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Monday, 13 June 2022

El Erian points fingers at Fed for US inflation as recession clouds build

The Fed missed the boat on inflation, says El Erian: Allianz Chief Economist Mohamed El Erian told CBS’s “Face The Nation” that 40-year high inflation in the US could have been avoided had the Federal Reserve acted earlier. The Fed “mischaracterized what inflation is and it fell behind,” El Erian said. “And the lessons of history is, once you fall behind, you lose the ability of the first best response.”

More price hikes and another 50-bps cut to come? “We may well get to 9% at this rate,” El Erian said, days after US consumer prices rose to 8.6% last month, their highest rate since November 1981. “We should look at the Fed to increase by at least 50 basis points this coming week,” he said. Traders now see a 50% chance that the Fed will raise interest rates by an unusually large 75 bps when it meets on Tuesday and Wednesday this week.

The US will likely fall into recession next year, according to nearly 70% of economists polled by the Financial Times. Nearly 40% of the 49 respondents expect the US economy to enter a recession in the first half of next year, while 30% predict it to happen in the second half.

What’s a recession, technically speaking? It’s a “significant decline in economic activity that is spread across the economy and lasts more than a few months,” according to the National Bureau of Economic Research, which is tasked with declaring recessions in the US.

Also worth noting:

  • Record capital increase in KSA: Saudi Telecom is planning to raise capital by USD 8 bn through issuing bonus shares in what will be the largest capital increase by a Saudi company. Shares rose as much as 9.8% on the news. (Bloomberg)
  • TotalEnergies gets 25% stake in Qatari gas megaproject: The oil and gas major is the first international firm to acquire a stake in Qatar’s USD 30 bn LNG project, which is set to be the largest in the world. (Statement)
  • Around USD 40 bn has been wiped off US companies’ earnings in 1H 2022 due to FX effects after the USD rose to its highest level since 2002. (The Financial Times)

Down

EGX30

10,098

-1.4% (YTD: -15.5%)

None

USD (CBE)

Buy 18.65

Sell 18.73

None

USD at CIB

Buy 18.67

Sell 18.73

None

Interest rates CBE

11.25% deposit

12.25% lending

Down

Tadawul

12,322

-2.2% (YTD: +9.2%)

Down

ADX

9,628

-0.2% (YTD: +13.4%)

Up

DFM

3,377

+0.1% (YTD: +5.7%)

Down

S&P 500

3,901

-2.9% (YTD: -0.9%)

Down

FTSE 100

7,318

-2.1% (YTD: -0.9%)

Down

Euro Stoxx 50

3,599

-3.4% (YTD: -16.3%)

Down

Brent crude

USD 122.01

-0.9%

Down

Natural gas (Nymex)

USD 8.85

-1.3%

Up

Gold

USD 1,875.50

+1.2%

Down

BTC

USD 26,804

-5.9% (YTD: -42.3%)

THE CLOSING BELL-

The EGX30 fell 1.4% at yesterday’s close on turnover of EGP 529 mn (36.5% below the 90-day average). Local investors were net buyers. The index is down 15.5% YTD.

In the green: Heliopolis Housing (+5.5%), Madinet Nasr Housing (+2.9%) and Ezz Steel (+1.1%).

In the red: Eastern Company (-4.0%), Abu Qir Fertilizers (-3.3%) and Egypt Kuwait Holding-EGP (-2.7%).

Asian markets are down across the board in early trading this morning and futures suggest both European indices and then Wall Street will open to a wall of red later on today.

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