Transcript Slide 1

Interest Rate Monitor
June 30, 2013
Brief Overview
International
MENA Region
Egypt: Treasury yields rise, CDS at all time
US: Economy in the US grew less than projected in
Q1
high
GCC News Highlights
Eurozone: EU strikes deal to push cost of bank
failure on investors
GCC interbank rates
Japan: Economy powers ahead, but no early exit from
aggressive easing
Comparative MENA Markets
Markets overview
Local Economy
Major Indices: S&P records best half year since 1998
New and analysis
Commodities and Currencies: Gold reaches low of
$1,200, major currencies depreciate against dollar
 Fiscal Deficit continues to widen, public
debt at 70.7% of GDP
Central Bank Meeting Calendar
Markets overview
Interest Rate Forecast
 Amman Stock Exchange
 Local Debt Monitor
The Week Ahead
 Prime Lending Rates
2
International
3
Yield drops as GDP figures revised downwards, jumps end of week
on better consumer sentiment
•
•
Treasuries lost the most this year since 2009 as investors
fled U.S. debt after the Federal Reserve signalled the
world’s biggest economy may be strong enough to allow
the central bank to reduce its bond buying this year.
The treasury yield dropped as Q1 GDP figures were revised
downwards from 2.4% to 1.8%, but jumped back up at the
end of the week on the back of improved consumer
sentiment.
As of June 21
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years
0.02%
0.05%
0.09%
0.37%
1.43%
2.54%
3.59%
1 Week Ago A Month Ago
0.04%
0.05%
0.08%
0.27%
1.03%
2.13%
3.30%
0.03%
0.04%
0.08%
0.25%
0.90%
2.03%
3.21%
4
Economy in U.S. Grew Less Than Projected in First Quarter
•
The economy in the U.S. grew less than previously calculated in the first
quarter, reflecting less spending on services by consumers who were trying
to make ends meet after taxes rose.
•
Gross domestic product expanded at a revised 1.8% annualized rate from
January through March, down from a prior estimate of 2.4%
•
Household purchases, which account for about 70% of the economy, were
revised to a 2.6% advance compared with the 3.4% gain estimated last
month.
•
Households cut back on travel, legal services and personal care
expenditures and also curbed spending on health care as the two %agepoint increase in the payroll tax caused incomes to drop by the most in
more than four years.
•
Disposable income adjusted for inflation fell at an 8.6% annualized rate,
the biggest drop since the third quarter of 2008. The decrease reflects the
increase in the payroll tax.
•
The smaller gain in spending helped boost the saving rate to 2.5% in the
first quarter, compared with an initial estimate of a 2.3%.
•
Sustained gains would allow the economy to better cope with the fallout
from $85 billion in fiscal tightening and the lagged effect from a two %agepoint jump in the payroll tax that went into effect at the start of 2013.
5
Consumer sentiment ends June to near six-year high
•
Consumer sentiment improved in late June, ending the month
close to a near six-year high set in May, as optimism among
higher-income families rose to its strongest level in six years.
•
The Thomson Reuters/University of Michigan's final reading on
the overall index on consumer sentiment was 84.1 points, just
slightly below a near six-year high of 84.5 in May. The late-June
figure was higher than the preliminary reading of 82.7.
•
Consumer sentiment is considered by some economists as a
predictor on consumer spending, which accounts for 70 % of the
U.S. economy.
•
Household expenditures, however, have remained sluggish despite
improving optimism. Consumer spending grew at an annualized
2.6 % in first quarter, faster than the 1.8 % pace in the last three
months of 2012 but slower than an earlier government estimate
of 3.4 %.
•
The survey's gauge of consumer expectations ended June at its
highest level since October at 77.8, up from 75.8 in May. The latest
reading was stronger than the preliminary June figure of 76.7.
