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Thursday, 16 September 2021

TONIGHT: MPC’s Interest rates decision + Fed next week. ALSO: Your morning cup of Jo is getting more expensive + Gameweek 5 in the Premier League this weekend.

We close out a heavy news week with a big sigh of relief, ladies and gentlemen. Sahel season may be over, but it's still sunny and lovely in other beach spots. We’re anticipating a few good weeks of beach weather before we have to all clam up.

THE BIG STORIES TODAY (so far)-

#1- A big push for our energy hub plans: Technical committees from Egypt and Cyprus have agreed to begin studies that would pave the way for gas from Cyprus’ Aphrodite field to be sent to Egypt’s liquefaction plants for re-export, the Cypriot press is reporting this morning.

#2- Plans to link our electricity grid with Saudi Arabia also got a big push forward, with Electricity Minister Mohamed Shawky announcing on Extra News yesterday that Egypt and KSA signed new contracts that would see 2 GW of electricity exchanged between the two countries. Reports are also out that tenders for the project are underway. The project’s inauguration, previously slated for 2020, was delayed after Saudi’s USD 500 bn Neom City mega project derailed plans.

#3- Investments in tourism: Egypt will feature heavily in hotel management company Radisson Hotel Group’s plans to open 50 hotels in North Africa by 2025, Alban Mabille de Poncheville, director, development, North Africa, tells Hotelier Middle East. The company appears to be targeting Cairo and the New Administrative Capital.

^^ We’ll have more on all of these stories in tomorrow’s edition of Enterprise AM.

HAPPENING NOW- It’s interest rate decision time: The Central Bank of Egypt’s Monetary Policy Committee (MPC) is set to announce its decision on interest rates later today, and we don’t expect to hear anything until around 6pm. Everyone and their mothers are expecting the CBE to hold on interest rates, including 10 analysts we polled earlier this week. A poll of 13 economists by Bloomberg also unanimously expects the MPC to hold off on moving rates, saying that Egypt’s high real rates — the highest in the world — should largely shield it from any impact a tapering by the Fed could have on emerging markets.

Where rates currently stand: The overnight deposit rate is at 8.25%, the lending rate at 9.25% and the main operation and discount rates are at 8.75%. The central bank slashed rates by 400 bps last year, including an emergency 300 bps cut in March, to protect the economy from the fallout from covid-19. It has since maintained rates for six consecutive meetings, including its most recent in August, amid concerns about an increase in inflation. Annual urban inflation hit its highest level in nine months in August on the back of rising food, fuel and transportation costs, with headline inflation rising to 5.7% in August, up from 5.4% in July.

Beyond inflation, the clear fear today is the potential for the US Federal Reserve to wind down its covid stimulus. It certainly was at the top of the risks noted by local economists and analysts we interviewed. Last week, Finance Minister Mohamed Maait echoed the sentiments of some economists that Egypt should be able to withstand the Fed tapering better than other EMs.

The Fed will meet to review interest rates on 21-22 September. Pressure has been building on the Fed to take a more hawkish stance to combat inflation by bringing its stimulus program to a premature end and start raising interest rates earlier than planned. But a slight slowdown in US consumer price inflation last month and a poor jobs report in August could give the Fed a breather and relieve pressure for a policy change.

Another sign we’re still a carry trader’s dream destination: Egypt’s local currency debt was a prime example of an attractive emerging market asset, Denise Simon, co-head of emerging market debt at Lazard Asset Management, said at the annual JANA Investment Advisors conference, according to Australia’s Financial Review. She sees clear skies for emerging markets coming out of the pandemic, saying that “emerging markets growth is catching up and is expected to surpass US growth in 2022.”


** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

  • Remittances hit a record high in FY2020-2021: Remittances grew more than 13% to USD 31.4 bn compared to USD 27.8 bn the previous fiscal year.
  • Global inflation is delaying renewable energy projects in Egypt: Saudi Arabia’s ACWA Power and the UAE’s Al Nowais have recently asked to postpone renewable projects under pressure from rising input prices.
  • Lighthouse Education weeks away from EGP 500 mn first close: United Bank of Egypt announced that it would contribute EGP 50 mn to the fund, joining founding partners the Sovereign Fund of Egypt, Misr Ins. Holding Company, Banque Misr, and the Suez Canal Bank.

