CBE to leave rates on hold tomorrow: Enterprise poll

Can you believe it’s the first day of 2Q2020? Our heads are still spinning over here.

Ten of 11 analysts in our Enterprise interest rate poll see the CBE leaving rates on hold when its monetary policy committee meets tomorrow. We have all the details in this morning’s Speed Round, below.

The government will also review petrol prices tomorrow or next Sunday at the latest, Al Mal reports, citing unnamed government sources. Petrol prices are allowed to move up or down 10% when the committee meets every three months, moving in tandem with oil prices. The committee met for the first time last October and left prices unchanged at its January meeting.

News triggers triggers to keep your eye on as April starts.

• PMI figures for Egypt, Saudi Arabia and the UAE will land (doubtless with a thud) on Sunday, 5 April.
• Foreign reserves figures for March will be released on or around Sunday, 5 April.
• Inflation figures for March are due on Thursday, 9 April.

The House of Representatives will review the Madbouly government proposed 2020-2021 budget when MPs return from recess on 12 April, Al Mal reports. We had the full report on the draft budget and its targets yesterday.

Two covid-19 trends to keep your eye on going forward:

• Will “immunity passports” become a thing? Germany is planning to issue certificates to folks who have recovered from covid-19, allowing them to return to work and daily life — with all of the creepiness attendant to living in that kind of world. Business Insider and the Guardian have more.
• European hospitals are reporting shortages of meds thanks to supply chain disruptions. We suspect disruption of the supply chain will be a theme across industries and around the world for several months after the crisis abates.

Markets this morning: Asian markets are up as they approach mid-session at dispatch time — major indexes in Hong Kong, China and South Korea are all up, as are India, New Zealand and Australia. The exception: Japan. Futures currently point to a lower open for the Nasdaq, Dow and S&P across the pond, while Europe is looking mixed right now.

The EGX30 closed up 0.8% yesterday on moderately heavy trading, with total turnover coming in at 39% above the trailing 90-day average.

COVID-19 IN EGYPT-

Egypt now has 710 confirmed cases of covid-19 after the Health Ministry reported 54 new infections yesterday, all Egyptians. Five Egyptians were reported to have died of the disease, bringing total deaths in the country to 46. A total of 157 patients are now reported to have fully recovered, while another 205 appear to be on the path to recovery after having tested negative following treatment.

Egypt’s private airlines want a bailout package, Reuters reports, saying Civil Aviation Minister Mohamed Enabah met yesterday with the heads of private carriers. A ministry statement later said that the companies are asking for help to “stop the bleeding … suffered by the private companies and help them overcome this crisis.” The government has so-far been silent about any assistance it may be providing to EgyptAir, the national flag carrier. All international flights except cargo hauls are suspended until mid-April.

They’re not alone: Dubai has announced it will provide a bailout package to Emirates Air to keep the airline afloat, Bloomberg reports.

Tourists who want to ride out covid-19 in Egypt can do so, the government signaled yesterday. Tour operators and hotels have been directed to work with the Interior Ministry to renew visas (the visa and passport office is otherwise closed for business at the moment under covid-19 restrictions). Tourists who want to stay will also need to be tested for the virus that causes covid-19, Youm7 reports.

The state-owned Holding Company for Metallurgical Industries (MIH) is looking to manufacture ventilators after Minnesota-based Medtronic announced that it’s putting the intellectual property behind its PB560 model into the public domain, MIH Chairman Medhat Nafea said. Medtronic is making all design files for the PB560 model available to the public on its website.

Emergency fund for construction workers? The Real Estate Development Chamber is considering setting up an emergency fund for construction workers facing mandatory unpaid leave of they’re furloughed to help slow the spread of covid-19, Al Mal reports.

Egypt should temporarily ban the export of food commodities and medical supplies, a group of MPs said yesterday, according to Al Mal.

Price cuts on electricity for factories are now in effect. The cuts were part of the government’s economic response to covid-19 and reduce prices for peak and offpeak times for medium, high and ultra-high voltage users. The price change was made official with its publication in the Official Gazette yesterday. Other moves to support industry announced earlier last month included lower natural gas prices for factories and the payout of EGP 1 bn in overdue arrears to exporters by no later than April.

Egyptians have collectively sunk EGP 39.2 bn into 15% fixed-rate savings certificates launched by Banque Misr and the National Bank of Egypt in the 10 days since the certificates were offered, Masrawy reports, citing unnamed banking officials.

The MoH has set up two hotlines to offer a friendly ear to folks suffering during the ongoing lockdown or from covid-related fear, anxiety or distress. The numbers: 080 888 0700 and (02) 2081-6831.

