The EGP is up against the USD. Here’s what could be happening.

The EGP gained ground against the USD yesterday for the first time in … forever? The EGP was changing hands at about 17.66 to the greenback yesterday, up from around 18.00 last Wednesday. The surprise gain has sparked speculation market-wide; we have the rundown on just about every scenario imaginable in this morning’s Speed Round, below.

Egypt and France signed 40 agreements worth a whopping EUR 1.6 bn on French President Emmanuel Macron’s second day in Egypt. His visit ends today. We have more on this, too, in this morning’s Speed Round.

The Fed starts its first meeting of 2019 today, and the expectation is that it will leave interest rates on hold: The US Federal Reserve’s Federal Open Market Committee (FOMC) is set to hold its first policy meeting of 2019 today. The two-day meeting will end tomorrow, and there’s not traditionally a press conference by the Fed chairman after the January meeting. Emerging markets watchers are keeping a close on the meeting: Since the December policy meeting, the word from the Fed has suggested that it may slow the previously expected pace of rate hikes in 2019. The USD slipped on Monday in anticipation of the Fed meeting as well as approaching US-China trade talks, Reuters notes.

It’s also earnings week in the US of A: The FOMC meeting coincides with Apple, Amazon, Microsoft Facebook, Tesla and Qualcomm all reporting earnings this week, which pundits hope will help breathe some life back into equity markets that were roiled in 4Q2018, the Wall Street Journal reports.

Now, speaking of those US-China trade talks:

News that the United States has hit Huawei with “sweeping” criminal charges is the top story in the global business press this morning. Meng Wanzhou, the company’s chief financial officer (and daughter of the company’s founder) also faces charges of stealing American technology and breaking US sanctions against Iran. Meng, who was arrested last month in Canada on the US charges, is due in a Vancouver area court today. The story leads this morning on the Financial Times, Wall Street Journal, the New York Times, CNBC, Reuters and elsewhere.

It’s now anyone’s guess whether the trade talks scheduled for Thursday and Friday will go ahead.The talks were designed to try to reach an agreement that would avoid US tariffs on some USD 200 bn of Chinese goods rising to 25% from 10% in March. Asian shares were trading lower at dispatch time this morning in the wake of the Huawei news.

Western mobile operators are pulling back from Huawei: Vodafone’s group chief executive said last week that the network operator would “pause” further use of Huawei in its core networks amid the ongoing security row, and Australia’s TPG has “cancelled plans to roll out the country’s fourth mobile network” after the government there banned Huawei as a supplier of 5G network technology.

What does Huawei do in Egypt? Plenty. The company sells mobile phones, computers and other consumer electronic goods and provides communications infrastructure to players ranging from telephone companies Telecom Egypt and Etisalat Misr to real estate player TMG, among others. And we’re not alone: A top Huawei official said in 2016 that the company had built more than 70% of the 4G networks in Africa.

The African Cup of Nations will start a week later than planned, Reuters reports, saying the move will give players an additional rest after Ramadan. The tournament will now kick-off on June 21 and the final will be played on July 19.

In miscellany this morning:

• Saudi Arabia has pledged even deeper oil production cuts in February and says that Russia has promised to “pick up the pace” on cuts of its own,
• US liberals are up in arms over former Starbucks CEO Howard Schultz’s declaration that he may seek the presidency as an independent, saying his candidacy would actually help The Donald’s re-election chances. An NYT columnist went so far as to call his prospective bid “a reckless idiocy.” (FT | WSJ | NYT)
• The US football Super Bowl is this coming Sunday. The New England Patriots and Los Angeles Rams will face off in Atlanta.

MORNING READ- Preparing for the D-Day of technological change will be vital. Writing for the FT, John Thornhill summons Eisenhower and the 1944 invasion of France as he argues that “We have no idea how the future will pan out and therefore we can devise no sensible plan. But, given what we already know about the rise of the robots, it would be reckless not to plan for the possibility of extraordinary disruption.” Bonus: Thornhill is a member of the Economic Singularity Club and contributed to a new book of short stories “speculating on what the world might look like in 2045” as we face the possibility of technology-driven mass unemployment.

The agreements Egypt and France signed yesterday and French President Emmanuel Macron’s comments on Egypt’s human rights record were in the limelight on the airwaves last night.

