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Thursday, 8 August 2019

What we’re tracking on 8 August 2019

We’re officially on holiday in a few hours’ time: Civil servants will be on break to observe Eid Al Adha from Saturday through Wednesday, and resume work on Thursday, according to a cabinet statement. The central bank and EGX were less generous with the vacation days: banks and capital markets (and, by extension, most of the private sector) will be back to work on Wednesday morning.

Enterprise will be off Sunday through Tuesday: We will be back in your inboxes at the appointed hour on Wednesday morning.

All eyes will be on the EGX today as Fawry’s IPO, the first in around 10 months, comes to fruition, with trading on the company’s shares starting today at EGP 6.46 apiece. The e-payments platform’s retail component, which covered 35.4 mn shares, closed earlier this week around 30x oversubscribed. The retail tranche covered 5% of the company’s shares. Fawry also sold 21.2% to strategic investors as part of a pre-agreed transaction: State-owned banks Banque Misr and the National Bank of Egypt were both offered 7% stakes, while EM PE giant Actis was offered 7.2%. The remaining 9.8% was allocated in a private placement to institutional investors, which closed 15.9x oversubscribed.

The CBE could release July’s inflation figures today. 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.

Higher inflation means a rate cut will be highly unlikely: Investment banks are expecting the Monetary Policy Committee to keep interest rates on hold when it meets on Thursday, 22 August.

Markets catch their breath after two days of turmoil: US equities closed in positive territory and a rally in government bonds ran out of steam yesterday despite rising concerns over global growth, says the Financial Times. US stocks fought back after a 2% drop soon after trading opened. The S&P 500 closed up 0.08% and the Nasdaq gained 0.38%. The Dow Jones Industrial Average finished slightly in the red, down 0.09%.

European stocks also managed to recover after a rough start, but “safe haven assets” remained in demand, with both gold and the Japanese yen extending their yearly gains. Germany’s Dax, France’s Cac 40 and the UK’s FTSE 100 all ended in the green.

But “scary” German industrial output figures stoke recession fears: Fresh industrial figures in Germany showed a larger-than-expected drop in output. “The continued plunge in production is scary,” Bankhaus Lampe economist Alexander Krueger told Reuters. “The longer this continues, the more likely it is that other sectors of the economy will be dragged into this.”

And so it begins: Several central banks cut interest rates yesterday, signalling that perhaps we’re entering a new phase of sustained global easing. New Zealand first surprised markets with a “bigger-than-expected” cut, followed by an out-of-the-blue easing by the Bank of Thailand and an unconventional 35 basis point cut by the Reserve Bank of India, says Bloomberg.

Markets breathe a sigh of relief, however short-lived: While markets did breathe a sigh of relief when China stepped in Tuesday to stabilize the yuan, signs that investors are becoming increasingly downbeat about growth prospects are showing. Germany’s yield curve has hit its flattest level since the financial crisis, signalling that the global bond market is sounding the alarm that… [it won’t last] much longer before a recession strikes.”

One analyst is getting a little over-excited: While many marketwatchers are now predicting a correction, one analyst is going full apocalypse with his forecast. Nomura strategist Masanari Takada is warns that a second market sell-off at the end of August could be “Lehman-like” in its devastation, CNBC reports.

Is the party over in Asian EMs: EM currencies and bonds have lost about 2% since Trump’s tariff announcement, Bloomberg says. Although the decline in Asia currencies eased yesterday, it still isn’t looking particularly good: South Korea’s won hovered near a three-year low Wednesday, while the Indonesian rupiah, the Philippine peso and Malaysian ringgit also dropped.

The trade war is increasingly becoming about “the weaponization” of policy tools: “We’re seeing that with trade, now we’re going to see it on currency,” markets sage and Allianz chief economic advisor Mohamed El Erian told Fox Business on Tuesday, a day after the US labelled China a currency manipulator (watch, runtime: 7:21). “If you look at the strict definition of currency manipulator, China is not there,” El Erian said.

We need to see fairer trade, fiscal expansion, and more “structural pro-growth policies,” El Erian says. Even if major central banks step in and ease policy, this is unlikely to tackle the underlying problems, he said, in a call-back to his op-ed in FT about the increasing ineffectiveness of monetary policy.

BDS Egypt tells J-Lo to GTFO: Anti-Israel campaign group BDS (Boycott, Divestment, Sanctions) Egypt has called on Orascom Development to scrap Jennifer Lopez’s upcoming concert in New Alamein following her recent performance in Tel Aviv. “This concert will take place after her previous concert in occupied Palestine days ago, which she insisted on carrying out despite many calls to boycott Israel and cancel the concert,” the group wrote in an open letter. “She showed clear support for the state of occupation and its racist policies towards Palestinians.”

In international miscellany:

  • Just what the world needs: A new geopolitical flashpoint between two nuclear powers. Tensions are rising in Kashmir after India’s nationalist PM Narendra Modi revoked the region’s special status, imposing a curfew, and cutting off mobile networks, landlines and internet access. Pakistan yesterday suspended trade ties and threw out India’s top envoy in response. (BBC)
  • Netanyahu’s days could be numbered: Opinion polls suggest that Netanyahu will be no closer to forming a government after the 17 September election, potentially bringing his 10-year reign to an end. (Bloomberg)
  • Manhattan or Juarez? Amnesty International has issued a travel warning for people travelling to the US in response to the latest mass shootings, advising people to exercise “extreme caution” and avoid large gatherings. (Amnesty)

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