Towards the trading week: The index rose as expected - but the real challenge starts now

The trading week opens after the Consumer Price Index was published on Friday - the central local figure, which directly affects the direction of the interest rate. Let's start with it.

The July index rose by 0.3%, exactly within the range of forecasts that stood at 0.2%–0.4%. Thanks to the "base effect" - the July index last year was high (0.4%) - annual inflation actually fell to 1.5%, at the lower end of the Bank of Israel's target.

The "as expected" index is usually the calmest scenario: no surprise, no shock. The factors that moved it were the expected ones - seasonal price increases for flights and summer vacations, and the continued rise in rental contracts, which were partially offset by decreases in food and fuel prices.

But - and this is the main point - the real story is not in the July index, but in what is expected after it. Economists warn that the next indices, and especially August (which will be published on September 15), are expected to be much higher. Forecasts for August range in a wide range, from 0.6% to a full percent (at Psagot), mainly due to the jump in fuel prices (61 agorot per liter this month), the price increase of flights and vacations, and the significant price increase in new rental contracts.

Indices until the end of the year are also expected to be high, because in the corresponding months in 2025, abnormally low indices were recorded. At the Bank of Israel and the Ministry of Finance, they predict that inflation will return above 2% by the end of 2026.

This is exactly the dilemma that will face the Monetary Committee in its next decision, on September 1. On the one hand, current inflation is low and within the target. On the other hand, if the next indices do indeed jump, the Bank of Israel will have to carefully consider whether to continue lowering the interest rate. Even the most optimistic forecasters no longer see more than one reduction until the end of the year - a change from previous forecasts that spoke of a faster downward path. The interest rate currently stands at 3.5%.

On Friday, after the publication of the index, the stock exchange closed with slight declines. TA-35 and TA-125 fell by 0.3%. Nice stood out for the better with a jump of 6.5%, while Next Vision plummeted 5.6% and completed a difficult week with a decline of 13.2% - a continuation of the realization in defense stocks after the reports. Nofar fell 5.4% after signing an agreement to acquire the energy company Highlight for 200 million shekels.

In a weekly summary, the picture is actually positive: TA-35 rose 1.1% and the banks 2.2% (Discount led with 3.5% after the reports). Camtek jumped 9.5% during the week and Nice 7.8%.

Wall Street concluded a third positive week in a row, despite slight declines on Friday. The S&P 500 set a new record during the week before retreating slightly, against the background of moderating inflation data that increased the expectation that the Fed would leave the interest rate unchanged in September.

On Friday, a weak consumer confidence survey from the University of Michigan and retail sales data that fell sharply weighed on the market. Another event worth following: the Jackson Hole conference in two weeks, where Fed Chair Kevin Warsh will speak for the first time in his role - a speech that may signal the policy direction for September.

In Tel Aviv, the reporting season continues in full force. This week, Mizrahi Tefahot will stand out, which will conclude the banks' reporting season. Alongside it, insurance companies, investment houses like Meitav and Mor, fashion companies Castro, Retailors, and Urbanica will report, as well as the income-producing real estate giant Azrieli - whose report is particularly interesting in light of its expanding data center activity, a hot field that connects it to the AI trend.

In the USA, on the other hand, a sparse week of reports is expected - most of them are already behind us, including the large Israeli ones. The main attention will be directed to the retailers' reports (Walmart and Target), but investors are already waiting for the big event of next week: Nvidia's reports on August 26, which will be examined as the central index for the entire AI and chip industry.

For mortgage holders, Friday's index is good news for the short term - moderate indexation and falling annual inflation. But do not let the calm mislead you: if the next indices jump as expected, the indexation will become more expensive and the pace of interest rate cuts will slow down.