Economists had projected a late-June figure of 77.0
University of Michigan Survey of Consumer
Confidence Sentiment (YtD)
Source: Bloomberg
6
Fitch affirms U.S. AAA rating but outlook still negative
•
Fitch Ratings on Friday affirmed the United States' top level credit rating at AAA but held the outlook
at negative, saying still-elevated debt levels leave the country vulnerable to shocks without more
deficit reduction.
•
The affirmation reflects strong economic and credit fundamentals, the firm said in a statement. In
addition, Fitch cited the decline in the federal budget deficit to levels "consistent with debt
stabilization."
•
Fitch highlighted the diversity of the U.S. economy, its "extraordinary monetary and exchange rate
flexibility," global reserve currency status of the U.S. dollar as well as the depth and liquidity of its
financial markets as underpinnings for the top credit rating.
•
Fitch expects gross debt level of the federal government to stabilize next year and over the rest of the
decade at around 74 percent of gross domestic product. It expects the general government debt,
which includes state and local governments, to stabilize at 107 percent of GDP over the same time
period.
•
Both debt levels are below thresholds Fitch had identified as inconsistent with the U.S. retaining its
AAA status. The threshold it set for federal debt was 80 percent, with a 110 percent threshold for
general government gross debt levels.
7
Italy, Spain Bonds Rally, Paring Monthly Slump on Fed QE Concern
•
EU sovereign bonds rose for the first week in eight as
European Central Bank President Mario Draghi pledged
to keep monetary policy accommodative, boosting the
appeal of the region’s fixed-income assets.
Spain
•
The ECB’s monetary policy “will stay accommodative for
the foreseeable future,” Draghi said.
Italy
•
European bonds were also supported as U.S. policy
makers sought to downplay speculation that stimulus in
the world’s largest economy will be withdrawn soon.
France
•
Italian 10-year yields dropped seven basis points, or 0.07
percentage point, in the week to 4.55 percent.
Germany
•
Spain’s 10-year yield slid 15 basis points to 4.77 percent,
trimming its monthly increase to 33 basis points.
•
Germany’s 10- year bund yield added one basis point to
1.73 percent after climbing 21 basis points a week
earlier.
8
Europe strikes deal to push cost of bank failure on investors
•
The European Union agreed on Thursday to force investors and wealthy
savers to share the costs of future bank failures, moving closer to drawing a
line under years of taxpayer-funded bailouts.
•
The plan stipulates that shareholders, bondholders and depositors with
more than 100,000 euros ($132,000) should share the burden of saving a
bank.
•
The rules break a taboo in Europe that savers should never lose their
deposits, although countries will have some flexibility to decide when and
how to impose losses on a failing bank's creditors.
•
The European Union spent the equivalent of a third of its economic output
on saving its banks between 2008 and 2011, using taxpayer cash but
struggling to contain the crisis and - in the case of Ireland - almost
bankrupting the country.
•
French Finance Minister Pierre Moscovici signaled that ministers also agreed
to French demands that the euro zone's rescue fund, the European Stability
Mechanism, can be used to help banks in the 17-nation currency area that
run into trouble.
9
Japanese economy powers ahead, but no early exit from
aggressive easing
•
Data released shows that the Japanese economy continues to
power ahead and now appears to be moving out of deflation.
•
While Japan’s export so far is unsurprisingly resilient, it would be
wrong to think that Japan is just stealing growth from the rest of
the world through a weaker yen.
•
On the contrary the Japanese economy currently appears to be
gaining much of its strength from strong domestic demand.
•
The data released indicates GDP growth above 3.5% q/q AR in Q2
on the back of 4.1% q/q growth in Q1.
•
Japan’s industrial production continued to expand solidly in May,
where industrial production seasonal adjusted increased 2.0%
m/m. This was much stronger than expected and the fourth month
in a row with an increase.
•
Deflation continued to ease in May where CPI excl. fresh food (the
inflation measure BoJ targets) increased 0.0% y/y after declining
0.4% y/y in April. Core CPI excl. food & energy declined 0.3% y/y
after declining 0.6% y/y in April.
