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Thursday, 15 February 2018

What we’re tracking on 15 February 2017

Egypt is getting ready to tap the market again: The Finance Ministry will begin approaching investment banks in a few days for a planned sale of EUR-denominated bonds after successfully raising USD 4 bn in eurobonds, Finance Minister Amr El Garhy told Bloomberg. “The sale will ‘ideally’ take place in April, and Egypt will be seeking European banks to manage the issuance, the minister said in a phone interview.” Egypt’s USD 4 bn eurobond issuance was 3x oversubscribed, the Finance Ministry said yesterday. El Garhy told Bloomberg Egypt “could’ve secured cheaper pricing since our risk position has improved since the last time we tapped the market, but the rise in yields on U.S. Treasuries has affected us.” The successful issuance is “the latest sign that investors’ appetite for relatively risky sovereign paper has been undimmed by the recent market turmoil,” Kate Allen writes for The Financial Times.

The eurobond issuances may be playing a role in expanding private sector credit: Private sector lending in Egypt, which has traditionally been stifled and crowded out by government borrowing from local banks, looks set to pick us the government turns to the international debt market and pushes forward with reforms, according to a research note from Capital Economics (pdf). Outside of select large borrowers, the private sector has always found it difficult to access credit from local banks. While private sector credit has been nominally rising at a rate of 11% y-o-y, real credit growth has been negative for much of the past 10 years. “The banking sector’s claims on the government have increased more than ten-fold in nominal terms and, as a share of total assets, they have risen from 20% to more than 45%.” Furthermore, banks have not had to meet liquidity restrictions on holding government debt, which have a risk rating of zero.

Liquidity will be increasingly available to the private sector, says Capital Economics, as the government turns to eurobond issuances, coupled with the fiscal tightening.

“A pick-up in lending to the private sector will be further supported by a loosening of monetary policy,” which could begin as early as this week, they added. The firms sees interest rate cuts of 550 bps this year and a further 200 bps in 2019, a pace it believes may be more aggressive than the central bank has in mind.

And so, all eyes turn to the Monetary Policy Committee meeting today to see if the CBE will start cutting interest rates. Based on annual inflation figures, which have fallen to 17.1% in January, analysts, including those from Pharos Holding, Arqaam and HC Securities, are suggesting that a rate cut is likely, but that it will be relatively muted as the CBE takes a cautious approach. CBE Governor Tarek Amer had said that the CBE will begin monetary easing “soon,” once the bank is sure it has a handle on inflation.

In global markets, US annual headline inflation for January rose to 2.1% for a second month running, exceeding the consensus forecast of 1.9%, the FT reports (paywall). Core consumer price inflation, which excludes energy and food, stayed steady at 1.8%, defying forecasts it would slip to 1.7%. The announcement is reigniting investor nervousness that the robust economy is stoking price pressures that could force the US Federal Reserve to raise interest rates more aggressively, the salmon-colored paper says.

It is not yet clear, with inflation moving past forecasts, whether emerging markets will continue to hold the line in the face of turbulent global markets. History suggests that emerging market equities will remain resilient if US inflation projections are met, writes Steve Johnson for the FT. Research by Daniel Salter, head of emerging market equity strategy at Renaissance Capital, suggests that four of the five 30%+ falls in the MSCI EM index since its inception in 1987 occurred within one month of US consumer price inflation hitting 3%.

“I regard the bitcoin craze as totally asinine”: Warren Buffett’s 94-year-old business partner is not a friend of bitcoin. Or of getting old. And he has plenty of things to say about oil, climate change, how to invest and how to live a successful life. See wall to wall coverage in the Financial Times, CNBC, and Business Insider.

Jacob Zuma resigned as president of South Africa yesterday, succumbing to pressure from the ruling African National Congress “to bring an end to his nine scandal-plagues years in power,” Reuters reports. ANC chief whip Jackson could be sworn in as head of state as early as Friday, according to the newswire. The ANC had given Zuma a 48-hour window to resign or risk facing a vote of no-confidence. You can catch Zuma’s full farewell address here (runtime 1:09).

The most-clicked stories in Enterprise in the past week:

Something to keep you up at night this weekend: We have debated for the last week whether or not to run with this for fear we will upset the algorithms that govern our deliverability to your inboxes. If you have a teen (or a pre-teen) go read What teenagers are learning from online [films that show intimate situations between (usually) consenting adults].

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