Macron extending “advice” to Egypt on its human rights situation was meant in a friendly context and is not indicative of hostility, political analyst and rights lawyer Hafez Abu Saada told Al Hayah Al Youm’s Lobna Assal that Macron’s advice to Egypt (watch, runtime: 06:03). El Hekaya’s Amr Adib concurred, saying that the fact that Macron brought up the issue does not mean Egypt’s ties with France are not solid (watch, runtime: 11:17). Former Egyptian diplomat Gamal Bayoumi also said Macron’s visit is a positive step towards strengthening diplomatic and economic ties between the two countries (watch, runtime: 04:22).

A recently approved temporary law to settling building code violations is aimed to crack down on illegal housing, not punish citizens, Parliamentary Affairs Minister Omar Marwan told Adib (watch, runtime: 09:18).

Over 250k cars have recently been converted to run on natural gas instead of gasoline, Masaa DMC’s Eman El Hosary noted (watch, runtime: 05:26).

Connecting the dots: The EGP keeps strengthening, yields keep falling: The EGP continued rising against the USD this week, strengthening to a selling price of 17.70 to the USD from around EGP 18.00 last Wednesday. Simultaneously, yields on Egyptian three- and nine-months T-bills fell at Sunday’s auction to their lowest level since May of last year to 18.114% and 18.203%, respectively, as demand surpassed expectation, according to central bank data. The story of the EGP strengthening sets the nation on fire yesterday. Here’s what could be happening:

Possibility #1: supply and demand: The appreciation of the EGP reflects higher demand from both portfolio investors and local banks for T-bills, Pharos Holding Head of Research Radwa El-Swaify tells us. The impact of the demand is more pronounced now that the central bank’s parallel repatriation system for foreign investors has been wound down. She sees the chattering over the appreciation as much ado about nothing, saying it is natural that the EGP will fluctuate. Pharos is leaving unchanged its forecast of an average USD-EGP exchange rate of 18.50 barring any major foreign currency inflows.

Possibility #2: the CBE: “The strengthening of the EGP is worrying and orchestrated,” an unnamed official told Reuters. “It has nothing to do with supply and demand.” To put that in context: CBE Governor Tarek Amer had said last week that January was set to be the first month of net positive inflows for Egypt since May 2018 — and suggested that some volatility in the EGP-USD exchange rate was to be expected. Reuters reported yesterday that Banque Misr and the National Bank of Egypt alone have brought in USD 1.8 bn of inflows in January. And the USD slipped yesterday ahead of US-China trade talks and this week’s Fed decision, as we note in What We’re Tracking Today, above.

A finger on the scale to prove a point? The domestic press has taken it as an article of faith that Amer’s expectation of EGP volatility going forward was more than theoretical. Bankers and other analysts with whom we spoke yesterday are buying into the appreciation being a deliberate weighing of the scales in favor of the EGP to hit back at potential market speculators. All, however, see the EGP depreciating. Amer himself had reiterated that the CBE was out of the currency management business.

Do the appreciation yesterday and Amer’s remarks last week suggest we’re really letting the EGP float? As we’ve previously noted, pundits including Capital Economics and news outlets including Reuters have all suggested that the CBE is using the banking system to indirectly intervene and keep the EGP stable. The parallel repatriation mechanism, which the CBE scrapped last month, also helped in that respect.

The consensus on where the EGP is headed forecasts a gentle slip against the greenback over the coming 18-24 months, with most analysts we’ve surveyed seeing it at about EGP 20 by the end of next year.

Egypt picks banks, legal advisors for int’l bond issuances: The Finance Ministry has selected the investment banks that will advise on a both USD- and EUR- denominated eurobond issuances that will go to market before the current fiscal year ends in June, the ministry said in a statement. JP Morgan, HSBC, Goldman Sachs and Citibank will advise on the USD-denominated eurobond issuance, while BNP Paribas, Natixis, Bank of Alexandria, and Standard Chartered were tapped to manage the EUR-denominated portion of the issuance. The National Bank of Egypt and Banque Misr will be “assisting with the offerings,” according to the statement. The ministry also picked Al Tamimi & Co. as domestic legal counsel and Dechert LLP as international legal counsel for all the offerings.

More FX-denominated bonds in the offing this year: The Finance Ministry is still planning to move ahead with a bond issuance in an Asian currency for the first time this year, the statement noted. The ministry had previously said that it will move ahead with samurai and panda bonds. The ministry also plans to issue green bonds for the first time this year.

