Transcript Local Debt Monitor

Interest Rate Monitor
August 4, 2013
Brief Overview
International
MENA Region
US: Bond yields fall as market contemplates what
effect will the jobs data have on monetary policy
Egypt: Central bank cuts rates for first time since
2009
Eurozone: Bond market remains calm as ECB
reiterates that it won’t raise rates in the foreseeable
future
GCC News Highlights
UK: BoE keeps policy unchanged as manufacturing
sector expanded at fastest pace since March 2011
GCC interbank rates
China: Manufacturing data gave mixed messages
Comparative MENA Markets
Japan: Growth seems to pick up speed, but recent
data was mixed
Markets overview
Major Indices: US stocks edge up as investors shrug
weaker than expected jobs data
Commodities & Currencies: Gold rebounds on jobs
data but posts weekly loss
Central Bank Meeting Calendar
Local Economy
New and analysis
 Central bank issued second USD denominated
bond
Markets overview
 Amman Stock Exchange
Interest Rate Forecast
 Local Debt Monitor
The Week Ahead
 Prime Lending Rates
2
International
3
Treasury yields fall as jobs growth lag expectations
•
•
Treasury prices rallied this week, as the muted
payroll report spurred demand for safe-haven assets
and curbed speculation the Federal Reserve will
scale back its stimulus efforts in September.
The yield on the 10-year US government bond was
down 11 basis points Friday at 2.60% after the jobs
report – having risen Thursday to within striking
distance of a recent two-year high above 2.7%. Over
the week, the 10-year yield was up 4bp.
As of August 2 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years
0.02%
0.04%
0.07%
0.30%
1.36%
2.60%
3.69%
0.02%
0.02%
0.06%
0.31%
1.36%
2.56%
3.61%
0.03%
0.04%
0.08%
0.36%
1.42%
2.50%
3.49%
4
FOMC statement was slightly dovish as slow growth restrains the Fed
•
The Federal Reserve maintained its asset purchase program,
continuing its pace of $85 billion a month, with the first Fed rate
hike still not expected before 2015.
•
The FOMC statement made no mention of tapering, effectively
signalling that it will continue QE for some time to come until there
is a clear improvement in the US labour market situation.
•
Moreover, interest rates will hold near zero as the Fed would like
to see the unemployment rate fall to around 6.5% before it starts
to raise short-term interest rates
•
The Fed downgraded its assessment of the economy in its
statement, stating that growth in the first half of the year had been
“modest”, a description slightly more subdued than the Fed's
previous "moderate" pace, despite an unexpectedly strong
annualized second-quarter growth rate that came in at 1.7%.
•
It also pointed to two new downsides: mortgage rates have been
rising and inflation may be too low.
•
The committee voted 11-1 in favour of Wednesday’s statement,
with Esther George, who thinks the policy is too easy, continuing
her dissent. She remains concerned over the inflation goal and risk
of fiscal imbalances.
5
FOMC gave little indication of when the fed will start tapering
•
The Fed's policy statement appeared to be crafted
to avoid sending any strong new signals about the
central bank's already articulated plans to scale back
its bond buying later this year. It thus remains data
dependent, and as such, the door is still open for a
later start to tapering.
•
Better than expected data earlier in the week on US
manufacturing activity and weekly jobless claims
had supported the view that the Federal Reserve
would begin scaling back its quantitative easing
programme in September.
•
However, the Labor Department gave its latest
snapshot of the job market on Friday, were the jobs
figure were slightly below expectations even as the
unemployment rate fell to 7.4%.
•
Another job report is due before the Fed's Sept. 1718 meeting. If August data does not disappoint,
September remains the most likely candidate for a
start to tapering. But Friday’s data threw
uncertainty back into the mix.
7.0%: Target for Fed to end its bond buying program
6.5%: Target for Fed start conversation about raising rates
6
US jobs market hits speed bump
•
U.S. employers added jobs at a slower pace in July, suggesting
more steady but unspectacular economic growth heading into
the summer.
•
The U.S. economy added 162,000 jobs, marking the slowest
month for hiring since March, the Department of Labor said
Friday, lower than economists' median forecast of 183,000.
•
Also worrisome, is that the Labor Department revised down
the jobs totals for the two prior months by a combined 26,000.
•
Meanwhile, the unemployment rate, taken from a separate
survey of U.S. households, fell two-tenths of a percentage
point to 7.4%, its lowest level since December 2008. But the
figure was also discouraging because the drop was partly
because 37,000 people dropped out of the labor force.
