Israeli markets cheer centrists’ election gains


Israeli markets rose on Wednesday on investor hopes that the outcome of the previous day's election means Benjamin Netanyahu will remain prime minister and ultra-Orthodox parties have no role in government.

The blue-chip Tel Aviv 25 index rose 1 percent to 1,204.65 points, near last week's year-high of 1,225.76, while the broader TA-100 index closed 0.9 percent higher.

Government bond prices gained as much as 0.5 percent and the shekel appreciated 0.4 percent to 3.722 per dollar from Monday's fixing of 3.738, near a 10-month peak.

“We will enjoy this for a few days,” said Zach Herzog, head of foreign sales at the Psagot brokerage. “The downside will be if the coalition talks drag on or if we see Labour or (ultra-Orthodox) Shas in serious talks to get involved.

“This can be a launching pad for a positive 2013,” he added.

Herzog said a coalition government more centrist than Netanyahu's current right-wing and religious administration would be better placed to impose needed budget cuts.

Ultra-Orthodox parties have traditionally demanded budget-draining state subsidies for their institutions in return for joining coalitions in Israel, where no one party has ever won a parliamentary majority on its own.

Results of Tuesday's parliamentary vote showed Netanyahu's right-wing Likud-Beitenu group emerging on top with 31 of parliament's 120 seats, albeit dropping sharply from the current 42 after voters shifted support to centrists focusing on Israelis' rising cost of living.

Yesh Atid, a new centrist party that has pledged to ease the burden of Israel's middle class, took 19 seats, one more than the number won by ultra-Orthodox parties.

If Yesh Atid's leader, former TV news anchor Yair Lapid, opts to join a Netanyahu coalition, along with the far-right Jewish Home party, the prime minister would likely control 61 seats, giving him a narrow parliamentary majority.

Netanyahu, however, has said he hopes to form as broad a government as possible, signaling the way was open for ultra-Orthodox factions to participate.

BUDGET DEFICIT

Netanyahu's reputations as a skilled economic operator was harmed just before the election when data showed Israel posted a budget deficit of 4.2 percent of gross domestic product in 2012 – more than double its initial target.

To meet a target of 3 percent in 2013, the government – which overspent heavily the past two years to keep its previous coalition partners happy – will have to find some 15 billion shekels ($4 billion) of cuts, as well as raising taxes.

Credit agency Fitch forecast the deficit reaching 3.8 percent of GDP this year, saying the stable outlook on its 'A' rating risked being downgraded in the event of “serious fiscal slippage”.

But a move towards the government's 60 percent debt-to-GDP target could result in positive ratings action, its sovereign ratings director Paul Gamble said in a report on Wednesday.

He also said the coalition talks would focus on budgetary issues and likely be time-consuming.

Psagot's Herzog said the market was also pleased that the centre-left Labour Party, whose leader, Shelly Yachimovich, has railed against capitalism during the election campaign, received just 15 seats, a poor than expected showing.

“In addition to the positive result that Netanyahu was re-elected as prime minister, you have a significant blow to the prestige to the anti-business candidate,” Herzog said.

A currency dealer at a large Israeli bank said most of Wednesday's dollar selling came from local rather than offshore customers. He said there was still a way for the dollar to fall before its next support level at 3.7050 shekels.

According to financial information services firm Markit, Israeli five-year credit default swaps – which insure against debt default – edged up 125 basis points from 123 on Monday. They had been at 156 basis points in November when military tensions escalated in the Gaza Strip.

Additional reporting by Tova Cohen and Carolyn Cohn; Editing by Jeffrey Heller, John Stonestreet

Israeli workers strike cut short by court


Israel’s main labor union ended a brief strike that shut down major sectors of the economy on Monday, following a labor court injunction that limited the action to just four hours.

The Histadrut Labour Federation, the umbrella body for hundreds of thousands of public sector workers, was looking to strike for as long as it took to reach an agreement with the government over the status of contract workers.

The union had threatened to shut down Israel’s airports, ports, banks and the stock market indefinitely, but accepted the court decision and limited the strike to Monday morning.

