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Monday, 16 September 2019

What we’re tracking on 16 September 2019

It was your standard Sunday yesterday, folks,with the news slowing down to a snail’s pace in both the local and international press.

We expect the next two weeks of business and economic news to be dominated by interest rates, especially following the European Central Bank’s rate cut and stimulus package last week. Escalating trade tensions over the past few months between the US and China, and US Federal Reserve Chairman Jerome Powell’s change of direction this year is driving people to think that the Fed will likely cut rates on Wednesday, 18 September. Markets are pricing in a near 90% probability that the Fed will cut rates by 25 bps from its current overnight lending rate of 2.25% to 2.00%, according to data from the CME Group’s FedWatch tool cited by Reuters. There is a roughly 65% probability that the Fed makes at least one more quarter-point cut by the end of the year, according to FedWatch.

This bodes well for a rate cut by the CBE on 26 September: This global monetary easing, which appears to be adopted by other countries (Turkey and possibly Japan), in addition to inflation falling to a six-year low of 7.5% in August has expectations that the CBE Monetary Policy Committee will move to cut rates when it meets on Thursday, 26 September. The arguments among analysts appear almost solely to do with the extent of the cut, with ranges between 50-150 bps. Look to our interest rate poll next week to find out what the tally is.

Speaking of central banks, Prime Minister Moustafa Madbouly kicked off on Sunday a meeting of the Council of Arab Central Banks and Monetary Agencies Governors, where the more than 200 Arab bankers, central bank governors, ministers, economic experts, and officials of the Arab Monetary Fund attending plan to discuss monetary, financial, and economic developments, their repercussions on Arab countries, issues of central bank governance, and central bank cryptocurrencies. Madbouly spoke on Egypt’s growth and the challenges it faces. We break down what was said in this morning’s Speed Round below.

Meanwhile, the Investment Ministry launched the official websitefor the “Investment for Africa” 2019 conference. Last year’s iteration brought stakeholders — governments, the private sector, civil society, and international financial institutions — to discuss opening up the continent further for trade and investment.

Britain’s Middle East minister arrives in Egypt: The UK’s Minister for the Middle East and North Africa and Minister of State for International Development, Andrew Murrison, has arrived in Egypt for a series of meetings, the British Embassy said in a statement. Dr. Murrison is due to meet Investment Minister Sahar Nasr, other senior Egyptian government representatives, and Pope Tawadros II.

The fall conference season continues here. Events coming up this month:

CIB unveils details of world’s biggest squash event at Giza Pyramids: Our good friends at CIB announced at a presser yesterday the details of the world’s largest squash championships, CIB PSA Women’s World Championship and CIB Egyptian Squash Open Men’s Platinum, which will take place simultaneously at the Giza Pyramids from 24 October-1 November, according to an emailed statement (pdf). The championships, which will bring together 64 women competitors and 48 men, will be held under the auspices of the Youth and Sports Ministry and the Egyptian Tourism Authority.

In a historical first, the championship prize money for women will be more than double that of the male competitors, which CIB Chairman Hisham Ezz El Arab said at the presser is a testament to the bank’s support of women’s empowerment. The women’s champion will be awarded USD 430k, while the men’s champion will be awarded USD 185k. “Egypt is in the golden age of squash; it dominates the international rankings for women, men and juniors. Through many initiatives, including our partnership with Karim Darwish Academy, CIB has developed a comprehensive extended plan with the objective of creating a new generation of young champions,” said CIB CEO Hussein Abaza, who was once himself a squash champion. You can catch Ezz El Arab’s statements here (runtime: 02:47) and Abaza’s statements here (runtime: 03:06).

Get your bunkers ready, because last weekend’s drone attacks on Aramco has the global press screaming energy crisis. The attacks interrupted an estimated 5.7 mn barrels of crude oil, 50% of the company’s production, and reduced the supply of ethane and natural gas liquids by some 50%, which, according to Reuters, have disrupted more than 5% of global oil supply.

Egypt has strongly condemned Saturday’s drone attack on Saudi Aramco's oil refineries in Abqaiq and Khurais, expressing solidarity with Saudi Arabia in a Foreign Ministry statement.

