CBE cuts interest rates for the first time since February.

Happy Sunday, ladies and gents: With the Eid break well and truly behind us, we’re anticipating the news cycle to finally start picking back up. The CBE’s aggressive 150 bps rate cut on Thursday was understandably the talk of Egypt’s econo-sphere over the weekend (more on this in this morning’s Speed Round), but we’re expecting attention to quickly shift to President Abdel Fattah El Sisi’s attendance at the G7 summit, which gets underway today. Oh, and we could be in for a three-day holiday this weekend as the Islamic New Year looks to fall on Saturday.

President Abdel Fattah El Sisi arrived yesterday in Biarritz, France to attend the G7 summit, which kicks off today, according to an Ittihadiya statement. El Sisi held talks with Italian PM Giuseppe Conte after he arrived to discuss the ongoing investigation into the death of Giulio Regeni, illegal immigration and efforts to fight terrorism, according to a separate statement. A group of rights organizations issued a statement on Thursday urging French President Emmanuel Macron to bring up Egypt’s rights record when he meets with El Sisi, AFP reports.

Back to school soon: Prepare for slightly worse traffic starting 21 September as the new school year kicks off, the Education Ministry said in a statement yesterday.

US President Donald Trump triggered a nosedive in US stocks, government bonds, and yields on Friday after a series of tweets (here, here, here, and here), “ordering” American companies to exit China and look for alternatives. The tweetstorm also caused the volatility index to soar, the Wall Street Journal reports.

How does he plan on doing that? Enter the International Emergency Economic Powers Act, a little-known piece of legislation passed in 1977 for use against rogue states, drug traffickers, and terrorists. The AP has more.

Trump reacted to the market tumble with… yet another series of tweets: After markets closed on Friday, the president said he would raise tariffs on USD 250 bn-worth of Chinese goods to 30% from a current 25%, effective 1 October.

It takes two to tango, says Beijing: China responded to Trump’s decision with a retaliatory tariff hike of its own, announcing that it will slap an additional 5-10% tariff on USD 75 bn of US imports as of next month, according to the Financial Times.

Powell hints that further rate cuts could be on the way: All this came after US Federal Reserve Chairman Jerome Powell signaled in a highly anticipated speech on Friday that the central bank may be prepared to make further rate cuts. “Our challenge now is to do what monetary policy can do to sustain the expansion,” he said at the weekend gathering of central bankers at Jackson Hole, Wyoming.

But admits that the bank can’t do much to contain the fallout from Trump’s trade war: Powell pointed to “trade policy uncertainty … playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” but stressed that “while monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rule book for international trade.”

That clearly wasn’t dovish enough for Trump, who once again took to social media to unload on the Fed chair. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” he asked his Twitter followers following the speech.

EM central bankers are losing trust in the Fed: EM central bankers could begin taking monetary policy cues from the market over the Fed, as mixed messages and political interference undermine the bank’s credibility, Shuli Ren argues in Bloomberg, citing Indonesia’s decision to cut rates against expectations.

But EM hedge funds aren’t doing too badly: EM hedge fund capital reached record highs of USD 239.3 bn at the end of 2Q despite escalating trade tensions, the falling RMB and global easing, according to Hedge Fund Research. Returns made by hedge funds focusing on EMs beat out the global average, with the EM index rising 8.6% YTD in the first seven months of 2019, compared to the global hedge fund index, which gained 7.8%.

Carney calls for overhaul of global monetary system: Bank of England governor Mark Carney has called for a digital currency to replace the USD as the world’s reserve currency, the FT reports. Speaking at Jackson Hole this weekend, Carney said that the “domineering influence” of the USD in global trade and finance is holding back growth due to currency hoarding by countries scared of capital flight. Rather than elevate the RMB as a new reserve currency, he called for the creation of a multipolar financial system via a new virtual reserve currency backed by the world’s central banks. This would help to insulate the global system from movements in a single economy and reduce dependency on a single currency for trade and investment, he said.

President Abdel Fattah El Sisi’s visit to the G7 summit in France kept the talking heads busy last night. The president is expected to give a speech focused on democracy, education, gender equality and the environment, Hona Al Asema’s Reham Ibrahim noted (watch, runtime: 03:28).

For your Egypt-is-awesome news: The naming of Egypt’s Red Sea Mountain Trial by Time Magazine as the World’s Greatest Places in 2019 also earned some airtime on Al Hayah Al Youm with Khaled Abu Bakr (watch, runtime: 04:21). We have more on this in our Egypt in the News section, below.

El Hekaya’s Amr Adib urged the Tourism Ministry to act fast in the face of UK warnings of an E-coli outbreak in Hurghada and investigate the allegations (watch, runtime: 03:50).

