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Thursday, 4 November 2021

THIS MORNING: The Fed taper is here; COP26 continues with new Africa lending initiative; Republicans deal blow to Biden.

Well, friends, we’ve just about made it through another workweek together. The big story here at home this morning as we prepare to slide into the weekend is the launch of the government’s digital vaccine record app, which eliminates the need to go separately obtain a QR coded paper certificate. Also today: Teens aged 15 and up are now getting covid-19 vaccines in classrooms. We have chapter and verse on how to get the app in the news well, below.

THE BIG STORY ABROAD- COP26 keeps its place on the front pages of much of the global press this morning. Among the headlines from Day 3 of the climate conference:

The UN is throwing Africa a lifeline: The UN has launched a new short-term lending market for African governments in an effort to reduce borrowing costs and channel more money into green projects on the continent, the Economic Commission for Africa announced. The Liquidity and Sustainability Facility (LSF) will create a repo market for African bonds: bondholders will be able to swap the securities for cash, making them more attractive to investors and lowering borrowing costs in a move the UN says could save governments USD 11 bn over the next five years.

Egypt is backing the LSF: “Our aim is to be able to provide the same sort of liquidity-supportive environment to African governments and private investors alike,” Finance Minister Mohamed Maait is quoted in the release as having said. “African governments have historically faced high cost of borrowing while developed countries have long enjoyed the existence of large repo markets for their government bonds, facilitating the creation of stable and additional funding sources.” Reuters and the FT have the story.

Advisors: Citi was structuring agent, while White & Case and Matheson were legal counsel.

** Check out our explainers to find out how this will work: How repos work | The Liquidity and Sustainability Facility.

Countries pledge to stop financing overseas fossil fuel projects: At least 19 countries have pledged to stop channelling finance into overseas fossil fuel projects by the end of 2021, sources tell Reuters. There is yet to be an official announcement, but sources say that Denmark, Finland, Costa Rica, Ethiopia, Gambia, and the Marshall Islands, in addition to the European Investment Bank and the East African Development Bank, have made the commitment.

Global finance on board with climate goals: More than 450 banks, asset managers and ins. companies have signed up to a climate foundation set up by ex Bank of England governor Mark Carney and could channel some USD 100 tn over the next three decades into achieving net-zero emissions.

Over in the US, a stinging set of election results for the Democratic Party has the US Twitterati speculating about the future of Biden’s legislative agenda. Republican newcomer — former private equity bigwig Glenn Youngkin — won a surprise victory in the race for the Virginia governorship while the incumbent Democrat in the heavily blue state New Jersey only narrowly avoided a loss to the Republican challenger. (AP | Reuters | Washington Post | NYT | Politico | Axios)

WHAT’S HAPPENING TODAY-

SPACs could be coming sooner that expected: Regulations that will govern special purpose acquisition companies (SPACs) here in Egypt could be ready in as little as three weeks, Financial Regulatory Authority Deputy Chairman Islam Azzam told CNBC Arabia yesterday. The rules could set an EGP 100 mn minimum size for a SPAC merger, as well as a minimum participation from SPAC sponsors / founders, who may be required to invest between 20-25% in SPACs they’re sponsoring, Azzam said. The regulator this week greenlit a plan spearheaded by EGX boss Mohamed Farid to allow SPACs in Egypt. News then emerged that two non-banking financial services players are considering acquiring fintech companies via SPACs.

Why set a minimum threshold for sponsors? In the SPAC-verse, sponsors usually get paid a 20% bounty known as the “promote,” as well as other benefits which keeps them safe while public investors are out in the cold, which is why the FRA is taking this bit seriously.

MARKET WATCH-

The Fed taper is here — and it could be over before the middle of next year: The Federal Reserve will begin unwinding its huge stimulus program this month amid concerns that inflation will remain elevated for longer than previously thought. In a statement following its two-day policy meeting yesterday, the central bank said it would taper its USD 120 bn-a-month bond-buying programme by USD 15 bn a month, reducing the amount of treasuries it buys by USD 10 bn and mortgage-backed securities by USD 5 bn. Should the central bank stick to this trajectory, this will mean the asset-purchase programme will be completely phased out by June 2022.

A taper ≠ a rate hike: Fed chair Jay Powell looked to straddle the middle ground between doves and hawks, saying in his post-meeting presser that monetary policy will remain accommodative despite the taper while pledging to take firm action should inflation threaten to get out of control.

Things might be a little different on the other side of the Atlantic this afternoon, where there’s a good chance that Bank of England officials could vote to start raising interest rates at today’s policy meeting.

This went down well with the US markets, with the S&P 500, Dow, Nasdaq and Russell 2000 all notching new record highs on the same day for the first time since January 2018, according to Bloomberg.

Things are going to be different in EM, where currencies are going to start facing headwinds: Most emerging market currencies are set to weaken or at best hold on to their current value in 2022, according to a Reuters poll of analysts, who expect US yields to rise and money to start flowing out of EM assets next year.

And in Egypt? The government is signaling outwardly that it is not sweating the impact of a Fed taper and subsequent hike in interest rates, with Finance Minister Mohamed Maait talking up Egypt’s experience handling EM volatility in a recent interview with Bloomberg. S&P wrote recently that while Egypt is vulnerable to rising US rates, its high inflation-adjusted interest rate put it in a better position than other EMs to weather the effects of the taper (provided local inflation remains in check).

The Fed meeting is the big story in the global financial press this morning: AP | Reuters | Bloomberg | FT | WSJ | CNBC.


The world’s largest trading bloc will come into force at the start of next year, after Australia and New Zealand this week ratified a pan-Asian trade agreement. The Regional Comprehensive Economic Partnership (RCEP) will also include China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations (ASEAN), covering almost a third of the world’s population and GDP and making it bigger than other trading blocs like the EU and the United States-Mexico-Canada Agreement (USMCA). The pact will gradually reduce import tariffs on more than 65% of goods, and standardize rules governing e-commerce, intellectual property and financial services.

CIRCLE YOUR CALENDAR-

The Africa Early Stage Investors Summit continues today, featuring virtual sessions featuring speakers from angel networks, VC funds, accelerators, and the public sector, among others.

Key news triggers coming up:

  • Foreign reserves: October’s foreign reserves figures will be out any day now;
  • Inflation: Inflation figures for October will be released next Wednesday, 10 November;
  • There’s no MPC meeting this month — the central bank will next meet on 16 December to review interest rates for the final time this year. The CBE has yet to issue its MPC calendar for 2022.

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


CORRECTION- Egypt will be shipping natural gas to Lebanon via the Arab Gas Pipeline. We incorrectly said earlier this week that the pipeline will carry liquefied natural gas which simply isn’t how that sort of things works, of course. We’ve updated the story on our website to reflect this correction. H/t Marwan S.

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