Saudi says all’s good: Officials in Saudi Arabia have indicated that levels of production will return to normal by Monday, seeking to alleviate concerns as analysts anticipated that extensive damage could drive oil prices up by USD 5-10 a barrel. The kingdom’s benchmark stock index tumbled by as much as 3.1% on Sunday.

US points finger of blame at Iran; Tehran denies accusations: Tehran denied yesterday accusations by US Secretary of State Mike Pompeo that Iran instigated the attack, reports the New York Times. Iran, Saudi’s regional rival, is known to support the Yemeni Houthis, who claimed responsibility for the attack.

Thankfully, we are hedging our bets: Since the 2018 production cuts, Egypt has learned its lesson and is adopting a policy of fuel hedging contracts in anticipation of future shockwaves. The government has already signed contracts with international banks, with reports indicating that crude oil prices will be set at USD 64-68 per bbl. Government officials told us last month that the government is mulling signing more fuel hedging contracts. A Bloomberg analysis last year showed that every USD 1 increase above a benchmark price used by the state in annual budgeting added EGP 4 bn (USD 222 mn) to annual spending. This year’s budget uses a benchmark price of USD 68/bbl.

There has been speculation that the US and Europe could release emergency stockpiles to ensure market supply, while Saudi Arabia itself should be able to keep customers supplied for several weeks. Mns of reserve barrels are held in the kingdom itself, and in three strategic locations, one of which is Egypt’s Sidi Kerir. The attack, widely seen as the biggest on Saudi Arabia’s oil infrastructure, is also casting a shadow over Aramco’s planned IPO.

Elections in Tunisia and Israel are also receiving widespread coverage by Middle East watchers. 24 presidential candidates are running in Tunisia, and four are seen as the favorites: Prime Minister Youssef Chahed, TV mogul Nabil Karoui, lawyer Abdelfattah Mourou, and Defense Minister Abdelkarim Zbidim, Bloomberg writes. Results are due on 17 September, and a second round will be held in November if no candidate gets more than 50% of the ballots. Meanwhile, to the east, Israeli Prime Minister Benjamin Netanyahu is “visibly frantic” as he is about to head to national elections tomorrow, says the Associated Press.

As Arab central bankers discuss crypto, 26 other central banks are looking to quiz representatives of Facebook’s planned Libra cryptocurrency project today, the Financial Times reports. The meeting is being chaired by the European Central Bank’s board member Benoît Coeuré, who has said the bar for regulatory approval will be very high for Libra to operate in the EU. Some regulators have expressed concerns that Libra will undermine the “monetary sovereignty” of governments, but others have stressed that its advent is a wake-up call for both governments and central banks to find ways to make consumer payments faster and cheaper.

Looking for more disruption in finance? Climate change and artificial intelligence may render the asset management landscape “unrecognizable” by the end of the next decade, analysis from consultancy Create-Research suggests. 45 chief investment officers, portfolio managers and strategists from 16 countries were interviewed about their views on how AI and climate change would influence asset allocation decisions, the FT reports. The scale of both issues, and the uncertainty they generate, mean they will be the defining challenges for generations of investors and asset managers, according to one firm’s head of distribution.

The global food supply scare is so bad, we’re creating edible protein from microbes: A global drive to boost agriculture is seeing startups use high-tech fermentation to change micro-organisms — including bacteria, algae, and fungi — into edible proteins,the Financial Times reports. Global investment into crop microbial startups has skyrocketed, having risen nearly 40% from 2017 to 2018 to USD 511 mn, compared to under USD 100 mn in 2015, and investors including Bill Gates, SoftBank, and Danone are banking on microbials revolutionizing food and agriculture as they once did medicine.

Put down the vape: New York is about to be the second US state after Michigan to ban flavored e-cigarettes after health officials linked vaping to fatal lung illnesses, New York Governor Andrew Cuomo announced yesterday, according to Reuters. Howard Zucker, the state’s health commissioner, will formally institute the decision this week. The ban would come as six people, out of 400 reported patient cases, died of illnesses potentially related to vaping.

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