Background: Egypt could issue USD 3-7 bn worth of FX-denominated bonds, pending approval from the Madbouly Cabinet, Finance Minister Mohamed Maait said earlier this month. Cabinet had signed off last week on the Finance Ministry’s debt control strategy, which caps Egypt’s eurobond issuances at USD 22 bn until the end of FY2021-22.

What’s the outlook for debt issuances in emerging markets as the Finance Ministry gets set to go on the road? The Finance Ministry’s announcement on advisors yesterday came as the global business press debates debt levels and prospects for new issuances across EM. Egypt, one of the more active EM issuers in the past two years, came up frequently.

S&P has tagged Egypt along with Argentina, Pakistan and Lebanon as having “unsustainable” levels of public debt, Reuters reported. But our rising foreign and domestic debt have not prompted the ratings agency to issue a downgrade warning. Meanwhile, Bloomberg reports that Fitch has a positive outlook on Egypt’s rating as of the end of 2018 even as it warns that other EM issuers could face credit downgrades this year.

With other EM credit ratings on shaky ground, Egypt could shine: All three of the major ratings agencies have warned of further downgrades among emerging economies. Moody’s currently has 19 countries EM countries on downgrade warnings (compared to 11 for upgrade) while Fitch has predicted that 2019 will see more downgrades than upgrades. “I wouldn’t be surprised if we saw more downward pressure [on global ratings] because we think the risks are really skewed to the downside,” Fitch sovereign analyst James McCormack told Reuters.

Could economic uncertainty mean Egypt has less competition for global capital? Net issuances of EM sovereign debt are set to fall over the next 12 months as governments react to uncertain economic conditions, market analysts told the FT. David Spegel, founder of investment consultancy Fundamental Intelligence, forecasts net sovereign bond sales falling to USD 91.6 bn from USD 122.2 bn due to record maturity levels and government reluctance to refinance.

What does this mean for sovereign bond prices? Falling net supply of EM sovereign debt will help to support bond prices in the face of rising US interest rates, analysts said. “I think this is going to be an OK year [for EM bonds],” Spegel said, adding that the jury is still out as to whether money will move to less risky markets as volatility increases. Shamaila Khan, director of EM debt at AllianceBernstein, added that the declining supply is “another supportive factor for asset price performance.”

Gross EM corporate debt to hit record levels: Spegel predicts record levels of corporate bond issuance in emerging economies this year (rising 18% to USD 549bn). Taking maturities into account though, net corporate debt will actually increase at a slower rate compared to 2018.

Egyptian and French officials signed 40 agreements worth EUR 1.6 bn during French President Emmanuel Macron’s visit to Egypt, according to an Investment Ministry statement (pdf). The agreements spanned infrastructure projects for the new administrative capital, electric vehicle production, education, economic and social development, healthcare, culture, women empowerment, energy, ICT, and MSMEs. Few details were provided on the nature or time frames of the agreements, or what they entail.

What we didn’t sign: New arms purchases, including Egypt’s expected acquisition of 12 Rafale jets. While Macron said the purchase is still on the table, an Elysee official had said earlier this week that the agreement has yet to be finalized. The United States had been an obstacle to the sale of the fighter jets.

Macron pledged a further EUR 1 bn in financial support over the coming four years and said during a joint press conference with President Abdel Fattah El Sisi that he was urging French businesses to seize opportunities here (watch, runtime: 1:31:41). The two presidents also sat down prior to the presser for talks on illegal migration, terrorism, and the situations in Libya, Syria, and Palestine, according to an Ittihadiya statement.

We still got a slap on the wrist over human rights: In a departure from his previously quiet stance on the issue, Macron addressed Egypt’s human rights record during the presser. He stressed that a dynamic, active and inclusive civil society is the best defense against extremism and a prerequisite for stability. Still Macron was careful “not to frame this as a criticism or an intrusion,” Cairo-based journalist Ruth Michaelson told France 24. The French president had said back in October 2017 that it was not his role to “lecture” Egypt on its rights record, a position that prompted higher scrutiny from media outlets and rights organizations ahead of this visit.

El Sisi defended his administration’s stance, saying that "Egypt does not advance through bloggers. It advances through the work, effort and perseverance of its sons." Pointing to economic challenges and regional political turbulence, El Sisi said Egypt’s unique characteristics call for a tailored definition of human rights.