•
The latest snapshot of the job market suggests that slow
economic growth may be weighing on employers. Higher taxes,
federal spending cuts and slower growth abroad have held
back the economy for months, though the pace of hiring has
been solid so far this year.
July:
+162,000
7
US jobs report complicates Fed’s tapering decision
•
The latest employment report shows that labor markets continue to heal, albeit slowly. The
U.S. has added an average of 192,000 nonfarm jobs per month so far this year, hardly a
robust pace but more than enough to keep up with population growth.
•
The unemployment rate fell mostly because the number of employed people rose, though
some also dropped out of the labor force. The unemployment figures are derived from a
survey of households, while payroll numbers are based on a survey of employers. The two
surveys can tell a slightly different story from month to month, but generally converge over
time.
•
The income part of the report was also soft. Average hourly wages were up by less than 2%
in July from a year earlier, continuing a pattern of weak wage growth in the recovery. This
will likely restrict consumer spending in the coming months.
•
The conflicting job-market signals complicate the job of the Fed as it considers when to
begin winding down its $85 billion-a-month bond-buying program.
•
The Fed has said it expects the unemployment rate to be about 7% when it stops buying
bonds, a mark that could now be within reach by year's end. Yet Fed policy makers have
also stressed that they are keeping close watch on other measures of labor-market health
many of which have shown less improvement.
8
U.S. economy grows faster than expected in Q2, though
overall growth remains tepid
•
The U.S. economy picked up slightly in the second quarter of
the year, though the overall pace of growth remained
lackluster as consumers held back and the federal government
continued to cut spending.
•
The nation's gross domestic product, the broadest measure of
goods and services produced across the economy, expanded at
an annualized 1.7% pace from April to June.
•
GDP data came in stronger than the 1% growth rate forecast
by analysts, as robust consumption and investment offset the
drag from public spending and a slowing global economy.
•
Still, the April-June performance was only a small acceleration
after the first quarter's revised paltry 1.1% growth rate and
represents little comeback from the end of last year, when the
economy nearly ground to a halt. So the overall size of the
economy looked similar but there was more short-term
momentum.
•
Nevertheless, the report marks the straight quarter of GDP
growth below 2% , a pace that normally would be too soft to
bring down unemployment.
Q2:
+1.7%
9
U.S. GDP growth: Silver lining in revisions
•
The overall performance shows that the U.S. economy has struggled to
gain momentum amid slow growth abroad, domestic political
uncertainty, higher taxes and sweeping federal budget cuts.
•
Still, some data suggest that the economy may perk up a little in coming
months, supported by a resurgent housing market, renewed business
spending and the diminishing effects of government tax and spending
policies.
•
On the other hand, broad revisions to the data show that the U.S.
economy expanded at a stronger pace in 2012 and the downturn wasn't
quite as bad as previously thought.
•
GDP last year expanded at a 2.8% pace versus a previous estimate of
2.2%. The change comes as part of a comprehensive overhaul of gross
domestic product data dating from 1929 through the first quarter of
2013.
•
The government revised the figures to include new measures it says
better capture the U.S. economy. For example, for the first time the
Commerce Department released data on intangible assets like research
and development, and entertainment and the arts. In the second
quarter, these categories contributed to GDP.
10
US manufacturing sector rebounds after stumble
•
U.S. factories posted their best month in two years in July, suggesting a spring
slowdown in manufacturing may be giving way to a more robust recovery.
•
The Institute for Supply Management on Thursday said its broad index, in
which any reading above 50 indicates expansion, jumped to 55.4 from 50.9 in
June—the biggest one-month jump since 1996. Factories ramped up
production to the highest level in nine years as new orders hit a two-year high,
while exports continued growing, though more slowly.
•
Moreover, hiring at factories hit the strongest level in a year after four straight
months in which manufacturers had shed jobs.
•
A separate report showed that demand for U.S. factory goods rose in June,
boosted by higher demand for aircraft, as businesses stepped up investments
but at a slower pace than earlier in the spring. Total factory orders expanded
1.5% to a seasonally adjusted $496.7 billion from May, the Commerce
Department said Friday. Orders have risen for four of the past five months.
•
The latest data is evidence that increasing spending by U.S. businesses and
consumers, the housing recovery and some improvements overseas are
helping America's factories rebound after a stumble.
11
Eurozone bonds market sentiment mostly positive supported by
positive news flow from the euro area
•
Italian and Spanish government bonds advanced for a third
week after reports showed factory output in the euro area
expanded for the first time in two years and the number of
people unemployed in Germany declined.
