Fischer Rate Cut May Push Teva, Elbit Higher: Israel Overnight

Bank of Israel Governor Stanley Fischer
Stanley Fischer, Governor of the Bank of Israel. Photographer: Simon Dawson/Bloomberg

Teva Pharmaceutical Industries Ltd. and Elbit Systems Ltd. may benefit from a jump in exports after Israeli central bank Governor Stanley Fischer’s surprise interest rate cut drove the shekel to an eight-month low.

Israel’s benchmark stock index, the TA-25, advanced for a third day, climbing 1.6 percent to 1,079.79 at 10:00 a.m. in Tel Aviv. Elbit Systems increased 3.1 percent in Israel after climbing 5.5 percent in the U.S. yesterday. Teva, the world’s largest maker of generic drugs, fell 1.4 percent in Israel. The shares rebounded from a four-year low yesterday in New York.

The shekel strengthened 0.6 percent to 3.7083 after declining to as low as 3.7420 per dollar yesterday as Fischer cut the benchmark interest rate for the first time in 2 1/2 years. Israel joined countries including Turkey and Brazil in reducing borrowing costs as the global economy slumps. The currency’s weakness will help companies that get most of their revenues in dollars and pay salaries in shekel, said Gilad Alper, an analyst at Excellence Nessuah Investment House Ltd.

“The sectors that tend to benefit most from the rate cut are exports and technology,” Alper said by telephone from Ramat Gan, Israel, citing Teva, Elbit and Nice Systems Ltd. “Still, this is not a good sign, it means that the economy is slowing.” The shekel has dropped 5.5 percent versus the dollar this year. It last fell more than that in a year in 2005, when it lost 6.1 percent. Finance Minister Yuval Steinitz said on Sept. 20 that the currency’s depreciation is sufficient to benefit the economy.

Two-year interest rate swaps, an indicator of investor expectations for the benchmark in that period, tumbled 19 basis points to 2.74 percent, the lowest since September 2010, showing that traders are betting on another reduction. They were little changed today.

Export Industry

“The current level is fine,” Steinitz, 53, said in an interview at Bloomberg’s headquarters in New York. “We’re happy about it. It was very difficult for the export industry to handle a very strong shekel.”

Steinitz said further declines in the currency could affect inflation. “If it’s too weak, then the cost of living is going up, the imported commodities will be more expensive.”

The Bloomberg Israel-US 25 Index, the benchmark for the largest New York-traded Israeli companies, added 1 percent to 78.10 yesterday, the most in seven days.

Elbit Systems, Israel’s largest non-government defense contractor that gets most of its orders from the U.S., climbed to 148.1 shekels, or $39.94, after jumping to $38.61 in the U.S. yesterday.

Elbit Systems received 32 percent of its income from the U.S. last year, according to data compiled by Bloomberg. The company said its board authorized the repurchase of as many as 1 million shares over the next year.

Teva, based in Petach Tikva, Israel, declined to 131.9 shekels, or the equivalent of $35.57. The shares increased 0.6 percent to $35.46 in New York yesterday.

Revenue Increase

Teva, which mostly relies on the U.S. market, got 62 percent of its revenue from North America in 2010, according to data compiled by Bloomberg. The drugmaker expects to meet 2015 sales and profit targets and aims to benefit from a larger presence in Japan, said Chief Financial Officer Eyal Desheh.

The company “absolutely” is on course to increase revenue by 2015 to $31 billion and net income to $6.8 billion, Desheh said in an interview yesterday. The company reported net sales of $16.1 billion last year and forecast in July an increase to between $18.5 billion and $19 billion in 2011.

Nice Systems, a maker of digital surveillance and monitoring systems, gained 3.6 percent, the most in a week, to 116.7 shekels, or $31.47. The U.S. shares added 2.1 percent to $30.48.

Lower Rate

Fischer lowered the rate by a quarter point to 3 percent, the Jerusalem-based central bank said on its website yesterday. Only two of the 22 economists surveyed by Bloomberg forecast the decision, while the remainder predicted no change. Investor bets on a rate cut helped push yields on the government’s benchmark shekel bond to the lowest level in two weeks.

More than $3.5 trillion was wiped from equity values globally last week amid concern policy makers are struggling to contain a debt crisis that has Greece teetering on the edge of default, and threatens to spill into other economies.

The International Monetary Fund on Sept. 20 reduced its forecast for global growth and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.

Alon, Ceva

Israeli inflation slowed to 3.4 percent in August from a high this year of 4.3 percent in March. The government’s annual target range is 1 percent to 3 percent. Economists’ 12-month inflation expectations declined to 2.3 percent in September, the lowest since February 2010.

“Investors in equities might view it as a negative signal,” said Terence Klingman, the head of research at Meitav Brokerage in Tel Aviv. “The Bank of Israel is expecting a weakness in the economy which will hurt company profits.”

Alon Holdings Blue Square Israel Ltd., the country’s second-largest food retailer, declined 1.4 percent to 20.70 shekels, or the equivalent of $5.58. The U.S. shares fell the most in nine days, dropping 5.6 percent to $5.53.

CEVA Inc., the developer of chips available in most iPhones and iPads, retreated 1.3 percent to $25.45 in the U.S. yesterday.

Apple Inc., the world’s largest company by market value, is cutting orders to vendors in the supply chain for its iPad tablet computer, JPMorgan Chase & Co. said in a report. Several supply-chain vendors indicated in the past two weeks that Apple lowered fourth-quarter iPad orders 25 percent, the first such cut that analysts at JPMorgan’s electronic manufacturing services team in Hong Kong said they have ever seen.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies listed on Nasdaq, the most of any country outside North America after China.

Israeli technology companies raised $569 million in capital during the second quarter of 2011, the most in two years and up from $343 million in the same period last year, according to the Israel Venture Capital-KPMG Quarterly Survey released July 13.

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