Thursday, 28 October 2021

TONIGHT: All eyes are on the CBE’s interest rate decision + Egycomex on track to go live in 2022 + The global chip shortage weighs on automotive earnings

It’s interest rate day, and all eyes will be on the Central Bank of Egypt as its Monetary Policy Committee meets today to decide on interest rates. The prevailing wisdom is that rates will remain unchanged, with all 12 analysts and economists we surveyed expecting the CBE to maintain its cautious approach for an eighth consecutive meeting, despite rising global inflation as energy prices skyrocket.

Look for inflation and protecting foreign inflows to be top-of-mind for policymakers at today’s meeting: Annual headline inflation hit a 20-month high in September, as international oil and commodity prices had knock-on effects on domestic prices and coincided with the government’s plans to slash its subsidy bill. But policymakers will need to balance their concerns on inflation with the need to protect the all-important carry trade and maintain portfolio inflows. Egyptian debt currently offers some of the highest real interest rates in the world, a fact that has kept foreign inflows high and contributed to stability in the EGP to USD exchange rate.

The CBE’s meeting comes on the heels of the European Central Bank deciding to keep interest rates on hold, saying that it won’t raise rates until inflation stabilizes at its 2% target in the medium-term. The ECB still maintains that the current spike in inflation is “transitory,” leading investors to pencil in a 20 bps interest rate hike over the course of a little more than a year, according to Bloomberg.

The transitory nature of inflation just made itself apparent in Europe’s natgas prices, which cooled off, in response to Russian President Vladimir Putin instructing state-backed giant Gazprom to fill European storage sites in Germany and Austria next month, according to Bloomberg. Improved gas flow from Norway as well as promises to increase exports, coupled with dropping Chinese coal prices, are also contributing to the downward trend, analysts tell the business information service. One analyst speculated that the decision may be connected to a Tuesday announcement by Germany’s Economy Ministry that the “certification of Nord Stream 2 wouldn’t pose any risks to security of supply.” There have been murmurs that Russia has been withholding gas to force through the certification of the pipeline, which will transport natural gas from Russia into the EU.

The MPC’s decision should be out by 6pm CLT today. We will have detailed coverage on the decision in Sunday’s EnterpriseAM.


THE OTHER BIG STORIES TODAY-

#1- Egycomex is still on track to go live early next year: Egypt’s long-awaited commodities exchange (Egycomex) appears to be on track to begin operations at the beginning of 2022, with Supply Minister Ali El Moselhy signaling that we should expect an announcement soon which commodities will be traded on the exchange. El Moselhy is also set to iron out the final details and procedures to launch the exchange with EGX boss Mohamed Farid and head of the Internal Trade Development Authority Ibrahim Ashmawy next week.

#2- We’re getting a fresh USD 360 mn loan from the World Bank to support our post-covid economic recovery, with a potential equivalent package from the Asian Infrastructure Investment Bank on the way. The World Bank loan will be geared towards supporting sustainable and inclusive growth, as well as creating private sector jobs.

^^ We’ll have more on these stories and more in Sunday’s edition of EnterpriseAM.

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

  • US companies to work with military to produce desalination tech: Aquatech and MPS Infrastructure will form a consortium with the National Authority for Military Production to set up facilities to manufacture equipment used for desalination and wastewater treatment, and manage upgraded plants.
  • Withholding tax causing slow progress on Euroclearable status? An issue in how Egypt calculates the withholding tax on government securities is what’s been delaying making the country’s debt Euroclearable.
  • Chimera wraps second closing of its maiden fund: Swvl backer Chimera Capital has exceeded its USD 50 mn target with the completion of the second close of its first VC fund.

PSA- If you’re heading to Amreeka soon, you might want to check new covid-19 conditions for air travel. Starting 8 November, all air passengers — age 2 years or older — are required to present a negative PCR test within different time periods, depending on their vaccination status, the US Embassy in Cairo said in a statement. Proof of recovery from covid in the past 90 days will also be accepted. Travelers will also be allowed to enter the US if they visited or transited into one of the 33 countries previously barred by a Presidential Proclamation including the UK, China, Brazil, and India. The proclamation will no longer be in effect as of 8 November.

For citizens, residents, and immigrant visa holders: If you’re fully vaccinated, you will need to present airlines with proof of vaccination and a negative PCR test administered three days before their flight. Those who are not fully vaccinated will need to provide proof of a negative covid-19 test administered one day before their flight’s departure.

All non-immigrant, non-citizen travelers to the US will be required to be fully vaccinated, provide proof of vaccination status, and get a PCR test three days before their flight.

CLARIFICATION- An earlier version of this story suggested the Presidential Proclamation barring entry to the US from 33 countries would remain in effect. 

PSA #2- Startups and small businesses can now register for Facebook and RiseUp’s training program, Digitize with Facebook. The program, developed by Facebook in partnership with RiseUp and Egyptian startups Ibots, Botme, and Expandcart, aims to help 5k small businesses and startups in Egypt build and scale their digital presence through — you guessed it — Facebook social media platforms. Register here.

THE BIG STORY ABROAD-

SIGN OF THE TIMES- The global semiconductor and chip shortage is a main character in several companies’ earnings reports: Automotive heavyweights General Motors, Ford, and Volkswagen all reported lower bottom lines in 3Q2021 as the global chip shortage weighed on their output. General Motors reported a 40% y-o-y decline in net income during the third quarter of the year, while Ford’s net income narrowed 23% y-o-y (pdf) and Volkswagen noted that “semiconductor bottlenecks” drove down y-o-y income “in spite of having full order books.” The three companies indicated they were unable to meet rising demand and output targets as a result of global supply chain snags.

On the flipside, semiconductor shortages were a boon for Samsung — the world’s biggest chip and smartphone maker — which said the booming supply for chips during the pandemic helped bump up its net income 31% during the third quarter (pdf).

Is there an end in sight? The wait time for chips has begun to level off, but there’s still little clarity on when the mismatch between supply and demand could fully be resolved, Bloomberg notes. Chipmaker TSMC is cranking up supply with USD 100 bn investments in expanding its production capacity, with Samsung and Intel also announcing plans to significantly increase capacity over the next few years — but still don’t think the crisis will be resolved before mid-2022 at the earliest.


ALSO MAKING GLOBAL HEADLINES- Democrats’ plan to impose a “wealth tax” on American bn’aires all but collapses — but the minimum corporate tax looks more viable: The White House and Democratic lawmakers in Congress continued discussions on how to tax America’s ultra-rich until late yesterday evening after pushback from moderates led to failed negotiations to target individuals who earn upward of USD 100 mn annually in a new tax, according to the Financial Times. The proposal was ultimately taken off the table, with lawmakers focusing their efforts instead on a minimum corporate tax plan, which would see the 200 largest US companies face a minimum 15% corporate tax. The corporate tax proposal coincides with the OECD’s push to impose the same minimum tax rate on corporates globally, with the landmark agreement set to be finalized at the G20 leaders’ summit in Rome this weekend.

📆CIRCLE YOUR CALENDAR-

It’s a new month next week: Here are dates for some key news triggers as we enter November:

  • PMI: November’s purchasing managers’ indexes for Egypt, Saudi Arabia and the UAE will land on Wednesday, November 3.
  • Foreign reserves: October’s foreign reserves figures will be out sometime during the first week of November.
  • Inflation: Inflation figures for October will be released on Wednesday, 10 November.

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 the mercury to hit 30°C during the afternoon tomorrow while Saturday will be slightly cooler with a high of 29°C, our favorite weather app tells us. Both days are forecasted to have nighttime lows of 20°C.

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