ON THE GLOBAL FRONT-

GLOBAL STORY OF THE DAY: The Trump administration says 100k-240k people in America could die of covid-19 based on a model released overnight. The news dominates front pages in the global business press: Reuters | FT | WSJ.

Global stocks wrap one of the worst quarters on record: US stocks have had their worst quarter since 2008 as a sell-off in late trading yesterday brought losses to 20% year-to-date. It was worse for the Dow Jones which experienced its largest quarterly sell-off since 1987 as the covid-19 pandemic put the market through a historic bout of turbulence. The Financial Times and Bloomberg are both out with post-mortems.

Believe it or not, there were actually two companies that held their heads above water in the sea of red. Microsoft made it through unscathed by the closest of margins, closing up 0.00006% in the green for the quarter. The big winner though was Jeff Bezos, who saw Amazon’s shares gain 5.43% over the three months as consumers threw money at emergency supplies and Slack and Zoom did the same for Amazon Web Services. CNBC has more.

New PMI out of China suggests hopes for a v-shaped recovery may not be totally pie in the sky: China’s manufacturing purchasing managers’ index (PMI) surged last month in the first sign that the economy could be making a speedy recovery after several months of shutdown. Figures released yesterday by the National Bureau of Statistics showed manufacturing sector activity expanding after falling to an all-time low in February.

Encouraging signs but the country has a long way to go, says Capital Economics: “This does not mean that output is now back to its pre-virus trend. Instead, it simply suggests that economic activity improved modestly relative to February’s dismal showing, but remains well below pre-virus levels,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note picked up by Reuters.

Whatever the state of the Chinese economy, the figures helped to perk European stocks — which closed out their worst first quarter on record: European stocks rallied yesterday after the PMI figures were released but still ended up clocking in their worst quarter since 2002, CNBC reports.

And the dire economic predictions of the day go to S&P Global Ratings and Goldman Sachs, who are back to remind us how [redacted] we’re going to be in the months ahead:

• S&P Global Ratings has scaled back its 2020 global growth forecast to a dire 0.4% in light of the covid-19 outbreak’s impact on global economies and markets, according to its chief economist Paul Gruenwald. It’s a drastic drop from the 3.3% estimated before the pandemic, and the forecast hasn’t been seen since the 1982 economic crash which saw global growth calculated at 0.43%. Gruenwald also predicts a rebound to 4.9% in 2021.
• Goldman Sachs has somehow managed to blacken its outlook for the US economy even further: The investment bank is now predicting the US economy to contract by a stunning 34% in the second quarter, lower than its previous forecast of a 24% contraction, Reuters reports. It also dropped its 1Q target to 9% from 6%, and sees unemployment reaching 15% by midyear instead of its previous 9% estimate.

Saudi Arabia has begun to flood the market with ultra-cheap crude: Saudi Aramco is delivering on its promises to ramp up production to record levels and slash its prices in April, with tankers already on their way to Europe and the US, and several supertankers hired earlier this month to boost exports now loaded, Bloomberg says.

What is about to take place is going to have effects on the oil market for years to come: As Ben Sharples writes for Bloomberg: “Oil is entering a period of unparalleled demand destruction this month that promises to transform the industry for years to come.”

In other international covid-19 news:

• Dubai imposed the UAE’s first lockdown on its famous gold and spices market for two weeks, expanding the partial curfew in place to curb the spread of the covid-19, according to Reuters.
• Communities across Italy and Spain are starting to push back against lockdown, some out of desperation having depleted their resources and others just rebelling against the draconian restrictions, the Financial Times reports.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development and even social infrastructure such as health and education.

In today’s issue: Our exclusive sitdown with Amr and Hassan Allam, Co-CEOs of Hassan Allam Holding, the second in a two-part series on how the construction industry is managing the covid-19 crisis. The brothers spoke with us on the state of the sector during covid today, what can we expect on the long term, and what lessons or positive outcomes we can draw in a post-covid-19 world. Part one, which ran last week, featured a sit-down with Orascom Construction CEO Osama Bishai.

Pensions in the spotlight: Al Hayah Al Youm’s Lobna Assal spoke with Social Solidarity Minister Nevine El Kabbaj who discussed efforts to reduce crowds as pensioners start heading to banks to collect their payments today. Day slots — from 1-9 April — have been assigned for each income bracket to limit footfall, she said. She added that the ministry is working on vetting its lists of irregular workers to ensure that they receive their economic relief stipends in April. She also discussed ongoing talks with the Financial Regulatory Authority to see if people with microloans can join those with bank loans in having their repayments frozen for six months (watch, runtime: 12:38).

