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Thursday, 7 July 2022

THIS MORNING: Inflation + foreign reserves figures out today; Fed could step up rate hikes to tame inflation

We’re almost there, ladies and gentlemen: One working day remains before we all depart for a well-earned week off to mark the Eid holiday — although judging by the news flow right now, most of the country already seems to be in vacation mode. The EGX (pdf) confirmed yesterday that the stock exchange will be closed for the week, following announcements by the central bank (pdf) and the Manpower Ministry earlier this week confirming that the banks and private sector will take the full week off.

Enterprise is following suit: You’ll find us on the beach after we hit “send” on this afternoon’s PM edition. We’ll be back in your inboxes at the appointed hour on Sunday, 17 July.

Speaking of Eid, Saudi Arabia is likely to have received around 1 mn pilgrims for this year’s hajj — the largest since the covid-19 pandemic began in 2020, the Associated Press reports. Around 850k foreign pilgrims — selected through an online lottery — are participating in the first hajj in three years open to non-Saudis. Last year saw just 60k pilgrims travel to the religious site, down from 2.5 mn in 2019.

Saudi has lifted nearly all virus-related restrictions, including an indoor mask mandate — but those performing hajj this year must be under 65 and vaccinated, and test negative for covid-19 within 72 hours of travel.


THE BIG STORY TODAY was the impact of inflation on Egypt’s non-oil private sector: Business activity contracted at its fastest pace since June 2020 last month as rising inflation weighed on output and demand, according to the June PMI reading that dropped yesterday.

The silver lining: Not all businesses were impacted and the rate of job cuts slowed down. More on this in the news well, below.

HAPPENING TODAY-

The pre-Eid data dump: We’re expecting Capmas and the central bank to publish June’s inflation and foreign reserves data today ahead of the Eid break. Neither of the indicators were particularly promising last month, with inflation accelerating at its fastest pace in three years and foreign reserves falling by USD 2 bn to USD 35.5 bn.

MAKING GLOBAL HEADLINES THIS MORNING-

A new sign that the Federal Reserve could go full Volcker is dominating the front pages of the business press: Federal Reserve officials are prepared to raise interest rates at an even faster rate to avoid the “significant risk” that soaring inflation becomes entrenched, minutes (pdf) from last month’s policy meeting showed yesterday. The US central bank raised rates by 75 bps in its June meeting — its most aggressive hike since 1994 — and signaled that a hike of the same magnitude could be coming when it next meets at the end July as it battles to control inflation which reached new 40-year highs in May. But the minutes yesterday showed a willingness among policymakers to become “even more restrictive” if inflation continues to rise, even if that means provoking an economic slowdown. (Bloomberg | FT | WSJ | CNBC | NYT)

Another day in the slow-mo downfall of Boris Johnson: British Prime Minister Boris Johnson is refusing to step down amid growing rebellion in his party demanding his ouster. More than 40 ministers — including the chancellor and the health secretary — have resigned from the government in the past two days in protest at his leadership. (Reuters | AP | BBC | FT | WSJ | Bloomberg)

In the US press: The aftermath of the July Fourth mass shooting in Chicago is still getting plenty of attention. (AP | Reuters | Washington Post | NYT | WSJ | Bloomberg)

MARKET WATCH-

Have recession fears ended the commodity price shock? Commodity prices are falling across the board as financial markets respond to the increasing threat of recession, the Financial Times reports. Energy, metals and food commodities have all gone into reverse as investors bet that an oncoming economic downturn will curb global demand, and temper the impact of the supply shock that sent them to record highs earlier this year. Oil is down markedly from its recent post- Ukraine invasion peak, S&P GSCI agricultural prices index has lost 28% since its record high in May, and a London Metal Exchange benchmark has fallen by a third since March.

Oil continued to fall yesterday: Brent crude fell for a second day, ending the session below the USD 100 mark for the first time since April. The global benchmark has fallen around 10% this week, leaving it down almost a third from its recent peak in March. Citigroup analysts said this week that oil could be selling at USD 65 a barrel by the end of the year if forecasts of a recession are proved correct.

But Goldman thinks the markets are being too hasty: “While the odds of a recession are indeed rising, it’s premature for the oil market to be succumbing to such concerns,” analysts wrote in a note picked up by Bloomberg. “The global economy is still growing, with the rise in oil demand this year set to significantly outperform GDP growth.”

There’s a risk of further supply shocks as relations between Russia and the West deteriorate: JPMorgan recently made the headline-making claim that prices could spiral to USD 380 a barrel if Moscow makes further cuts to supply as its energy standoff with the West intensifies.

Also putting pressure on prices: A growing list of oil producers are offering large discounts as they look to compete with crude from Russia, which has slashed prices to attract Asian buyers in response to Western sanctions. Saudi Arabia became the latest country to lower its prices to Asia yesterday and is offering its Arab Heavy and Arab Medium grades at its largest discount to Arab Light since 2014, according to Bloomberg. Iran, Venezuela and Iraq have all lowered prices in recent days to compete with the Russians.

CIRCLE YOUR CALENDAR-

Officials from Egypt, the UAE and Jordan will hold talks in Cairo later this month to discuss the new industrial partnership agreed in May, cabinet said Tuesday. Abu Dhabi sovereign wealth fund ADQ will invest USD 10 bn in industrial projects under the initiative, which will see the three countries collaborate to boost manufacturing and exports. Egypt and the UAE will also sign an agreement to establish a huge 10 GW wind plant following the Eid Al Adha holiday, according to the statement.

Public consultations on the state ownership policy document that outlines its privatization plans will resume on Sunday, 17 July, with air transport industry players taking center stage. Every Sunday and Tuesday sees workshops on how privatization plans will affect specific industries. You can find more details on the schedule of the meetings here.

National Dialogue meetings to resume 19 July: The board overseeing the National Dialogue will hold its second meeting on 19 July, during which it will discuss the agenda and form subcommittees. Board members met for the first time yesterday.

Need a refresher on the national dialogue? We’ve got you covered.

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

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