Remittances from Egyptians living abroad rose 5.7% in 11M2018 to USD 23.3 bn, from USD 22.1 bn during the same period last year, according to a central bank statement (pdf).

Egypt to receive USD 1 bn in loans from Kuwait Fund: The Kuwait Fund for Arab Economic Development will provide USD 1 bn in loans to Egyptian infrastructure projects over the next three years, fund director-general Abdulwahab Al Bader told Zawya. The funding is earmarked for specific electricity, water, transport, communications and irrigation projects. Kuwait is presently helping finance the Sharm El Sheikh tunnel road and four desalination plants in South Sinai.

EU earmarks EUR 110 mn for Egypt this year: The EU has earmarked assistance worth EUR 110 mn for Egypt this year, EU Ambassador to Egypt Ivan Surkoš told the local press on Monday. The funding includes:

• EUR 75 mn for water and energy project studies;
• EUR 25 mn to upgrade schools and improve the quality of education, particularly in rural areas;
• EUR 5 mn to support FGM awareness programs.

REGULATION WATCH- FRA amends rules on board members with criminal records; gives leasing and factoring companies six months to conform with new law. Companies regulated by the Financial Regulatory Authority have new rules governing board members with criminal records, Al Mal reports. Board members with criminal convictions may must now meet a separate definition of good character rather than simply needing to wait three years after serving a sentence before being allowed to take a board seat. The FRA also scrapped a ban on board memberships for individuals with repeat convictions; they will instead be allowed to apply for rehabilitation in the eyes of the regulator, giving them a potential path back to the boardroom.

Also yesterday: The FRA also gave leasing and factoring companies six months to conform with the recently issued law. Companies wanting more time need to inform the regulator by end of March, the FRA said in a statement.

Egypt’s ranking in Yale environmental index surges to 66th from 104th: Egypt vaulted from being ranked 104 out of 180 countries in the Yale Center for Environmental Law and Policy’s 2018 Environmental Performance Index (EPI) to rank as number 66.

Oddly enough, our air quality is apparently quite good overall by global standards. Egypt ranked number 32 on air quality behind top five Australia, Barbados, Jordan, Canada and Denmark. If we’re reading it right, our ranking in the air quality category is dragged down by our having one of the worst records in tiny particulate matter (PM 2.5), where we ranked 92 in PM 2.5 exposure.

The survey results are endlessly fascinating if you care about the environment in which you and your kids / younger siblings live every day. Tap or click here to go straight to the landing page for Egypt. You can also go explore the full 2018 EPI ranking or read the press release (pdf).

Background: The 2018 EPI ranked 180 countries on 24 performance indicators across ten issue categories covering environmental health and ecosystem vitality, serving as a gauge of how close countries are to established environmental policy goals.

140 Egyptian companies are due to participate in Gulfood 2019, the world’s largest food and beverage exhibition, which is scheduled to take place from February 17-21 at the Dubai World Trade Center, according to Egypt Today. Egypt's Food Export Council head Hani Berzi said on Sunday that the companies participating are prominent in the food and harvesting industries.

The collateralized loan obligation (CLO): The slightly better-behaved sibling of the collateralized debt obligation (CDO), the asset class that — lest we forget — came so close to ruining the Western financial system in 2007-08. As part of its deep-dive series into the leveraged loans market, the FT has the low-down on these debt instruments.

What are they? CLOs operate in much the same way as CDOs. Managers take a handful of loans at varying risk levels and package them into a CLO. Investors then buy the CLO and earn returns as and when loan repayments are made. Triple-A CLOs made up of safe loans are low-yield and pay out less, while CLOs containing high-risk debt carry higher yields.

So what’s the difference? CLOs are less likely to induce the apocalypse, CLO managers reassuringly tell us. Changes to the way that ratings agencies evaluate the underlying loans better reflect their performance and provide more protection to investors, the article says.

Why should you care? The market is growing rapidly, having doubled to more than USD 600bn between 2015 and 2018.

News of UK tourist Laura Plummer’s imminent release from Qanater prison after serving 14 months of a three-year sentence features heavily in the UK press today, with the Guardian and the BBC giving something close to measured coverage. Other outlets — notably the tabloids — linger over the more lurid details. Plummer was stopped at Hurghada Airport in October 2017 with 290 tablets of illegal meds in her suitcase. She claimed to be unaware that what she was carrying, which is available with prescription in the UK, was a banned substance in Egypt.