•
After nervousness about the political situation in Portugal,
market sentiment has mostly been positive, supported by
positive news flow from the euro area and promises of
continued loose monetary policy until the recovery has
gained firm footing.
•
The German Bund traded within a narrow range for most of
the week. Its yield edged down 2bp to 1.65% following the
US jobs data, leaving it 2bp lower for the five-day period.
•
Italy’s 10-year yield fell 14bp over the week to 4.27%, as the
conviction of Silvio Berlusconi, former prime minister, for
tax fraud appeared not to threaten the survival of the
country’s governing coalition. Though tensions in
parliament are high and risks continue as members of
Berlusconi’s party had threatened to bring down the
coalition if the conviction was confirmed.
•
Meanwhile, Spain’s 10-year yield fell 5bp over the week to
end Friday at 4.57%
12
ECB reiterates that it won’t raise rates in the foreseeable future
•
The European Central Bank kept its benchmark interest rate
unchanged at a record low of 0.5% after economic data signaled that
the euro-area may be recovering from its longest-ever recession.
•
ECB President Mario Draghi sought to dispel doubts about the
strength of the central bank's recent guidance on interest rates by
reaffirming its commitment to keep borrowing costs low for as long
as Europe struggles to recover.
•
Moreover, Draghi tempered recent surveys signaling the eurozone's
economy is on the mend, saying that while the economy seems to be
stabilizing, the expected recovery will be weak.
•
While euro-area manufacturing expanded for the first time in two
years in July and business confidence improved for a third month,
lending to companies and households fell the most on record in June.
•
Unless data significantly improve, interest rates will likely remain at
current record-low levels, or go even lower, for "an extended
period," Mr. Draghi told a news conference after the ECB's monthly
meeting.
•
Mr. Draghi indicated an interest-rate cut wasn't on the table
Thursday, unlike last month when that option was extensively
discussed.
Q1:
-0.3%
13
Value of forward guidance is debatable
•
Draghi's forward guidance, first issued last month, surprised financial
markets, because of the ECB's tradition of never pre-committing on future
rate decisions. Draghi said the ECB board had discussed whether to repeat
the message about interest rates, and concluded it might not repeat
forward guidance if it is convinced markets grasp that the message still
holds.
•
While Draghi said that policy makers didn’t discuss defining the guidance
in terms of fixed time horizons or economic targets, he went a step further
than last month and warned money markets against betting on rate
increases any time soon.
•
The most important signal from Draghi was that he said that even as the
economy improves, current expectations of rate hikes in the money
market are unwarranted.
•
Moreover, the commitment to low rates is contingent upon the bank's
assessment that inflation will remain benign over the medium term, Mr.
Draghi said. ECB staff expects inflation to average just 1.3% next year, well
below the bank's 2% target, which many analysts take to mean rates will
stay very low at least for an additional 18 months. Eurostat said
Wednesday that the annual inflation rate in the eurozone was unchanged
in July at 1.6%.
14
ECB minutes not a done deal
•
Draghi also said that ECB officials are considering the earlier
publication of the minutes from its monthly meetings and that the
Executive Board will present a proposal to the Governing Council
in the fall. Minutes are currently scheduled to be published 30
years after each rate decision.
•
Investors were intrigued by this possibility after some ECB
members voiced their support for earlier publication earlier in the
week.
•
While Draghi said a proposal about releasing minutes would be
considered this fall, there were concerns that the information
could have a negative impact on individual members of the ECB's
governing council.
•
Draghi explained that ECB members had to act in the best interest
of the eurozone as a whole. If minutes showed members were not
necessarily acting in the best interest of their home countries,
that could hurt their credibility back home, he said.
15
Eurozone economy signals stabilization as manufacturing expanded
the first time in two years
•
Recent reports suggest the euro zone's economy is slowly emerging from its
recession, which began in late 2011. Gross domestic product likely stabilized or
even grew modestly in the second quarter, breaking a string of six-straight quarterly
contractions, many economists say, citing reports on industrial production and
exports.
•
A closely watched survey of purchasing executives signaled an expansion of activity
in the manufacturing sector for the first time in two years. The purchasing
managers' index rose 1.5 points to 50.3 in July, according to data firm Markit
Thursday. Index readings above 50 signal expansion in business activity.
•
Countries in both the core and the periphery of the currency bloc have shown signs
of improvement. Germany, Europe’s largest economy, saw business confidence
increase for a third month and unemployment hold near a two-decade low in July.
Spain’s contraction slowed to 0.1% in the second quarter from 0.5% in the first.
•
However, one sign that the euro-area recovery has a long way to go is
unemployment, which remained stubbornly high at a record 12.1% in June,
weighing on consumer spending. Spain had the highest rate at 26.3%.
