their recent meeting. Most participants believed an additional increase would likely be appropriate, though the timing was not specified. The market is pricing in a potential October hike, but recent inflation data and Fed statements suggest this is unlikely. The Fed attributed the rise in yields partly to expectations of further rate hikes, AI investments, strong growth, and uncertainty surrounding the Treasury's buyback program.

J.P. Morgan strategists believe the recent stock market sell-off is exaggerated, citing that the underlying economic data does not fully justify the extent of the declines. They point to historical patterns where the start of Fed tightening cycles signaled economic strength rather than a sell-off. Bond markets also appear close to oversold territory, according to J.P. Morgan's own indices. The firm's base case scenario anticipates companies meeting third-quarter earnings expectations, with positive profit forecast revisions expected in most regions. The impact of oil prices remains uncertain, but J.P. Morgan expects the most severe pressure to be deferred until after October, partly due to the caution typically exhibited by policymakers during election seasons.