CBE cuts interest rates for the first time since February: The Central Bank of Egypt’s Monetary Policy Committee (MPC) cut interest rates by 150 bps on Thursday, the CBE said in a statement (pdf). The central bank cited last month’s “relatively tame” inflation figures, declining unemployment rates, and increasing GDP growth in Egypt. Reuters, Bloomberg, and Xinhua all had the story.

Where do rates stand this morning? The CBE’s overnight deposit and lending rates now stand at 14.25% and 15.25%, respectively. The main operation and discount rates were also cut to 14.75%.

This is in line with expectations, albeit a bit more aggressive than anticipated: Around three-quarters of economists we polled last week expected the central bank to push ahead with a 100 bps rate cut. Bloomberg and Reuters’ polls also had similar results, with only three of the 13 economists surveyed by Reuters and one of the 12 polled by Bloomberg accurately predicting a 150 bps cut. “It is a bit surprising in terms of magnitude, but looking at where headline inflation is, there was sizeable room to cut,” Ahmed Hafez, head of MENA research at Renaissance Capital, told Enterprise.

Easing cycles across emerging markets “probably made the MPC feel more comfortable” about pushing ahead with a rate cut, London-based research consultancy Capital Economics said in a note. “It’s notable that previous interest rate cuts in the current cycle — in early 2018 and early this year — came at a time when EM central banks had generally shifted towards loosening policy.”

The bigger-than-expected cut “will revive investment sentiment across the board,” Beltone Financial said in a note on Friday. According to Beltone, local investors in particular will be welcoming of the monetary easing, but fully unlocking CAPEX lending potential is contingent on another 200 bps rate cut. Our survey of nine companies across several industries earlier this year found that businesses are waiting for interest rates to fall within pre-float levels of 10-13% before ramping up capex borrowing.

Reducing pressure on the public purse: “The biggest beneficiary of taking this action is the public treasury,” chairman of the Egyptian Businessmen’s Association Ali Eisa said, noting that the government saves around EGP 60 bn each year for every 100 bps cut.

Is this the start of a steady easing cycle? It depends on inflation: “The path for future policy rates remains a function of inflation expectations, rather than of prevailing inflation rates. Accordingly, the pace and magnitude of future policy rates adjustment will continue to be subject to confirmation that inflation expectations are anchored at target levels that are consistent with disinflation and price stability over the medium term,” the CBE’s statement reads. Hafez anticipates that inflation could rise back to around 12% by the end of the year, and forecasts another 100 bps cut in the final quarter.

… And global conditions: “The MPC’s decision to conduct another cut this year will depend more on external factors, especially the US Federal Reserve’s decision to ease monetary policy further, as the inflation outlook is expected to remain favorable, thanks to the end of fiscal consolidation measures,” said Mona Bedeir, senior economist at Prime Securities.

Where will rates stand at the end of 2019 and 2020? Capital Economics now expects the overnight deposit rate to stand at 13.00% at the end of 2019 and 10.75% at the end of next year, while Beltone Financial sees room for another 100 bps cut over the next four months. The CBE’s MPC could cut rates by 300 bps in 2020, Beltone and Prime’s Mona Bedeir said.

Egyptian bourse launches EGX30 Total Return index: The Egyptian stock exchange has launched the EGX30 Total Return Index (EGX30 TR), which will account for dividends and prices together, according to a statement. The index is meant to help investors see the total return on their investment rather than only the price change, and will use stocks’ last price rather than closing price. The EGX30 TR will include the same companies as those listed on the EGX30, EGX Chairman Mohamed Farid said. You can read the bourse’s manual and regulations for the new index here (pdf) or check out their explanatory video here (watch, runtime: 2:40).

Middle-income homebuyers to get 10% interest rate under subsidized mortgage initiative: Members of a committee working on an initiative to subsidize mortgages for middle-income homebuyers have agreed to set preferential interest rates at 10%, a committee member said, according to Masrawy. The committee is currently awaiting an approval on the rate from the CBE, which said in May it would spend EGP 50 bn on the initiative. A similar program originally ran from 2014 until January this year and offered middle-income homeowners long-term loans at a 5-7% rate of interest. The program is meant to support the real estate sector to expand projects that “will have an economic impact in employment, GDP, and the economy,” the CBE had said.

Egypt’s rice cultivation is expected to increase 140% y-o-y in 2019 to reach 6 mn tonnes, the head of the Federation of Egyptian Industries’ rice division Ragab Shehata said, according to Al Shorouk. Agriculture Ministry figures show that the average annual consumption of white rice in Egypt stands at around 3.5 mn tonnes, which begs the question why we’re going back to growing more of the water-intensive crop than we need. Irrigation Minister Mohamed Abdel Atti had outlined in April a USD 50 bn 18-year plan to encourage modern irrigation methods, cultivate fewer water-intensive crops, and establish desalination plants. The strategy is supported by legislative amendments to the Agriculture Act, and aims to clamp down on water-intensive crops to reduce water shortages.

