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Wednesday, 7 August 2019

What we’re tracking on 7 August 2019

News dirth to reach a crescendo next week on expectations of widespread food coma epidemic: The August news lull continues, with yesterday being one of the slowest news days we’ve seen all year, and it’s not even Eid yet. Expect next week to be an even duller week in Egypt-related news as Sunday, Monday and Tuesday are national holidays. Don’t worry though: we will be in your inboxes on Wednesday and Thursday to add some color to the week’s non-events.

The CBE and Capmas are due to release July’s inflation figures sometime this week. Inflation unexpectedly plummeted almost five percentage points to 9.4% in June — the first time Egypt has seen single digit inflation since March 2016. While some research houses have lowered their overall projections for the year, it is widely expected that we see inflation in July rise on the back of last month’s cuts to fuel and electricity subsidies.

Don’t put money on a rate cut this month: Investment banks are expecting the Monetary Policy Committee to keep interest rates on hold when it meets on Thursday, 22 August.

Meanwhile, net foreign reserves inched up to USD 44.91 bn at the end of July from USD 44.35 bn in June, CBE data showed. Expect the figure to jump more substantially next month, when the final USD 2 bn tranche of the IMF loan is added to the pile.

Members of the UN Security Council have condemned “in the strongest terms” Sunday’s terrorist attack and expressed condolences to the families of the victims in a joint statement. General Secretary of the Arab League Ahmed Aboul Gheit also issued a statement denouncing the attack.

US Treasury Secretary Steven Mnuchin formally called out China for being a “currency manipulator,” in a Treasury statement late Monday. The statement came after the Chinese onshore and offshore exchange rates hit 11-year lows early Monday, two days after Trump vowed to impose new 10% tariffs on the remaining USD 300 bn-worth of Chinese goods starting 1 September. “As a result of this determination, Secretary Mnuchin will engage with the IMF to eliminate the unfair competitive advantage created by China’s latest actions,” the Treasury statement said.

The designation fulfilled a Donald Trump promise to officially label China a currency manipulator, says Reuters. US officials have long criticized Beijing of controlling its currency to help exporters, but this is the first official accusation since 1994.

Investors pulled almost USD 3 bn from EM equities and bonds this week on US-China trade war fears, the Institute of International Finance’s flow tracker estimates, according to Reuters. Around USD 6.8 bn has exited emerging markets since last Thursday, including USD 2.33 bn on Friday alone. A separate IIF alert dubbed the current flow reversal ‘Trade Tantrum 2.0’, a reference to the spike in outflows in May. Asian markets sustained especially heavy losses last Friday: USD 1 bn exited Chinese equities, while India saw USD 400 mn of outflows and Taiwan lost USD 760 mn (over two days).

The US-China trade war is weighing on the big bn’naires, Bloomberg reports. The world’s wealthiest 500 people lost 2.1% of their collective net worth on Monday as stocks plunged on the back of rising trade tensions between China and the US. Amazon’s Jeff Bezos was the biggest loser, after the online giant lost USD 3.4 bn in the turmoil. But don’t reach for the violins just yet: he’s still the richest person on the planet with USD 110 bn.

It’s not enough to rely on rate cuts. Global headwinds call for better portfolios, says El Erian: Investors need to start rethinking portfolio building strategies as economic and political headwinds are beginning to take on a bigger role in asset price movements, undermining the comfort investors sought in monetary easing, Mohamed El Erian writes for the Financial Times. Growing US-China trade tensions, which have so far only seen “a series of ceasefires” and no truce, “means that portfolio positioning just for the beneficial effects of more liquidity will be challenged more than in the past,” he says.

AI is looking to displace research houses at investment banks…: AI is playing a crucial role in generating information for cost-conscious investment banks looking to downsize by laying off human researchers, according to Bloomberg. Ploughing through news articles, government statements and social media accounts all over the world that mere mortals couldn’t possibly process, machines end up reducing one of banking’s most significant outlays. There was a 30% drop in research budgets last year in the UK, data from the Financial Conduct Authority shows, while the 12 biggest banks have cut their front-office staff covering currencies, such as traders and researchers, by 7% since 2015, according to London-based research analytics consultancy Coalition Development Ltd.

…and humanity in general: Tech companies are racing to be the first to build a machine capable of human-level intelligence, the FT says. Elon Musk’s OpenAI and Alphabet’s DeepMind have both built deep learning systems using artificial neural networks that model the human brain, but many experts remain sceptical about whether machines will ever approach human levels of cognition without an algorithmic breakthrough. This might be about to change though, after Microsoft last month made a decisive move in the pursuit of artificial general intelligence and invested USD 1 bn in OpenAI.

All eyes on Scale: Silicon Valley’s next big thing is a three-year-old startupScale. Valued at over USD 1 bn after securing USD 100 mn in series C funding, the company teaches AI systems how to ‘see’ like humans. Using specially-built software to review images, most of which it can label automatically, it cuts down a time and labor-intensive process that usually costs companies bns in human labor. A network of contract workers then reviews the images, making any necessary adjustments. Clients raving about its efficiency and cost-effectiveness include Uber, Waymo and OpenAI, according to Bloomberg.

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