Trump’s Iran Remarks Trigger Global Market Volatility but Israeli Stocks Show Mixed Reaction

US President Donald Trump's comments at the NATO summit in Turkey regarding the memorandum of understanding with Iran have caused ripples across global markets. Oil prices surged sharply, European stocks and Wall Street futures declined, and US government bond yields rose, exerting pressure on equity markets. The Tel Aviv Stock Exchange initially dropped but later stabilized, with the TA-35 index rising about 0.4% and the TA-90 index falling approximately 0.7% at the time of reporting.

Ronen Menachem, chief economist at Mizrahi Tefahot Bank, explained that the geopolitical environment remains highly fluid. He noted that while the memorandum signals a strategic attempt at agreement between the US and Iran, the path is expected to be fraught with conflict. Market risk levels increased, reflected in the US market’s fear index and futures declines, which also influenced the shekel’s depreciation and local stock drops. However, a positive local factor is the recent report showing Israel’s budget deficit shrinking to 3.3% of GDP, with revenue rising and expenditures falling, suggesting lower government borrowing needs in the second half of the year and easing bond yield pressures.

Menachem emphasized the energy market’s sensitivity, pointing out that oil price drops earlier this year were not sustainable without core agreements, especially regarding the Strait of Hormuz. He forecast continued volatility and turbulence in energy markets due to unresolved tensions. Meanwhile, the banking sector index in Israel has risen over 3% since the start of the week, supported by a rebound from previous sell-offs and Bank of Israel’s forecast of two interest rate cuts in the next year, which could protect banks’ financial margins. The strengthening dollar and improved growth forecasts also benefit banks, making them a safe haven amid uncertainty.

Matan Bloomberg, equity analyst at Bank Hapoalim, said the local market is pricing in geopolitical risks around the Strait of Hormuz after recent easing. Investors’ main concern is potential escalation disrupting oil tanker traffic, which would raise energy costs and inflation globally. Bloomberg noted that the Israeli market has experienced similar cycles of tension and calm recently and is currently less reactive to statements. He added there is no immediate indication of a full closure of the Strait or major oil supply disruptions that would trigger sharper market declines. Bloomberg also attributed the relatively moderate declines in Tel Aviv to the market’s recent underperformance compared to international indices. He cautioned that if the current escalation intensifies, more significant declines in Israeli stocks are likely.

Overall, the developments highlight the fragile geopolitical situation and its complex impact on global and Israeli markets, with energy prices and regional security remaining key factors to watch.