The rehabilitation of Ahmed Moussa continued last night as he held an extended interview with cabinet spokesman Nader Saad about fake news online: Fresh off of his extended interview with CBE Governor Tarek Amer and a chat with Finance Minister Mohamed Maait, Moussa talked to cabinet spokesman Nader Saad about certain rumors spreading online about the government’s plans for combating covid-19.

Saad denied the government intends to extend the curfew hours or impose a nationwide lockdown and rejected claims that the entire banking system was about to shut down (watch, runtime: 37:12). Yahduth Fi Misr’s Sherif Amer also spoke with Saad (watch, runtime: 0:57). Masaa DMC’s Ramy Radwan (watch, runtime: 0:45), and Assal (watch, runtime: 2:40) also covered the issue of online fake news.

Daily covid-19 update: Masaa DMC’s Ramy Radwan covered the Health Ministry’s daily statement on covid-19, which yesterday reported 54 fresh cases and five more deaths, taking Egypt’s total number of cases to 710 and the overall death toll to 46 (watch, runtime: 3:05). Min Masr’s Reham Ibrahim (watch, runtime: 4:59) also covered the statement.

Locally-made ventilators in the works: Ibrahim also spoke with the chairman of the board directors at the Holding Company for Metallurgical Industries, Medhat Nafea, who said that his company is already in the process of developing a prototype ventilator, after US-based medical devices company Medtronic made the design specifications for their patented PB560 ventilator publicly available yesterday (watch, runtime: 8:15).

ENTERPRISE POLL- CBE to leave rates on hold tomorrow: The Central Bank of Egypt is likely to leave interest rates on hold when its Monetary Policy Committee meets tomorrow, according to a poll of analysts conducted by Enterprise. Ten of 11 analysts polled expect the bank to leave interest rates unchanged after slashing rates 300 bps in an emergency cut barely two weeks ago. The bank said the move was “preemptive” to support the economy through the covid-19 pandemic.

Where rates stand now: The CBE’s overnight deposit rate is at 9.25% and the lending rate is at 10.25%. The main operation and discount rates are both at 9.75%.

The central bank’s monetary policy committee has made clear that it’s prepared to cut rates if necessary: During the announcement of its biggest-ever rate cut on 16 March, the central bank said that it “will not hesitate” to make further cuts if needed, a point reiterated earlier this week by Governor Tarek Amer.

That time is not now, analysts say:

Central bank to wait and see the effects of its emergency cut -EFG Hermes: The CBE will likely wait and see how the emergency rate cut impacts prices and how the rest of the world responds to the pandemic, Mohamed Abu Basha, chief MENA economist at EFG Hermes, told us. “Nothing has changed since [the emergency rate cut] and the government is gradually rolling out more measures to curb the spread of covid-19, but without taking drastic measures that could prompt the CBE to cut rates,” he said.

Inflation could tick up in the coming months: HC Securities’ Monette Doss expects the central bank to hold off on making another cut because of the likelihood of inflation increasing over the coming months. The hoarding of staples and pharma products prompted by the 7pm-6am curfew, potential production disruptions during the lockdown, and high demand during Ramadan will see annual inflation peak at 11.45% by December, she said. Inflation slowed from 7.2% in January to 5.3% in February, outside the lower bound of the central bank’s 9% (+/-3%) target range.

“Current risk levels also discourage further rate cuts,” Doss said, noting the rise in Egypt’s five-year credit default swap (CDS) spread and the demand for higher yields in the bond market. The price of five-year CDS (basically the cost of insuring Egypt’s debt) surged to 650 bps from 258 bps in the third week of February, reflecting growing anxiety about the country’s creditworthiness as well as nervousness on the part of investors over global developments. In the bond markets, yields in the primary market have only dipped slightly despite the CBE making a 300 bps rate cut.

The CBE won’t want to give foreign investors more reason to dump bonds: The central bank will leave rates on hold to ease pressure on the EGP amid a sell-off in local-currency bonds, said Abou Bakr Imam, head of research at Sigma Capital. Leaving rates unchanged is probably not going to stop portfolio investors from selling, counters Ahmed Hafez, head of MENA research at Renaissanceذ Capital, who suggested outflows will continue until global markets stabilize.

Capital Economics takes the contrarian view: The firm, which last week forecast the economy to contract 1.3% this year, thinks the CBE will go ahead with another rate cut tomorrow. “With central banks globally loosening policy further since [the emergency rate cut] and inflation pressures in Egypt under control, the CBE is likely to step up its policy support with another 100 bps cut in interest rates next week,” said James Swanston, MENA economist at Capital Economics. “As the full extent of the damage becomes clearer, we expect an additional 125 bps of monetary policy easing over the coming months.”

