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Tuesday, 15 May 2018

What we’re tracking on 15 May 2018

Inflation figures are due today. Initial data from the CBE showed the annual headline inflation rate in April dropping to 13.1% from 13.3% in March, while core inflation was up fractionally to 11.62% from 11.59%.

These largely flat figures lead analysts to believe that the Central Bank’s Monetary Policy Committee will leave interest rates on hold ahead of subsidy cuts in July. These included Pharos Research’s Radwa Swaify, who said that the recent hike in Metro ticket prices, more consumer spending during Ramadan, the expected hike in energy and power prices in July, and higher oil prices all point to a transient rise in inflation. CBE Governor Tarek Amer had also said earlier this week that the committee has a number of global factors to consider, such as rising oil prices and US interest rates, as well as expected US sanctions on Iran.

Moody’s singles out Egypt, other EMs in warning over debt vulnerabilities: Egypt was among seven emerging markets Moody’s rating agency is warning may hold the biggest risks to global rising debt costs and tightening global financial conditions out of the 125 sovereigns it has analyzed. In a research note out on Sunday, the firm said that sovereigns with relatively short average maturity of debt and weak debt affordability are generally the most exposed to a larger than expected rise in borrowing costs. "In our view, exposure to a shift in financing conditions is highest for Lebanon, Egypt, Pakistan, Bahrain and Mongolia. Sri Lanka and Jordan are also highly exposed," says Moody’s Vice President and Senior Analyst Elisa Parisi-Capone. “Moody’s concludes that a moderate shock would generally be manageable, with limited impact on sovereigns’ debt affordability and debt burdens…In the severe shock, all the most exposed emerging market and frontier market sovereigns would see fiscal strength weaken. Absent a policy response that effectively mitigated the erosion of fiscal strength, these shifts would strain ratings.”

Egypt is already taking steps: Finance Minister Amr El Garhy had stated last month that Egypt is considering shifting away from costly short-term domestic debt towards longer-term borrowing, as falling interest rates provide cheaper options to finance its fiscal deficit. It will increasingly rely on five- to seven-year bonds instead of Treasury bills that have shorter maturities and currently make up the bulk of local-currency borrowing. He had also noted that the onus for lower borrowing costs now falls on the central bank. CBE Governor Tarek Amer himself had noted on Sunday that Egypt was looking for longer-term debt.

The report comes as investors in the riskiest EMs have been nursing losses lately on fears of a rate hike by the US Federal Reserve and higher USD, says the FT.

Turbulence in emerging markets is leaving investors conflicted as to whether it’s time to buy as EMeconomies witnessed their largest sell-off since 2016 in the last two weeks.

The Bulls: Morgan Stanley is betting that US treasury yields won’t fluctuate wildly from current levels and predicts that the USD will be weaker than expected, Bloomberg notes. “In short, we believe that the market has exaggerated the risks for EM and that current levels represent a tactical opportunity to add risk,” Morgan Stanley strategist James Lord says. Manulife Asset Management’s Richard Segal agrees that while the selloff was warranted given how stretched valuations became, “prices are now at attractive levels and it’s a good occasion to step back in.”

The Bears: Nomura Holdings takes the opposite view, citing concern that the balance of payments could bring some pain later this year. “Even if we are right that global growth is holding up, this is likely to be only a brief respite for EM,” analysts at Nomura said. “In our mind, Q3 2018 is the high-risk quarter for a painful EM snapback.”

GERD talks in Addis Ababa today: Foreign Ministers and intelligence chiefs from Egypt, Sudan, and Ethiopia are meeting in Addis Ababa today to resume negotiations over the Grand Ethiopian Renaissance Dam (GERD), according to a Foreign Ministry statement.

This comes as Sudanese President Omar Al Bashir reportedly endorses a major reshuffle to the country’s cabinet yesterday that includes “eight ministers, five ministers of state and 10 governors,” according to Sudan’s state news agency. Al Bashir had fired Sudanese Foreign Minister Ibrahim Ghandour last month — who was instrumental to GERD talks — without offering any explanation.

Spurring private sector investments in Egypt over the coming period is both lengthy and risky without the necessary expertise, our friend Ahmed Heikal tells Al Shorouk. In the second half of a two-part interview with the newspaper, the Qalaa Holdings founder and chairman also commented on other key issues, including the shifting dynamics of global politics and the prospect of a global trade war, and how these could have an impact on Egypt’s affairs. Heikal had announced in the first part of his interview that Qalaa Holdings is planning to begin listing multiple subsidiaries on the EGX as of 2H2019, and will invest in a variety of sectors once its USD 4.3 bn Egyptian Refining Company in Mostorod is up and running.

Ramadan could be off to a very hot start if it begins on Thursday, as temperatures for the day are set to rise to highs of 37-40°C in Cairo and the Nile Delta, and 35-39°C in the northern coastal cities, according to the national weather service. We should know for sure today whether the holy month will begin Wednesday or Thursday.

The EGX will return to its traditionally shorter trading hours for the holy month. The trading session will run 10:00 am until 1:30 pm. Tap or click here for the full schedule.

So, when can we eat? Presuming Ramadan is on Thursday, as the national astronomy research center earlier suggested: Maghrib is at 6:42pm CLT. You’ll have until 3:20 am on Friday to finish your sohour.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2018 Enterprise Ventures LLC.