•
Also, fiscal-austerity measures in much of Europe will likely weaken activity this year
and in 2014. Many economists expect GDP to expand in the third and fourth
quarters, but just barely and at insufficient rates to bring down the unemployment
rate.
16
IMF warns Greece about new funding shortfall
•
Greece faces an additional financing shortfall of nearly €11 billion by the
end of 2015, the International Monetary Fund said on Wednesday,
warning that the gap could be bigger if growth falls short of estimates.
•
That figure is higher than earlier eurozone projections, and combined
with the IMF's estimate of the amount of debt relief Athens needs, would
force Europe to cover any extra financing needed to keep Greece afloat,
including potential write-offs of rescue loans extended to Greece over
the past three years, in order to make the country's debt load
sustainable.
•
That puts the IMF at odds with the eurozone's strongest member,
Germany, where the government is avoiding talk of debt reductions and
new Greek loans ahead of elections in September.
•
Without additional eurozone financing, the IMF said, Greece might not
be able to pay back its loans to the fund. That would make it even more
difficult for Athens to tap private financing or attract investment needed
to spur growth.
•
The details, revealed by the fund in its latest assessment of the
international bailout for Greece, are likely to add to Athens's troubles as
the coalition government struggles to maintain its bailout program and
political power.
17
Greece bailout doubts resurface as Cyprus seems to be
on track with its overhauls
•
Greece's bailout faces a €4.4 billion financing gap in 2014 and an additional €6.5 billion in 2015, according
to the IMF's assessment.
•
In mid-June, a European Commission spokesman said a hole in Greece's funding gap projected at €3.8
billion through the end of 2014 could be plugged by using leftover funding from a €50 billion package
earmarked to recapitalize the country's banks.
•
Greece's bank-rescue fund said on Tuesday that it has roughly €12 billion left over from that package,
hinting that might be able to plug the financing gap if it doesn't widen beyond the fund's current estimate.
•
Meanwhile, the European Commission, ECB and the IMF on Wednesday said neighboring Cyprus is on track
with overhauls, but that challenges remain, potentially opening the door for the country to receive more
international assistance.
•
Cypriot authorities announced Tuesday that the country's largest lender, Bank of Cyprus had been fully
recapitalized with 47.5% of deposits above €100,000 converted into shares. The country's second largest
lender, Cyprus Popular Bank PCL closed with its healthy assets becoming part of Bank of Cyprus.
•
The Troika said that the short-term economic outlook "remains difficult and subject to considerable
uncertainty" as economic output is set to drop by about 13% cumulatively in 2013 and 2014. The Troika
said growth is then expected to recover modestly beginning in 2015.
18
IMF warns Spain of tough jobs outlook
•
The International Monetary Fund told Spain on Friday it faces five
more years with an unemployment rate topping 25% as it pressed
Madrid to enact new reforms including measures to help firms slash
wages instead of axing staff.
•
Spain's economy, the fourth largest in the eurozone, has been
shrinking for two years and official data show the unemployment rate
hit 26.26% in the second quarter of this year, slightly below the record
27.16% posted in the first quarter.
•
The outlook for Spain's economy, the fourth largest in the eurozone, is
"difficult and risks are high," the IMF's annual report said, predicting a
1.6% economic contraction this year, zero growth in 2014 and growth
of just 0.3% in 2015.
•
"The weak recovery will constrain employment gains, with
unemployment remaining above 25% in 2018," said the report
compiled by IMF staff.
•
IMF executive directors praised Madrid for economic reforms,
including 2012 legislation making it cheaper to lay off workers and
easier to change staff hours and cut wages.
•
"However the economy remains in recession, with unacceptably high
unemployment, and the outlook remains difficult," the directors said.
19
BoE kept policy unchanged before key inflation report
next week
•
The Bank of England opted to maintain its main interest rate at 0.5% on Thursday and keep its asset
purchase program on hold at £375 billion, but did not issue a statement about future policy following the
decision.
•
This outcome matches that of last month's meeting, which was the first in the tenure of new BoE
governor Mark Carney.
•
Minutes released of the July meeting revealed that the Monetary Policy Committee (MPC) had voted
unanimously against further money stimulus, following months of disagreement over the issue.
•
But the nine members of the MPC worry that signs of a sustained return to economic growth will generate
expectations that they will raise the central bank's benchmark interest rate as early as next year.
•
In a significant break with tradition, the central bank surprised investors by releasing a statement about
future policy moves following the meeting last month.
