Israeli Markets Rally on Signs of Delay to Netanyahu’s Reforms

Israeli markets rose on signs that Prime Minister Benjamin Netanyahu is considering delaying his plans to give the government more control over the judiciary. The proposals have sparked chaos across the country.

While markets are volatile and analysts say the relief may prove fleeting، the shekel jumped against the dollar after erasing earlier losses while the nation’s stocks advanced. The yield on its local-currency 10-year bond fell 11 basis points to 3.82%.

Israel’s intensifying political crisis has overshadowed the nation’s consistent current-account surplus and thriving technology industry، factors that have contributed to its appeal as a relative haven in times of global market turmoil. Without compromise from either the government or the mass opposition، there doesn’t appear to be a path to an orderly resolution، according to Tellimer.

“The market reaction is premature،” said Eimear Daly، an emerging-market strategist at NatWest. “Netanyahu is only considering it and he risks toppling his government if he caves to increasing opposition to the reforms.”

Mass Protests

Thousands had taken to the streets overnight، including around Netanyahu’s home، after the prime minister fired Defense Minister Yoav Gallant over a speech criticizing the plans to reduce the power of the Supreme Court.

The shekel lost as much as 2.2% at the open on Monday، before recouping losses. It rose 0.7% to 3.5587 as of 12:49 p.m. in Jerusalem — its sixth day of gains and the longest winning streak since October 2021. Traders are bracing for bigger price swings، with the shekel’s one-month implied volatility approaching the highest since the pandemic rout in March 2020.

In the equities market، the key TA-35 Index rose about 2% after Sunday’s 2.2% decline.

Bucking the trend، most of the nation’s dollar bonds fell، with the yield on the security due January 2033 rising 5 basis points to around 4.5%.

Further Pressure

“A pause in judicial reform buys a little bit of time but does not resolve the polarized opinion between large sections of mass society and a key flank of the ruling coalition behind Netanyahu،” said Hasnain Malik، a strategist at Tellimer in Dubai. “The descent into a constitutional crisis، with division among military ranks and civil unrest، is a grave concern for investors.”

The proposed legislation is split up into a series of bills. Two key members of Netanyahu’s Likud party said that while a pause might be preferable، they plan to support the latest bill when it comes up for a vote that’s likely to pass this week.

“We expect the shekel to come under further pressure this week as the more contentious part of the legislation — giving the government greater power over the appointment of judges — is expected to go to a final parliamentary vote this week،” said NatWest’s Daly.