Other headlines worth noting in brief:

• Egypt is demanding that the National Museum of Scotland provide proof that an artefact it is exhibiting was not taken from the country illegally, The Times reports.
• Archaeologists have discovered Greco-Roman wine cellars in the Nile Delta, the NYT says.
• Fostering academic freedom, creativity and critical thought are imperative if Egypt is to meet the goals of Vision 2030 — which it is currently a long way from doing, argues an editorial in Lebanese outlet The Daily Star.
• As divorce becomes less of a cultural taboo, more Egyptian women see escape from an unhappy marriage as cause for celebration, says Gulf News.

President Abdel Fattah El Sisi’s meeting with French President Emmanuel Macron dominates the front pages of the country’s three main state-owned dailies this morning (Al Ahram | Al Akhbar | Al Gomhuria). Al Ahram highlights El Sisi’s remarks that there is a difference between freedom of thought and destroying the country, while Al Gomhuria highlighted cooperation agreements the two countries signed yesterday.

Want to protect your kid from the robot apocalypse? Ask yourself how they can mix creative and technical skills in new jobs. As markets evolve and competition for jobs increases, so must professionals diversify their skill sets to span the divide between what is technical and what is creative. This is the central premise of a Wall Street Journal piece citing a newly-published report from labor market analytics firm Burning Glass Technologies, which has coined the term “hybrid jobs” to describe positions that combine skills not usually found together — seen as increasingly desirable by employers.

Flexibility is the name of the game: Jobs requiring broad skill sets — such as an engineer with sales skills — grow at around double the rate of overall job growth between 2018 and 2028, and the people holding these positions will command a significantly higher earning power than those in more traditional structures. This process of hybridization is an opportunity, and “people in hybrid jobs are also less likely to become professionally obsolete. Highly hybridized jobs have only 12% risk of being automated, compared with a 42% risk for jobs overall,” Lauren Weber writes.

Throwing down the education gauntlet: With the increase in precarious employment felt across the board, in many ways we are living through a time of real professional anxiety — a reality that the piece implicitly acknowledges. We need to figure out effective ways of fostering these diverse skill sets, meaning a focus on continuous learning is key for individuals and a move away from vertical teaching structures is essential for institutions.

Infinity Solar’s 30 MW solar power plant, the first of 16 solar plants financed by the European Bank for Reconstruction and Development (EBRD) in Aswan’s Benban solar park, has been completed and connected to Egypt’s national electricity grid, EBRD said on Monday. The plant was co-financed by the Dutch Development Bank (FMO) and the Green Climate Fund (GCF). The 16 plants are expected to generate a combined 750 MW of clean energy once completed, and will “reduce carbon dioxide emissions by 900,000 tonnes a year,” the statement said.

Cyprus-based EDT Offshore is mulling investing in Damietta Port to support oil and gas companies in offshore exploration, local news reported. There was no mention of the value, timeframe, or exact nature of the investment. EDT, which already has a rep office in Alexandria, supports oil and gas activities through onshore bases, vessel maintenance, and logistics services.

Egypt is planning to spend EGP 1 bn to develop St. Catherine Airport in South Sinai, Civil Aviation Minister Younes El Masry said. The upgrades will see a new runway, passenger terminal and other buildings added, he said, according to Al Mal. The minister did not explain what the government is doing investing this much in an airport so close to the one in Sharm, but it does highlight both the priority the government is giving to upgrading airports in general and that it is expecting a flood of tourists to South Sinai.

France’s Schneider Electric is currently building 65 electric vehicle charging stations in cooperation with Revolta Egypt, Al Mal reports. The company is also working on projects in the new administrative capital and other new cities under construction in Egypt.

Internet toxicity got you down? Halal browser SalamWeb is here to help. A Malaysian startup promising to deliver a “Muslim-friendly” web experience wants “to make the internet a better place,” Bloomberg says. SalamWeb hopes to capture 10% of the global Muslim population of 1.8 bn as users — although managing director Hasni Zarina stresses that “it can be used by anyone.” Built upon open-source Chromium software (à la Google Chrome), SalamWeb offers messaging, news, and other features, and has content filters that mark web pages as appropriate, neutral, or inappropriate, as well as indicating prayer times and the Qibla direction.