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Wednesday, 16 December 2020

What the markets are doing on 16 December 2020

The EGX30 rose 0.1% yesterday on turnover of EGP 1.6 bn (15.4% above the 90-day average). Foreign investors were net sellers The index is down -20.8% YTD.

In the green: Cleopatra Hospital (+3.9%), Ezz Steel (3.7%) and Sidi Kerir Petrochemicals (+3.5%).

In the red: Dice (-7.4%), Egyptian Iron & Steel (-3.3%) and Orascom Development (-2.9%).

Asian markets are in the green this morning and futures suggest Europe and Wall Street should follow suit later today.

Up

EGX30

11,058

+1 (YTD: -21%)

None

USD (CBE)

Buy 15.67

Sell 15.77

Down

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

None

Tadawul

8,659

-% (YTD: +3.2%)

Down

ADX

5,133

-0.4% (YTD: +1.1%)

Down

DFM

2,531

-1.0% (YTD: -8.5%)

Up

S&P 500

3,695

+1.3% (YTD: +14.4%)

Down

FTSE 100

6,513

-0.3% (YTD: -13.6%)

Down

Brent crude

USD 50.69

-0.1%

Down

Natural gas (Nymex)

USD 2.67

-0.3%

Down

Gold

USD 1,855.10

-%

Down

BTC

USD 19,343.68

-0.1%

Buyers of central bank-backed assets, beware, warns El Erian: Market sage Mohamed El Erian continues to warn that financial markets are divorced from the economic realities on the ground, writing yesterday that central bank-backed assets and fixed income have been moving in a different trajectory from macro indicators in a recession-prone Europe and a shaky US economy during the so-called post-covid recovery. “The result is not just seemingly endless liquidity-driven rallies regardless of fundamentals. It also alters market conditioning and inverts traditional cause and effect,” he writes in the Financial Times. This may come back and bite investors who are tucked in under the safety blanket of central bank-backed liquidity in 2021.

Is he hinting at a possible bubble? Not necessarily, but he certainly didn’t dismiss it. He urges rebalancing of portfolios and “a rethinking of the traditional portfolio construct of putting 60% of funds into equities and 40% into fixed income now that yields on government bonds are so artificially depressed. He stressed the need for a return to corporate fundamentals to validate high asset prices and support an orderly rebalancing of policy as well as an economic recovery boosted by vaccine rollouts.

Meanwhile, the FT’s Martin Wolf is adamant in a piece bluntly headlined There is no stock market bubble.

Standard Chartered strikes a more positive note, buoyed by vaccine optimism: While largely backing El Erian’s view that equity valuations are “optically elevated,” Standard Chartered sees the ongoing rapid vaccine distribution as justification enough to be optimistic heading into 2021, the bank said in its macro outlook for the year (pdf). “Vaccine distribution, fiscal and monetary policy support, bond yields, the USD and the Value vs Growth debate are five factors [that are] likely to define financial markets in 2021,” it added. A world without covid is also expected to be especially favorable for risky assets, meaning emerging market government bonds are in for a good run while the USD will be weak vis-a-vis EM currencies.

The bank still sees some risks going forward, namely central banks tightening monetary policy too early, “vaccine distribution hiccups,” or geopolitical risks, particularly heightened US-China or US-Iran relations.

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