10
S&P 500 ended Friday's session with its strongest first half of any
year since 1998, underpinned by Fed’s monetary stimulus
11
Gold Reaches $1,200 low, major currencies depreciate against dollar
12
Major Interest Rate Forecasts
Market yield
(June 21)
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
US 10-year
2.53
1.94
2.18
2.37
2.57
2.70
2.81
Fed Fund Target Rate
0.25
0.25
0.25
0.25
0.25
0.25
0.25
1.72
1.56
1.55
1.68
1.84
1.96
2.09
0.50
0.50
0.50
0.50
0.38
0.50
0.50
2.40
0.50
2.06
0.50
2.10
0.50
2.20
0.50
2.40
0.50
2.45
0.50
2.47
0.50
Rate (%)
United States
Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg
13
The Week Ahead,,,
30 June – 5 July
14
Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Central Bank
Month
Current Rate
Expected Rate
Decision
US Federal Reserve (FOMC)
September 18
0.25%
0.25%
European Central Bank (ECB)
July 4
0.50%
0.50%
Bank of England (BoE)
July 4
0.50%
0.50%
Bank of Japan (BOJ)
July 10
0.10%
0.10%
September 19
0.00%
0.00%
Bank of Canada (BOC)
July 17
1.00%
1.00%
Reserve Bank of Australia (RBA)
July 2
2.75%
2.75%
Reserve Bank of New Zealand (RBNZ)
July 24
2.50%
2.50%
Swiss National Bank (SNB)
15
Regional
16
Egypt’s Treasury Yields Rise, drives CDS to all time high
•
Egyptian treasury yields rose significantly this week, with the
biggest increase in 1 year yields by 0.50% to reach 15.406%, due to
high political unrest as the country prepares itself for a fresh round
of demonstrations marking President Mursi’s 1 year anniversary at
office.
•
Consequently, the cost of insuring Egypt's debt against default has
risen to record highs in the five-year credit default swap market,
according to Markit, on concerns about political unrest.
•
An opposition campaign for mass rallies demanding the resignation
of President Mohamed Mursi on June 30, has been preceded by
shows of strength by Mursi's supporters and some street clashes in
which at least two men died at the weekend.
•
Egypt's CDS jumped around 80 basis points last week to a record
high of 847 basis points. That indicates it costs investors $847,000
a year to insure exposure to $10 million worth of Egyptian debt for
a five-year period.
Source: Bloomberg
Source: Bloomberg
•
Markit said Egypt's CDS were not sufficiently liquid for it to provide
a live price on Tuesday.
17
GCC Economic Highlights:
Bahrain parliament approves 11% rise in 2013 budget spending
•
Bahrain's state spending is expected to jump 11% this year, by
more than originally planned, after its parliament approved 174.2
million dinars ($462 million) in additional expenditure, official data
showed.
•
Budget expenditure in the small non-OPEC oil exporter is now
expected to total 3.62 billion dinars in 2013, up from 3.26 billion
actually spent last year.
•
The increase added rises in pension payments for both public and
private sector retirees, and higher subsidies for food and other
items, but omitted a 15% rise in public sector salaries.
•
The state faces difficult choices between boosting state spending
to support the economy in the face of political unrest, and
grappling with a rising state budget deficit, registered at -9.7% of
GDP in January of 2012.
•
The International Monetary Fund warned in May that the island
needed to reform its public finances in the medium term to avoid
its debt burden becoming unsustainable.
•
The IMF expects Bahrain's fiscal deficit to widen to as much as 8.6
% of gross domestic product in 2018 from 4.2 % forecast for this
year.
18
GCC Economic Highlights:
Saudi nonoil exports reach SAR46.84bn
•
The value of Saudi Arabia exports of nonoil commodities for the
first quarter (Q1) of the current year 2013, reached SR 46.84
billion, compared to SR 47.84 billion, or a decrease of 2.1%,
according to the Central Department of Statistics and
Information (CDSI).
