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Thursday, 12 September 2019

What we’re tracking on 12 September 2019

Reactions to Tuesday’s unexpected inflation figures continue to roll in: August’s inflation figures could give the central bank room to cut rates by 150 bps between now and the end of the year Anita Yadav, vice chair of the Gulf Bond and Sukuk Association, told Bloomberg TV yesterday (watch, runtime: 5:41). And if it goes ahead with further cuts, there is little risk of substantial outflows from Egyptian debt as real interest rates “are still very, very attractive” compared to other emerging markets, she said.

On that note, foreign holdings of Egyptian treasuries totaled USD 19.3 bn in July, up from USD 18.9 bn in June, according to a Finance Ministry presentation (pdf) we ran on Wednesday. Foreign holdings of T-bills alone, dipped slightly to USD 16.67 bn in July, down from USD 16.79 bn in June, Central Bank of Egypt figures showed yesterday (pdf).

Prepare for more congestion than usual in downtown Cairo as of 1 October, when the House of Representatives is set to reconvene for its next legislative session under a decree President Abdel El Sisi issued yesterday, according to Ahram Online. This will be the last legislative session for the House before new parliamentary elections are held at the end of 2020.

Parliament’s committee heads will remain more or less the same during the new session, an unnamed source from the pro-government Support Egypt coalition, the largest political bloc in parliament, tells Al Shorouk. According to the source, only a “negligible number” of changes will be made when the House holds its annual internal elections.

It’s the final day of EFG Hermes’ annual investor conference in London today at the Arsenal Emirates Stadium. The event provides a forum for investors, company executives, and fund managers from Egypt and other frontier and emerging markets to network and discuss investment options with London-based investors.

The Sahara agricultural expo also enters its final day at the Egypt International Exhibition Center.

The latest edition of the National Youth Conference will kick off on Saturday at Al Manara conference center in New Cairo. The one-day event will feature the usual the “Ask the President” Q&A session.

Other events coming up this month:

Hong Kong exchange wants to buy the LSE: Hong Kong Exchanges and Clearing (HKEX) said in a statement yesterday that it intends to make a GBP 31.6 bn takeover bid for the London Stock Exchange (LSE). The proposal, which comes as political turbulence rattles Hong Kong and the UK, would see the creation of a global trading company capable of competing with rivals in the US. The proposal is contingent on the LSE dropping attempts to acquire Refinitiv, HKEX said. The LSE announced in July that it was in talks to buy the market data firm for USD 27 bn.

The LSE replied that it would consider the offer, but that it would continue its efforts to acquire Refinitiv.

Aramco picks banks to quarterback its IPO: Sources told Bloomberg that the company has picked Bank of America, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan Chase, and Morgan Stanley to work on listing the world’s most valuable company. A number of as yet unknown Middle Eastern banks have also been brought on board. The Financial Times got word earlier this week that the company could, for the time being, shelve plans for a foreign listing in favor of offering a 1% stake on the Tadawul.

Expect eurozone stimulus today: The European Central Bank (ECB) is expected to introduce stimulus measures when it meets today, particularly with Germany’s economy on the brink of recession, Reuters says. The bank has a variety of tools at its disposal, including monetary easing and restarting bond purchases, but a rate cut could be insufficient while qualitative easing is expected to face pushback for being too radical. The ECB had held off on introducing stimulus measures when it last met in July.

JPMorgan Chase is preparing for the (kind of unlikely) possibility of interest rates falling to zero (or lower), with CEO Jamie Dimon discussing what fees and charges it could introduce if interest rates go to zero at an industry conference on Tuesday, according to CNBC. The Federal Reserve cut its benchmark rate in July by 25 bps to 2.25%, its first rate cut in more than a decade. The market is anticipating another 25 bps cut when the Monetary Policy Committee meets later this month.

The Donald tweeted his support for negative interest rates, taking it upon himself to call Jay Powell and the Federal Reserve “boneheads.”

EM stocks are badly undervalued as negative-yielding debt continues to grow: Around 30% of emerging market stocks are currently trading below their book value, “the most distressed valuation for a decade and the lowest level ever outside a US recession,” Steve Johnson writes in the FT, citing Goldman Sachs research. With the ECB and the Fed destined to continue to pour fuel on the bond rally fire, only a meaningful US-China trade agreement will rebalance the market and resuscitate EM stocks, he says.

Bond funds are snapping up negative-yielding Japanese debt: Investors around the world are using foreign exchange rates to turn loss-making negative-yielding Japanese debt into investments that generate better returns than US treasuries. USD-based investors are able to use the forward currency markets to turn the -0.25% yield on Japanese 10-year bonds into the equivalent of a 2.22% yield in USD. Katherine Greifeld breaks down the forward currency investment strategy in this Bloomberg article.

China lifts tariffs on some US goods: China has suspended import tariffs on 16 types of US goods in a move that is less of a goodwill gesture and more out of necessity, the FT says. Included on the list are goods that China does not produce domestically and finds it hard to source from other countries, such as cancer drugs, chemicals and lubricant oils. No big ticket US exports have been exempted, meaning that it is likely to do much to resolve the conflict.

This comes as US companies accelerate pulling investments from China: American companies are rushing to remove investments from the country as the effects of the increasing tariffs intensify, the American Chamber of Commerce in Shanghai (ACCS) said in a survey on Wednesday, according to CNBC.

Turkey is planning to launch a national credit rating firm after complaints from its cry-baby alleging “unfair treatment at the hands of Moody’s Investors Service, Fitch Ratings and S&P Global Ratings”(Bloomberg).

Arab foreign ministers have condemned as “a new Israeli aggression” Benjamin Netanyahu’s vow to annex parts of the West Bank if he wins a closely contested election for another term as Israel’s prime minister next week, Reuters reports. The Arab League “regards these statements as undermining the chances of any progress in the peace process and will torpedo all its foundations," it said in a statement after a meeting in Cairo.

Apple is launching Apple TV Plus on 1 November, a television streaming service that will compete with the likes of Netflix and Hulu, according to the Associated Press. Apple TV Plus is priced at USD 5 a month, almost a third of Netflix’s USD 13 a month price tag.

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