Israeli Markets Eye Bank of Israel Rate Cut and AI Stocks Amid Global Economic Shifts

Following a recent easing of tensions between the US and Iran and a lull in geopolitical headlines, investors are focusing on fundamental market data, including macroeconomic indicators, AI sector developments, and upcoming corporate earnings reports. Key companies reporting this week include PepsiCo, Delta Air Lines, and Levi Strauss, with major US banks set to report next week. In Israel, the Bank of Israel is expected to cut interest rates by 0.25% tomorrow, with market attention on the central bank's updated forecasts and the governor's press conference. In the US, investors await the release of S&P Global and ISM service sector purchasing managers' indices and the Federal Reserve's latest meeting minutes, the first under Chair Kevin Warsh, for clues on near-term monetary policy.

The Tel Aviv Stock Exchange closed last week with gains, led by a 9.6% jump in the defense sector, breaking a two-week losing streak. Notable performers included Next Vision and Elbit Systems, each rising over 12%. This marked the defense sector's strongest week since early March, coinciding with Israel's "Roar of the Lion" operation against Iran. The positive trend mirrored global markets, with the S&P 500, Nasdaq, and Dow Jones all posting solid gains. Apple shares surged nearly 9% after reports of plans to launch five new iPhone models between late 2026 and early 2027. Meanwhile, a rotation from semiconductor stocks to software and defensive sectors like healthcare was evident, with the SOXX semiconductor ETF dropping about 12% over two days and the IGV software ETF rising over 6% last week. Experts attribute this shift to a broadening AI revolution extending beyond chips, with investors increasingly prioritizing profitability over hype.

In commodities, concerns about oil oversupply grew amid renewed shipping through the Strait of Hormuz and subdued Chinese demand. Brent crude stabilized around $72 per barrel, while US WTI crude fell nearly 1%, marking a fourth consecutive week of declines. Analysts highlighted the fragile Iran nuclear deal, OPEC+ production policies, and Chinese consumption as key factors influencing oil prices. Currency markets saw the Israeli shekel strengthen slightly against the dollar, while the Japanese yen gained 0.7% but remained near a 40-year low, raising fears of potential Japanese government intervention that could disrupt global markets.

Economists widely expect the Bank of Israel to reduce rates from 3.75% to 3.5%, though some do not rule out a larger cut. However, the central bank is anticipated to adopt a hawkish tone, citing tight labor markets, rising wages, strong private consumption, expansive fiscal policy, and ongoing geopolitical risks. In the US, June employment data showed weaker-than-expected job growth but a slight drop in unemployment, tempering immediate rate hike concerns. Fed Chair Warsh reaffirmed commitment to inflation reduction without signaling policy direction.

Swiss investment bank UBS identified AI infrastructure stocks, particularly in servers and chips, as poised to outperform major tech giants in the near term. UBS analysts forecast economic profits in AI infrastructure rising from $200 billion in 2023 to $1.4 trillion by 2027, compared to $400 billion for cloud giants like Amazon, Alphabet, Meta, and Microsoft. Top AI leaders in 2027 are expected to include Nvidia, Samsung, SK Hynix, Micron, and Alphabet. UBS research emphasizes the rapid pace of value creation shifts within the technology sector driven by the AI cycle, marking a historic transformation from a commodity-based industry to a global leader in innovation and profitability.