Don’t expect the recent cut to spark a capex splurge: Mohamed Saad, equity analyst at Shuaa Capital, said that despite interest rates falling to pre-float levels, most businesses seeking credit are looking for short-term loans to maintain cash flow and keep their operations running.

It’s a fine line for the CBE to walk in a time of global uncertainty: Cut rates and you do two things: Reduce the cost of borrowing for government (giving it more room for stimulus spending to keep the economy going — without completely nuking its budget deficit target) and encourage individuals and companies alike to put cash to work rather than letting it sit in bank accounts earning high interest. On the other hand, high interest rates keep Egypt attractive to the carry trade in a no-interest world.

No further cuts before the end of the year? Abu Basha, who originally forecast 200 bps of cuts through 2020, said it is unlikely that the central bank will make another rate cut until the end of the year.

Tourism revenues hit a record high of USD 13.03 bn in 2019, climbing more than 12% from USD 11.6 bn in 2018, according to data from the Central Bank of Egypt (here and here — pdfs). The industry’s previous record was USD 12.5 bn in 2010. Some 13.1 mn tourists visited Egypt in 2019, but average spending was higher than in 2010, according to Al Shorouk. Former Tourism Minister Rania Al Mashat had said that tourism revenues during FY2018-2019 reached USD 12.6 bn, despite lower arrival numbers. The minister explained at the time that tourists are staying longer and spending more.

Egypt was expecting to set another record in 2020, projecting USD 15 bn in tourism receipts. That forecast is now out the window with covid-19 putting the global industry into a flatline. Finance Minister Mohamed Maait told us earlier this week that he thinks it will take a year for the industry to mount a full recovery — a best case scenario, given what’s happening globally.

The average time for a tourism industry to recover after a crisis? 19.4 months, according to the World Travel and Tourism Council, which notes that it can take anywhere between 10 to 34.9 months (pdf) in the crises it studied.

DEBT WATCH- FRA asks securitized bond holders to extend maturities: The Financial Regulatory Authority approved a request from corporate bond issuers to extend the maturities of securitized bonds by six months and asked bondholders to follow suit, according to an official statement.

Background: A number of players in the securitized bond market met with the FRA earlier this week to request a six-month extension to maturities after the regulator granted a similar grace period for clients of mortgage lenders, factoring and leasing companies.

valU, Premium Card, Souhoola and Aman are looking for consumer finance licensing: Consumer finance outfits valU (an arm of EFG Hermes), Premium Card, Aman Installment Company (a subsidiary of Raya Holding), and Souhoola (a CI Capital subsidiary) will apply to the Financial Regulatory Authority (FRA) to receive licenses, according to Al Mal. The licenses will be awarded under the Consumer Credit Act, a piece of legislation that regulates the consumer finance sector. President Abdel Fattah El Sisi ratified the legislation last month.

CORRECTION- 1 April 2020

An earlier version of this story suggested that the companies had already submitted initial requests for the license.

Acrow Misr eyes Africa expansion: Scaffolding and formwork manufacturer Acrow Misr is planning to set up a subsidiary in Tunisia and to enter the Kenyan market as a prelude to further expansion in Africa, investor relations director Ahmed Abdel Azim said, according to the local press. Azim did not specify a timeline or specify the nature or cost of the ventures.

MOVES- Former investment minister Osama Saleh is now non-executive chairman of SODIC’s board of directors, following the departure of Hani Sarie El Din, the company said in a statement (pdf). Saleh was appointed to the board early last month as Sarie El Din stepped down after a six-year term.

MOVES- HSBC has appointed Samer Deghaili (Linkedin) and Marc Abourjeily (Linkedin) as co-heads of capital markets for the MENAT region, according to Reuters. Deghaili was previously HSBC’s head of equity capital markets for MENA and Abourjeily was HSBC’s head of MENA debt finance and risk solutions.

MOVES- Credit Agricole Egypt’s board of directors has approved the resignation of Vice Chairman Michel Mathieu (bio), according to an EGX filing (pdf).

The goats are reclaiming Wales: A herd of goats invaded the seaside Welsh town of Llandudno yesterday as streets lay deserted under the government’s covid-19 lockdown measures. The Guardian has a full image gallery here.

No single story is dominating the conversation on Egypt this morning. Industry rag Foreign Policy claims that the US is considering trimming back military assistance to Egypt at the behest of lawmakers, while the country’s response to covid-19 are the subject of op-eds in the the Guardian and Al Monitor.

Distractions: The New York Times features six Egyptian female lion tamers (five of whom are related) while the BBC has photo essay on Bahariya and Farafra.