American rhetoric portending a military strike in Syria made waves in Israeli
markets on Tuesday, sending the shekel to its weakest point since early July and
leading to a 2.4 percent drop in the Tel Aviv Stock Exchange’s TA-25
On Monday, US Secretary of State John Kerry said it was
“undeniable” that the Syrian regime used chemical weapons in its civil war.
“President Obama believes there must be accountability for those who would use
the world’s most heinous weapons against the world’s most vulnerable people,” he
CBS reported that the Obama administration was preparing an
“airtight circumstantial case” against Syrian President Bashar Assad to justify
The shekel, which has been on a strong streak, hovering below
3.6 to the dollar since early July, shot up to 3.603 on Monday and 3.654 on
Tuesday, its weakest showing in more than six weeks. Just two weeks ago, it had
sunk to 3.528 against the dollar.
“US Secretary of State John Kerry’s
aggressive speech was taken by most analysts as a declaration before an attack,”
foreign- exchange trading firm FXCM wrote in an analysis.
concern in the markets because a regional escalation, which may also drag Israel
into the fray, is what is harming the shekel.”
Though the palpable market
reaction portends the possibility of unpleasant things to come, many will take
solace in a weaker shekel, which will boost exports. Interested groups hoping
that the Bank of Israel would lower the interest rate on Monday lashed out when
kept it remained unchanged at 1.25%.
“During the past year the shekel
appreciated against the dollar by 11%,” Israel Manufacturers Association
economic committee chairwoman Nava Ravid said. “This trend is causing severe
harm to the export sector and local manufacturing.”
Shmuel Ben-Ari of
Pioneer Financial Planning said continued strength would inevitably lead to an
“I believe that in the event the dollar will return
to weaken against the shekel, and continue to harm and bite into economic
growth, the next governor will be forced to lower the rate,” he said.
regional conflict spreading from Syria keeps spooking the markets, that may not
An S&P Global analyst said for the time being, Israel
did not have to worry about the risk to its economy and credit rating: “There
are no implications unless there is a serious escalation that draws Israel into
Emerging currency losses deepened on Tuesday, pushing Turkey’s
lira to a fresh record low against the dollar as fears of Western military
action against Syria added to the flight from riskier assets. It came as a
number of emerging currencies hit multiyear lows even though US Treasury 10-year
yields, which such currencies tend to track, were off two-year
Turkey would be in the front line if military attacks are launched
on Syria. Higher oil bills and a refugee influx from the neighboring conflict
could exacerbate its annual $50 billion funding gap.
But the lira is also
feeling the heat from Turkey’s reluctance to raise interest rates to a level
that provides investors with adequate rewards for the risks.
haven’t bought the monetary tightening they announced last week, as foreign
investors think interest rates are not high enough to attract inflows to fund
the large current-account deficit,” said William Jackson, an economist at
Capital Economics in London.
He predicted that Turkey could be forced to
raise its lending rate if lira selling continues.
The currency fell more
than 1% to another record low, bringing year-to-date losses to almost 12%, while
two-year bond yields touched January 2012 highs of around 10.4% and shares fell
Lira losses spiraled after Erdem Basci, the central bank’s
governor, said he was prepared to use net reserves of $40b. to defend the
currency but would not use interest rates.
The Syrian situation is an
“Turkish yields continue to inch higher, and we do
not rule out that this could get a bit out of hand if the Syria situation
escalates,” Danske Bank analysts told clients, adding it was exiting its lira
Political risk was prompting a broader-based flight to safer
assets such as the yen and Swiss franc.
“We are not calling for a major
rebound any time soon,” said Bhanu Baweja, head of global emerging-markets
strategy at UBS in London. “What we need to see is EM exports rebounding and
people feeling that real interest rates in emerging markets have adjusted
adequately, and we are not there yet.”
The South African rand lost
In Asia, the Indian rupee slid to another record low, while
Indonesia’s rupiah, Malaysia’s ringitt and Thailand’s baht all hit multiyear
The rupee was impervious to news of almost $30b. in infrastructure
projects, as approval of a $20b. cheap-food plan raised fears of a spending
spree before 2014 elections.
“[Reserve Bank of India] have to let the
rupee find its own value,” Baweja said. “That’s the one sensible thing they are
doing – they are not standing in front of this trade.”
remained the outlier, posting modest gains again. With a year-to-date rise of
almost 2%, it is the only Asian currency to appreciate in 2013.
currency losses also caused a stampede out of emerging-market equities, which
fell 1.2%, though losses were tempered by Shanghai’s 0.2% gain.
shares fell 3%, while Russian shares fell 1.3% despite the rising oil price.