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USD CBE auction (Tuesday, 14 June): 8.78 (unchanged since Wednesday, 16 March)
USD parallel market (Wednesday, 15 June): 10.99 (compared to 10.92-10.95 on Saturday, 11 June, Al Mal)

EGX30 (Wednesday): 7,414.81 (-2.05%)
Turnover: EGP 357.3 mn (18% below the 90-day average)
EGX 30 year-to-date: +5.83%

THE MARKET ON WEDNESDAY: The EGX30 kicked off Wednesday’s session on a negative note, with a broad-based selling wave strengthening to push the index down 2.1% by the end of the session. CIB was the biggest drag on the market, losing 3.5%. GB Auto and Edita were the sole EGX30 constitu­ents to end the day in the green. On the flip side, Egyptian Resorts, South Valley Cement, and Porto Group were today’s top losers. At a market turnover of EGP 357.3 mn, foreign investors were the sole net sellers of the day.

Foreigners:Net short | EGP – 29.7 mn
Regional:Net long | EGP + 9.1 mn
Domestic:Net long | EGP + 20.6 mn

Retail: 59.6% of total trades | 64.2% of buyers | 54.9% of sellers
Institutions: 40.4% of total trades | 35.8% of buyers | 45.1% of sellers

Foreign: 19.0% of total | 14.9% of buyers | 23.2% of sellers
Regional: 8.6% of total | 9.8% of buyers | 7.3% of sellers
Domestic: 72.4% of total | 75.3% of buyers | 69.5% of sellers

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PHAROS VIEW

Expect the MPC to maintain rates; cost of a rate hike outweighs the potential benefits

We expect the Egypt MPC to maintain rates at its upcoming meeting on Thursday, 16 June, with a potential rate hike in one of the following two meetings. In the background: inflation; currency defense dynamics, the budget deficit, and low economic growth are not supportive of a rate hike, for the time being.

• Inflation spiked, but the reasons are clear. The annual core inflation rate accelerated to 12.3% in May 2016 from 9.5% in April, as consumer prices jumped 3.05% m-o-m. This is a natural result of the 13% drop in the EGP versus the USD, effective March 2016, and the pre-Ramadan surge in demand.
• Further rate hikes would not defend the local currency, unless it is undertaken aggressively at +200-300bps, which would not help an already high budget deficit. This has presented itself following the March devaluation when most banks raised rates on 3- and 5-year CDs to 12.5%, with an even higher 15% rate for USD converted to local currency funds.
• The shortage of USD and other foreign currency continues to pressure economic growth, especially within the industrial sector. A rate hike would not be helpful for business and the private sector in general.
• Consensus points to a Fed hike in July rather than in June. After a disappointing employment report for May 2016, the consensus has shifted towards a July, rather than June, Fed rate hike. If the Fed maintains, this will further support our view that the Egyptian MPC will maintain rates.

If the MPC maintains rates, there should be no effect on the EGX. A rate hike would be negative for equities due to higher required rate of return.

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