LEGISLATION WATCH- El Sisi ratifies Social Security and Pensions Act: President Abdel Fattah El Sisi has ratified the new Social Security and Pensions Act, Ahram Online reported. The new law, which was passed by parliament last month, will see 21% of public and private sector workers’ salaries going towards a newly-established pension fund. The percentage taken out of employee salaries will increase 1% every seven years until it hits 26%. The law will also require the fund to provide quarterly and annual financial reports to the presidency, cabinet, and parliament for transparency purposes.

LEGISLATION WATCH- El Sisi ratifies new NGOs Act: President Abdel Fattah El Sisi has ratified the new NGOs Act, which regulates the work of Egypt’s civil society sector, the local press reports. The law, which received House approval last month, replaces the controversial Law No. 70 of 2017, which generated considerable criticism both in Egypt and overseas for its restrictions on civil society. The new law received both praise and criticism from NGOs, with supporters praising the removal of jail sentences for funding-related violations and detractors saying that it does not offer enough protections for civil society, the AP noted. We have a run-down of the key points of the new law here.

CABINET WATCH- The Madbouly Cabinet approved a draft bill establishing a medical emergency response fund during its weekly meeting on Thursday, according to an official statement. The legislation, which requires approval from the House of Representatives, would see the fund cover healthcare expenses for citizens affected by major accidents and other emergency cases that are not covered under the state budget’s healthcare allocations. It is unclear where the fund’s financing will come from.

Also approved during the Thursday meeting:

• An agreement between the Education Ministry and e-Learning management service provider CDSM to set up an e-learning platform for the ministry;
• Allowing the Grand Egyptian Museum (GEM) to contract a company or consortium to manage the USD 1 bn museum;
• A contract between the National Railways Authority and the state-owned General Nile Company for Roads and Bridges to develop the Alexandria train station;
• Setting up SCZone Utilities, a new holding company mandated with the construction, operation, management, and maintenance of all Suez Canal Economic Zone facilities.

MOVES- Abu Bakr Rizk was sworn in as the new head of the State Lawsuit Authority, according to an Ittihadiya statement. Rizk was appointed by President Abdel Fattah El Sisi, a new power granted to the president under the new constitution passed in a public referendum last April.

MOVES- Prime Minister Moustafa Madbouly named generals Ehab El Far and Amir Sayed as Suez Canal Authority board members, the authority said in a statement.

MOVES- Ericsson has tapped Fadi Pharaon (Linkedin) as senior vice president and head of market area Middle East and Africa and a member of the company’s executive team, Ericsson said in a statement. Pharaon currently holds the position of vice president, head of networks & managed services for Europe & Latin America.

Local cultures festival to boost Egypt’s ecotourism: The Environment Ministry organized last week the three-day Nature and Local Cultures Festival at the Wadi Degla protectorate to promote ecotourism by showcasing the diversity of Egypt’s natural reserves, Xinhua reports. The festival’s aim, according to the ministry’s director of environmental development, was to introduce traditional activities and customs that are part of the heritage of local communities — such as cooking methods, dance, and making handicrafts — to better integrate these communities into government efforts to protect the environment.

Getting attention in the foreign press this morning: Studies show that Egypt faces the prospect of “climate catastrophe” in Alexandria, with sea levels predicted to rise two feet by 2050, submerging parts of the city. With a lack of consensus on the severity and impact of climate change hindering policy decisions, CityLab asks whether the government is taking the necessary steps to address the threat.

Time Magazine has named Egypt’s Red Sea Mountain Trail in its World’s Greatest Places 2019, describing the route as “a community tourism initiative managed by the local Maaza tribe and dedicated to preserving Bedouin heritage.” This long-distance hiking trail spans 105 miles and takes 10 days to complete, during which time hikers learn about the food and culture of their Bedouin guides.

Also in the international press:

• Human rights: Amnesty International is calling on authorities to conduct an impartial investigation into the death of Hossam Hamed, who was held in solitary confinement at Aqrab prison since early August.
• Digital art: Artist Kaya Behkalam’s Augmented Archive project looks to preserve the events of 2011 in our collective memory,he tells Qantara.

The US is actually not as close to a recession as it seems, regardless of the chatter about the inverted yield curve: You know how everybody and their mother has been fretting over an impending recession in the US? It’s actually “a less than 50-50 proposition,” Peter Coy writes for Bloomberg. The number of economists predicting a downturn has actually declined since the beginning of the year: 40% of economists surveyed last week forecast a recession by the end of 2020, compared to 52% back in February. And according to Bloomberg’s poll of economists, the median forecast sees the US economy growing at a 1.8% clip next year.