Ben Gurion International Airport near Tel Aviv was closed for two hours and about a dozen flights were delayed or canceled. An airports authority spokesman said operations were swiftly returning to normal.

The Tel Aviv Stock Exchange started trading about an hour late and will stay open an extra half hour.

On Sunday, Prime Minister Benjamin Netanyahu had called on the Histadrut to cancel the strike, which also affected trains, buses, universities, government ministries and municipalities.

The disagreement focused on the status of contract workers.

The Histadrut wants the government to provide full benefits to 250,000 contract workers—such as cleaners and security guards—who have worse terms than staff directly on government payrolls.

Finance Minister Yuval Steinitz has said he was willing to accept “models from developed welfare states like Sweden, Finland and Holland” where he said such workers are employed through contractors, but they have better conditions.

The labor court instructed the parties to hold intensive talks to find a solution and report on progress by Thursday.

“We hope that the government and employers will use the days allotted by the court to hold real and serious negotiations to reach agreements,” Histadrut leader Ofer Eini said in a statement.

Reporting by Ari Rabinovitch; editing by Philippa Fletcher

EU lawmakers back open markets for Palestinian goods


The EU moved closer to a trade deal with the Palestinian Authority on Wednesday after unanimous backing from European lawmakers to fully open markets to farm and fish products from the West Bank and Gaza Strip.

The 27-0 vote by the European Parliament’s international trade committee paves the way for full parliamentary approval for a deal later this year, signalling EU support for the Palestinian Authority as it prepares to bid next month for statehood recognition at the United Nations.

While small—trade between the EU and the West Bank and Gaza was worth 60 million euros in 2009, of which just 10 percent constituted Palestinian exports to the EU—the move nonetheless represents an opportunity for exports to boost an economy weakened by chronic conflict with Israel.

“This deal is enormously important. It gives more power to the Palestinians to trade directly with the EU. And it’s a signal of good will from the international community that comes at an important time,” said Maria Eleni Koppa, a Greek socialist lawmaker who led the committee’s discussion on the issue.

The West Bank and Gaza mostly export vegetables, fruits and cut flowers to the European Union, while the territories import EU machinery, chemicals and transport equipment.

The new deal will give Palestinian exporters unlimited duty-free access to European markets for farm goods and products as well as fresh and processed fish.

“For us this is one of the agreements that will help us build the economy of an independent sovereign state,” Majed Bamya, a Palestinian diplomat in Brussels, told Reuters.

The full European Parliament is due to vote on the trade agreement in late September.

Once approved, the deal needs final backing from EU member states and ratification by the Palestinian Authority. It is expected to enter into force before the end of 2011.

GREATER OPPORTUNITIES FOR PALESTINIAN EXPORTERS.

Europe imposed strict labelling laws on goods arriving from the occupied territories in 2005. But complex laws and the fact that trade is conducted largely through Israeli channels has created lingering concerns that Israeli farm operators may be benefiting from deals designed to aid Palestinians.

“We have been campaigning, especially in European countries, that they should not import from Israel products that are produced in (Jewish) settlements … and if they want to import anything from settlements then it has to be labeled separately (as settlement produce),” Ghassan Khatib, spokesman for the Palestinian Authority in Ramallah, told Reuters.

Palestinians say that controls by Israel, which took control of the West Bank and Gaza Strip in 1967, restricts their access to export markets, denying them economic opportunity. Israel withdrew from Gaza in 2005.

Palestinians have argued that better access to export markets is vital to allowing the Palestinian economy to grow, in turn allowing the Palestinian Authority to ease its dependence on aid from donors including the European Union.

Europe’s deal with the Palestinian Authority also forms part of ongoing EU moves to open up trade and investment with the Mediterranean rim along North Africa and the Middle East. (Additional reporting by Thomas Perry in Ramallah; Editing by Elizabeth Fullerton) ($1 = 0.693 Euros)

Egyptian unrest stokes oil fears, but Mideast markets relax


Investors began separating the losers and the gainers from Egyptian unrest on Wednesday, as fears the turmoil would interrupt the world oil trade lifted petroleum prices to their highest level in more than two years while share markets in the Middle East rebounded.