More infrastructure diplomacy with Libya underway: Egypt could aid Libya in developing housing, establishing new cities, and providing water and sanitation services, Housing Minister Assem El Gazzar told his Libyan counterpart Abu Bakr Al Ghawi, according to a cabinet statement. Libya has been opening up talks to benefit from Egypt’s experience in these areas, with two MoUs signed this week to also see the two countries cooperate to develop Libyan infrastructure works and the development of its ports. This meeting was followed today by one between President Abdel Fattah El Sisi and the Prime Minister of Libya's interim Government of National Unity Abdul Hamid Dbeibeh in Cairo, according to an Ittihadiya statement.

Egypt needs to “speed up the vaccination process” as cases surge, the World Health Organization said in a report (pdf) that looks at the covid-19 pandemic in the Eastern Mediterranean region. Four other hot zone nations in the region were identified, including Palestine, Somalia, Syria, and Yemen. Low vaccination coverage in several countries due to limited capacities is of concern in the region, especially in low- and lower-middle income countries, the report said.

21 countries in the EastMed have reported circulating variants, including Egypt, in the past few months. The WHO has set a target to have all countries vaccinate 10% of their population by the end of the year, a milestone Egypt is close to achieving with 13 mn people having gotten their first dose. The region has received 51.54 mn doses of vaccines under the Covax initiative and are expecting 37 mn more doses in the coming period.

Vaccines could wane over time — without a booster shot: Pfizer said that booster doses are an effective way to restore immunity that is bound to erode over time with a two-jab regimen, the pharma company detailed in a presentation (pdf) that will be reviewed by The Food and Drug Administration (FDA). The FDA will use the report to decide if a booster shot will be necessary or not.

Pfizer also argues that a third dose is the most effective so far the delta variant and is 86% effective for people above 60. Pfizer’s claims come days after the Lancet released a study saying that booster shots are not necessary for most people as vaccines are reliably effective without the need for top-ups. Bloomberg also has the story.


THE BIG STORY ABROAD- The US, Britain, and Australia are establishing a new military alliance targeting the Indo-Pacific dubbed AUKUS. The agreement will see the US and Britain provide Australia with the technology and capability to deploy nuclear-powered submarines in the region. China was quick to accuse the trio of "severely damaging regional peace and stability, intensifying an arms race,” Chinese foreign ministry spokesman Zhao Lijian said in a briefing, adding that countries should not build alliances targeting a third country. Picking up the story are: Reuters | The Financial Times | NPR | BBC | The New York Times.

Eibor rate might be nixed in the UAE: The big stories coming out of the GCC include the UAE central bank exploring the possibility of replacing the country’s current interbank rate (Eibor), sources close to the matter told Reuters in an exclusive. The move comes as regulators globally look to tighten regulations at the rates banks set for each other following the 2012 Libor scandal in London.

Elsewhere, the IPO of Saudi Telecom's Arabian Internet and Communications Services Company will be priced at SAR 151 per share, which implies a market cap of USD 4.8 bn, according to an indicative price announcement (pdf) on the Tadawul today. Saudi Telecom is planning to sell a 20% stake in its subsidiary, which it hopes will raise SAR 3.6 bn.

Advisers: HSBC Saudi Arabia, Morgan Stanley Saudi Arabia and SNB Capital Company are joint financial advisers.

🗓 CIRCLE YOUR CALENDAR-

The UN General Assembly is ongoing in New York until 30 September. The general debate will take place from 20-28 September. Leaders from at least 83 countries are expected to attend in person — in contrast to last year, when the meeting was almost 100% virtual. There’s no word yet on whether President Abdel Fattah El Sisi will attend in person or virtually.

EFG Hermes’ fourth Virtual Investor Conference continues today, running through to 21 September with the theme of “After Reflation — FEMs in 2022.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

☀️ TOMORROW’S WEATHER- Expect temperatures of 35-36°C on Friday and Saturday, with nighttime lows of 21-22°C, according to our favorite weather app.

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