Wednesday, 10 February 2021

Will the pandemic, not local macro triggers, be key to the CBE’s next rate decision?

The EGX30 rose 0.85% at today’s close on turnover of EGP 1.92 bn (26% above the 90-day average). Regional investors were net sellers. The index is up 6.45% YTD.

In the green: Fawry (+4.2%), Pioneers Holding (+3.1%) and Sidi Kerir Petrochemicals (+2.4%).

In the red: Cleopatra Hospital (-1.0%), CI Capital (-0.9%), and Export Development Bank of Egypt (-0.9%)

IN THE HOT SEAT TODAY- We reached out to our analyst of the week Arqaam’s Noaman Khalid — who gave us color on the what impact today’s inflation news had on markets.

The EGX turned a blind eye to the dip in inflation, closing up less than 1% on heavy turnover.

Notable exceptions include Fawry, which was up 4.2%, and Pioneers (3.1%), signalling the continued strength of finance and fintech.

How will today’s inflation figures feature in the next CBE Monetary Policy Meeting? Not much, says Khalid. In the short-run, the wider implications of the pandemic — especially the vaccine rollout — will have a greater impact than local macro triggers. And as the weather gets warmer, and the current wave of the virus decreases, consumer spending will go up, supporting inflation.

Either way, the heaviest rate cuts are behind us, says Khalid. The wiggle room for further cuts is getting shorter, falling to 100 to 150 bps.

CBE will prioritize unifying corridor rates and yields: Right now, open market control is a more pressing issue as we notice that local macro triggers such as inflation take a back seat in terms of overall impact. The current overnight deposit and lending rates remain at 8.25% and 9.25% respectively, which is appropriate, says Khalid. But yields are at around 10.5%. What the CBE would want to do is narrow that gap.

Meanwhile, Khalid sees rising oil prices as being a net positive for the market. First, history has shown that investors aren’t really too scared of any inflationary impact of rising oil prices (which finally broke past the USD 60 / bbl barrier this week). This is a sign that things are headed to pre-covid figures, which should increase overall global investor sentiment.

After all, we’re one region: Any gains for GCC markets from the rise in oil prices ultimately spill over to Egypt.

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