The inverted yield curve just isn’t what it used to be back in the day: Unlike times past, these days it doesn’t take much to invert the yield curve. Long-term bonds were not always the safe haven asset they are today, and had to offer higher yields in order to attract investors. This is the traditional upward sloping yield curve, featuring a sizeable difference between the rates offered on 2-year and 10-year bonds. Now, the US 10-year treasury is seen as one of the safest fixed-income assets, which has resulted in increased demand and a drop in yields. The upward slope of the yield curve has gradually disappeared as 10-year bond yields have fallen closer to rates on short-term bonds (in econo-speak, this is what is referred to as a “flattening” of the yield curve). Whereas before an inverted curve necessitated a substantial drop in long-term yields, these days it may only take a slight decline. What this means is that the inverted yield curve can no longer be assumed the harbinger of recession that it once was.

El Sisi talks public health services with WHO boss: President Abdel Fattah El Sisi met on Thursday with World Health Organization (WHO) Director-General Tedres Adhanom to discuss Egypt’s public healthcare services and the new universal healthcare scheme, which was rolled out earlier this year in Port Said, according to an Ittihadiya statement (pdf).

The Zohr natural gas field’s 13th well is set to begin production at the end of September, an oil industry source told Youm7. Total production from the field reached 2.7 bcf/d four months ahead of schedule last week.

Cotton exports increased by 74% during the first eight months of 2019 to 1.74 mn qintars, compared to 1 mn qintars during the same period last year, Agriculture Ministry sources told the local press. Cotton export season lasts nine months, and comes to an end this week.

The Military Production Ministry signed an MoU with Belarus’ Amkodor to increase the percentage of domestic components used in heavy machinery that will be manufactured in Egypt, the ministry said in a statement. The agreement will see the company source 45% of its components from local sources by 2022.

There is an “urgent need” to raise awareness of food safety in Sohag governorate due to “poor knowledge and non-compliance” with safety regulations among food handlers, research conducted at Sohag University has found (pdf). Less than half of the 994 surveyed handlers considered safe food handling an essential part of their job, only 36% of participants were aware that handlers might carry foodborne pathogens, and almost one-third didn’t agree that thorough washing of vegetables and fruits is necessary to prevent food poisoning. The study has been republished by the WHO.

The Education Ministry signed on Thursday a cooperation protocol with the European Institute for Cooperation and Development (IECD) and the French Chamber of Commerce in Egypt to set up an applied technology school in Qalyubia, according to a cabinet statement.

The New Urban Communities Authority (NUCA) is tendering nine land plots comprising around 1k feddans in New Cairo to developers, unnamed officials at the authority told the local press. Mixed use plots have been priced at EGP 9,870 per sqm while commercial plots are priced at EGP 30.4k per sqm.

Travel agency Thomas Cook has seen bookings increase by 30-40% in 2019, with most tourists going to Hurghada and Marsa Alam, said Thomas Cook Egypt agent Hossam El Shaer, according to Youm7.

EFG Hermes’ fintech subsidiary Valu has signed a contract with an insurance company to feature its car insurance installment plan on the app, CEO Walid Hassouna told the local press without naming the company. Valu users will be able to pay for the insurance in 12 installments over the course of a year, Hassouna said, adding that the company will soon reveal the name of the company.

The Supreme Administrative Court has postponed to 8 September appeals filed by the State Lawsuits Authority and a number of companies to reinstate the 15% import duty on iron billets, Akhbar El Yom reported. This is the second time the hearing has been pushed in the past week after two judges resigned from the panel last weekend. The lower administrative court last month turned down the Trade Ministry’s appeal to reimpose the 15% duty, which it lodged after 21 iron factories won a case at the court reversing the ministry’s decision.

The Tax and Customs Committee at the Federation of Egyptian Industries has asked members to present their suggestions on proposed amendments to the VAT Act and the planned new Income Tax Act, the local press reported. The government announced plans to amend the VAT Act and draft a new income tax law last month, promising not to amend the rates.

The Supreme Media Council has suspended controversial TV presenter Reham Said for the nth time over her description of overweight people as “a burden” and “an eyesore” during a discussion about weight loss surgery on her talk show, Sabaya, last week. She was called in for questioning on Friday, following a series of complaints on social media in Egypt and beyond, Ahram Online reported. Egypt’s National Council for Women said in a statement that it had submitted an official complaint about Said’s remarks. Said subsequently announced on social media that she is quitting the small screen. Let’s all hope to god she’s serious.