The price of North Sea Brent crude futures held above $100 a barrel on Wednesday and just below the 28-month high they reached a day earlier, amid concerns the standoff between Egypt’s government and the opposition might close the Suez Canal. Investors also remained jittery about the risk of unrest spreading to the Middle East’s oil exporters.

But the bad news for oil consumers was greeted joyfully in Gulf Cooperation Council (GCC) countries, which sit on top of the world’s largest reserves. Investors also assessed that the protests that have shaken Egypt and Tunisia would probably not spread to the Gulf. GCC share prices rebounded.

“There were obviously some concerns of the region due to Egypt, but I think those are relatively limited,” Giyas Gokkent, chief economist at National Bank of Abu Dhabi, told The Media Line. “The overall impact of the turmoil in Egypt on the GCC economies will be relatively limited. Investors have come back. They’re saying, ‘We were being premature. Let’s reconsider.’”

The Dubai Financial Market General Index posted its largest gain in ten months, rising 3.3%, while Abu Dhabi’s ADX General Index jumped 1% and Saudi Arabia’s Tadawul All Share Index closed up 2.2%, the highest in a week. Gokkent said it was local investors who were the most bullish.

“From what we’ve seen so far, it’s mostly local investors mostly participating in the current uptick,” he said. “In terms of foreigners, they probably want to see things settle
While protests continued in Egypt on Wednesday, Gulf investors were cheered by President Husni Mubarak’s decision not to seek another term in office, a move some said may go far enough in the direction of change to bring about an end to the unrest, which marked its ninth day on Wednesday.

In a televised address late on Tuesday, the Egyptian leader said he would not seek re-election in September. The move failed to satisfy the opposition, which continued to demand that he step down immediately, but in the first show of support in the street for the government, some 20,000 Mubarak supporters marched on Tahrir Square on Wednesday, swamping the opposition presence.

Even in Israel, which regards the Egyptian leader as one of its closest friends in the Middle East and a bulwark against Islamic radicalism, the Tel Aviv Stock Exchange’s TA-25 index closed 0.9% higher.

But not everyone was convinced that the threat from Egypt is over. Nassib Ghobril, chief economist at Beirut’s Byblos Bank, told The Media Line that investors were unnerved by the sudden eruption of the protests in Egypt, and weeks before that in Tunisia. Even though the contagion they feared hasn’t occurred, they fear further surprises.

“Egypt has been a stable country for many years. Frankly, with this kind of rapid and unexpected change it’s normal to have investors squeamish because the level of uncertainty,” he said. “After what has happened in Tunisia and Egypt, investors will definitely take into consideration more political risk than they had done previously.”

In Egypt, the economy remained at a standstill. The Central Bank refused again on Wednesday for the third day to allow banks to open for fear they might be looted. Most automatic teller machines are empty of cash. Even the shut-down of the Internet, aimed at disrupting the opposition, has hurt business. Moody’s and Standard & Poor’s, the world two biggest credit rating agencies,  downgraded Egypt this week.

Egypt’s newly appointed finance minister, Samir Radwan, told BBC Radio 4 that the country’s economy had been damaged by unrest, but he denied it had been plunged into chaos. “There is a crisis; there is no doubt about it. Certainly I wouldn’t deny that the economy has suffered,” he said.

Oil traders are concerned about the impact Egypt’s closing the Suez Canal would have because the transit route carries 7% of world trade, including some 1.8 million barrels of oil daily. Without the Suez shortcut, the price of shipping oil from the Gulf to markets in Europe and North America would rise, adding to energy costs.

In addition, Arab investors have considerable investments in Egypt, including real estate, banks, Byblos’ Ghobril said. Egypt is the Arab world’s third-largest economy, counting for 11.5 of its gross domestic product.

But most analysts said the main threat Egypt poses is political. At $188 billion in current dollars in 2009, Egyptian economic output is about the same size as that of Alabama. “It doesn’t have the same magnitude as a political event that impacts on the GCC directly would have,” Gokkent said.