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Tuesday, 8 January 2019

What we’re tracking on 8 January 2019

The New Year holiday lull is over, with major announcements and key important news covering business, politics, legislation and regulation and international politics coming in over the past two days. Some of the the key highlights include, FX reserves have fallen, A new capital gains tax on corporations is upon us, the EGX approving market makers regs, AMOC postponing its share sale, and the Financial Regulatory Authority pursuing criminal charges against Beltone Financial. We have all these stories and more in the Speed Round below. Welcome back, everyone and it looks to be an exciting 2019.

The year is already off to an exquisite start for emerging markets. The MSCI currency index rose to its highest level since July 2018, according to Bloomberg. Furthermore, investors last week pumped USD 1.4 bn into emerging-market stocks and bonds ETFs. Stocks across the board are seeing gains.

That includes Middle East stocks, with Sunday seeing all of the region’s indices closing on a positive. The EGX30 rose 0.6% on Sunday after falling 13.2% in 2018. But the big winners in this jump has to be Saudi Arabia and Israel. Israeli stocks were on track for their biggest gain since August 2015 as all companies of its main index advanced, according to Bloomberg. Saudi’s main index scored their steepest gains in a month to become the second best performing index at the start of the week.

This comes as leading banks are expecting EM debt sales, including from Egypt, to ratchet up 15%. Morgan Stanley’s EM sovereign credit outlook for 2019 expected international bond issuance to rise 15% to USD 158 bn from the previous year, remaining below the USD 674 bn it raised in 2017. Saudi Arabia and Indonesia are expected to be the top issuers, with each raising USD 10 bn in 2019, followed by Abu Dhabi and Kuwait. Egypt will issue international treasury bonds “sooner than later,” Morgan Stanley strategist Simon Waever predicted, according to Reuters. “The Philippines has already announced a benchmark 10y bond deal, and we think that Egypt, Oman and Mexico are likely to issue sooner rather than later,” Waever said, pointing out that historically 17% of total issuance happen in the first month of the year. Finance Minister Mohamed Maait said last month that the government would unveil its international bond issuance plans for 1Q2019 in January.

And you can thank Jerome Powell for this renewed interest in EMs following a hard 2018, which we have (only slightly) described as apocalyptic. The US Federal Reserve Chairman said last week that the Fed would take a “patient” approach to monetary policy tightening after “US data seem to be on track to sustain good momentum into the new year.” He added that policy makers are “listening carefully” to markets, denting the dollar and boosting the allure of riskier investments.

We shouldn’t pop the champagne bottles just yet, according to the ever-present and gloomy naysayers. “The bears will point to how quickly the gains at the start of last year evaporated,” writes Bloomberg’s Justin Carrigan. The FT’s Han Trang, meanwhile, is telling us that EMs are ageing faster than initially hoped. This “premature ageing” is reflected both literally, with the labor force outside of Africa and India declining, and figuratively, as the trend for slower productivity in EMs shows signs of resuming. Nonetheless, in the short and medium term, the fundamentals of EMs appear sound.

On the global front, a figure who contributed to the financial crisis has reared his unpleasant head to warn of a recession in the offing. Former US Secretary of the Treasury Lawrence Summers — whose fight to keep the US derivatives market unregulated helped bring about the crisis — is saying in an oped in the FT that indicators in the US, China and others are making it to that “the overall judgment of financial markets is that recession is significantly more likely than not in the next two years.”

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