•
The CDSI report stated that petrochemicals topped the list of
Saudi exports as it valued SR 16.88 billion, or 36.05 % of the
total nonoil exports, plastic products came second at SR 14.31
billion or 30.55 %, followed by ordinary metals and their
products at 7.11 % of the total exports.
•
According to the report, China topped the list of importers from
Saudi Arabia during Q1 with 12.98 % of the total exports,
followed by the UAE at 11.31 % and India at 5.79 %.
•
The value of Saudi imports during the Q1 increased by 13.5 % to
reach SR 154.92 billion compared to the figures of same period
of the previous year, the report said.
19
GCC interbank rates
Source: Bloomberg
20
Comparative MENA Markets
For the period 16/06 – 21/06
21
Locally
22
Fiscal deficit widens despite increase in foreign grants
•
•
The budget balance deteriorated significantly during the first
third of the year, with a deficit of JD277.4 million compared to
last year’s JD39 million for the same period.
The fiscal deficit widened despite an increase in foreign grants
compared to the same period last year.
•
Total revenues and grants increased by JD39.5 million in the first
four months of the year, as a result of an increase of foreign
grants by JD196.7 million for the same period, compared to an
overall drought of grants last year.
•
However, domestic revenues decreased by around JD157.2
million during the same period.
•
On the other hand, both current and capital expenditures
increased, resulting in a total increase in expenditure of JD277.9
million for the same period.
•
Meanwhile, if we look at the fiscal deficit before grants, then we
will find that the deterioration in budget balances is even more
significant, as the deficit reached JD 491.3 million during the first
four months of the year, an increase of JD435.1 million.
Jan – Apr
2013
1,855.1
1,641.2
213.9
2,132.5
1,946.8
185.7
Jan - Apr
2012
1,815.6
1,798.4
17.2
1,854.6
1,763.4
91.2
Fiscal Deficit/Surplus Including Grants
-277.4
-39.0
Fiscal Deficit/Surplus Excluding Grants
-491.3
-56.2
JD Million
Total Revenues and Grants
Domestic Revenue
Foreign Grants
Total Expenditures
Current Expenditures
Capital Expenditures
23
Public Debt at 70.7% of GDP in first four months
•
•
Public debt reached around JD 16.97 billion by the
end of April 2013, around 70.7% of 2013 GDP
according to the Ministry of Finance’s calculations,
increasing by JD388.6 million during the year.
Domestic debt decreased by JD 76 million during the
first quarter of the year, compared to the end of
2012.
•
External debt increased by JD465.2 million during
the same period.
•
This is in line with projections that the government
will rely on external financing in 2013 to meet
financial needs.
•
The government is still expected to issue a Eurobond
in the amount of $1-1.5 billion later this year in
international markets, which will further increase its
external borrowing.
April
2013
2012
2011
External Debt
5,397.6
4,932.4
4,486.8
% of GDP
22.5%
22.5%
21.9%
11,572.0
11,648.0
8,915.0
48.2%
52.7%
43.5%
16,969.6
16,581.0
13,401.8
70.7%
75.5%
65.4%
JD Million
Internal Debt
% of GDP
Public Debt
% of GDP
24
Moody's downgrades Jordan's government bond rating to B1;
outlook stable
•
Moody's Investors Service has downgraded Jordan's
government bond rating to B1 from Ba2, and changed the
outlook to stable from negative.
•
The key drivers of the downgrade are:
•
–
Jordan's deteriorating fiscal metrics, with a fiscal deficit that
peaked at 8.2% of GDP in 2012 and Moody's expectations that it
will remain above 5% of GDP in 2013-14;
–
An acceleration in the upward trend in general government
debt, which increased almost 10 %age points of GDP between
2011 and 2012 and which Moody's expects will reach close to
90% of GDP in 2014.
–
Heightened external vulnerability due to lower official foreignexchange reserves and the increasing dollarization of deposits.
Moody's also downgraded the local currency ceiling to Ba1
from Baa1, the foreign currency ceiling to Ba1 from Baa3, and
the foreign currency bank deposit ceiling to B2 from Ba3. The
short term foreign currency ceiling was downgraded to NP
from P3.
25
Amman Stock Exchange
For the period 23/06 – 27/06
ASE free float shares’ price index ended the week at
(1,986.1) points, compared to (1,999.1) points for the last
week, posting a decrease of 0.65%. The total trading
volume during the week reached JD(82.9) million compared
to JD(43.7) million during the last week. Trading a total of
(69.8) million shares through (18,858) transactions
The shares of (173) companies were traded, the shares
prices of (57) companies rose, and the shares prices of (78)
declined.
Top 5 losers for the last week
Top 5 gainers for the last week
Stock
% chg
Stock
% chg
Arabian Steel Pipes Manufacturing
16.67%
Alshamekha For Realestate And Financial Investments
(16.67%)
Jordanian Expatriates Investment Holding
12.50%
The Investors And Eastern Arab for Industrial And Real Estate
(16.67%)
National Insurance
10.00%
Tuhama For Financial Investments
(15.38%)
Union Land Development Corporation
9.76%
Alentkaeya For Investment & Real Estate Development Comp.
(14.29%)
Jordan Commercial Bank
9.18%
Jordan Insurance
(12.00%)
26
Local Debt Monitor
Latest T-Bills

As of June 30, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(2,629) million.
3 months T-Bills
Issue Date
Maturity Date
Size - million
Yield (%)
29/2011
14/12/2011
14/03/2012
50
2.898%
28/2011
12/12/2011
12/03/2012
50
2.844%
6 months T-Bills
Issue Date
Maturity Date
Size - million
Yield (%)
02/2012
14/02/2012
14/08/2012
50
3.788%
01/2012
23/01/2012
23/07/2012
50
3.433%
27/2011
08/12/2011
08/06/2012
50
3.232%
9 months T-Bills
Issue Date
Maturity Date
Size - million
Yield (%)
05/2012
04/03/2012
04/12/2012
75
4.285%
04/2012
29/02/2012
29/11/2012
75
4.229%
03/2012
22/02/2012
22/11/2012
75
4.169%
1 year T-Bills
Issue Date
Maturity Date
Size - Million
Coupon (%)
04/2013
15/04/2013
15/04/2014
75
5.345%
03/2013
26/02/2013
26/02/2014
70
6.750%
02/2013
14/02/2013
14/02/2014
50
6.750%
01/2013
27/01/2013
27/01/2014
70
6.750%
27
Local Debt Monitor
Latest T-Bonds Issues
2 years T-Bonds
Issue Date
Maturity Date
Size - million
Coupon (%)
T2613
28/04/2013
28/04/2015
50
6.039%
T2213
10/04/2013
10/04/2015
75
6.604%
T2113
08/04/2013
08/04/2015
50
6.788%
Issue Date
Maturity Date
Size - million
Coupon (%)
T3513
18/06/2013
18/06/2016
50
6.546%
T3213
29/05/2013
29/05/2016
50
6.530%
T3113
26/05/2013
26/05/2016
50
6.498%
Issue Date
Maturity Date
Size - million
Coupon (%)
T0312
15/01/2012
15/01/2016
37.5
7.246%
T4211
16/11/2011
16/11/2015
50
6.475%
Issue Date
Maturity Date
Size - million
Coupon (%)
T3413
10/06/2013
10/06/2018
50
7.561%
T3313
02/06/2013
02/06/2018
50
7.484%
Issue Date
Maturity Date
Size - million
Coupon (%)
PB58 (Water Authority)
13/06/2013
13/06/2018
12
7.703%
PB57 (Water Authority)
06/06/2013
06/06/2018
15
7.684%
PB005 (Housing & Urban Development)
29/07/2012
29/07/2015
20
7.966%
PBO12 (National Electricity)
26/04/2012
26/04/2017
150
7.724%
3 years T-Bonds
4 year T-Bonds
5 years T-Bonds
Public Utility Bonds
28
Prime Lending Rates
29
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
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