•
MPC members saw a rise in market interest rates ahead of their July meeting as a premature withdrawal
of stimulus, and took the unprecedented step of issuing a statement declaring that those moves were out
of line with the state of the economy.
•
Investors were keen for more insight this time, but were left somewhat disappointed as no statement was
issued by the BoE on Thursday. However, the central bank said it would release more information next
week about its plans for providing forward guidance with the inflation report.
20
UK recovery picks up speed as manufacturing roars back to life
•
The U.K. manufacturing sector expanded at the fastest pace
in over two years in July, suggesting that economic growth
recorded in the first two quarters of the year looks set to
continue.
•
The monthly purchasing managers index for the
manufacturing sector, compiled by data firm Markit and the
Chartered Institute of Purchasing & Supply, showed a sharp
increase in U.K. manufacturing in July, with the index hitting a
28-month high. That marks the fifth consecutive month of
improvement.
•
The July purchasing managers index for manufacturing
jumped to 54.6 from an upwardly revised 52.9 in June, where
a reading above 50 indicates growth. This was its strongest
reading since March 2011, beating economists forecasts by a
wide margin.
•
Total new orders grew at the fastest pace since February
2011 and benefited from a double boost from both the
domestic and export markets, helping to lift employment
numbers for a third straight month.
21
Gauges of Chinese manufacturing give mixed messages
•
China got a mixed message on the state of its manufacturing health in July, leaving
economists little evidence of an upturn as the world's second-largest economy
continues to struggle.
•
The official China Manufacturing Purchasing Managers' Index was up slightly for the
month, showing gains in almost all the categories it measures, data released Thursday
showed, while a private index drawn up by banking giant HSBC showed a further
softening.
•
The official manufacturing PMI, which is heavily weighted towards larger state-owned
enterprises, stood at 50.3 for July, up from 50.1 in June and higher than the 49.8 that
economists polled by The Wall Street Journal had expected. A number above 50
indicates expansion from the previous month; a number below, contraction.
•
But the HSBC index, which covers a wider range of smaller export-oriented companies,
came in at 47.7—an 11-month low, down from June's 48.2 and unchanged from the
"flash" or preliminary measure for July issued late last month.
•
Hit by sluggish demand for exports as well as weak demand at home, economic growth
in China slowed in the second quarter, with gross domestic product up 7.5% from a
year earlier, compared with 7.7% in the first quarter.
•
The government has taken a number of fine-tuning measures of late that could be a
factor in the slightly improved sentiment
22
Japan growth appears to pick up some speed, though
recent data have been mixed
•
Japanese industrial production took a surprise 3.3% tumble in June, but the government kept its
outlook for the sector unchanged, saying that output is gradually recovering. But officials noted that
production for the April-June quarter was up 1.4% from the previous quarter and manufacturers
surveyed as part of the data said they expect a strong rebound in July with a projected 6.5% gain.
•
Also, household spending fell by 0.4% year-on-year, confounding market expectations for a 1% increase.
•
On the other hand, Japan's jobless rate fell to 3.9% in June, its lowest level since October 2008, while
other figures showed a tighter labor market that suggests the government's drive to reinvigorate the
economy is gaining traction.
•
The outlook for the labor market is seen as an important element for the administration of Prime
Minister Shinzo Abe in gauging the health of the economy ahead of a critical decision on whether to
raise the national sales tax in April.
•
The government is due to decide this fall whether the economy is strong enough to sustain the
expected negative impact of a tax rise. The tax increase is meant to shore up the government's shaky
finances and any delay could spark selling in the government bond market, analysts say.
•
While Mr. Abe's policies of fiscal stimulus and aggressive monetary easing, known as Abenomics, have
helped spark an expansion of the economy and a weakening of the yen, concerns remain that the tax
increase could wipe out the momentum gained so far.
23
U.S. stocks edge up as investors shrug weaker than expected jobs
data
24
Gold rebounds on jobs data but posts weekly loss
25
Major Interest Rate Forecasts
Market yield
(August 2)
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
US 10-year
2.60
2.48
2.64
2.8
2.92
3.04
3.14
Fed Fund Target Rate
0.25
0.25
0.25
0.25
0.25
0.25
0.25
1.65
1.61
1.76
1.88
1.97
2.07
2.22
0.50
0.50
0.50
0.50
0.50
0.50
0.50
2.42
0.50
2.37
0.50
2.45
0.50
2.57
0.50
2.67
0.50
2.80
0.50
2.90
0.50
Rate (%)
United States
Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg
26
The Week Ahead,,,
Economic Data Release Calendar
August 4, 2013 - August 9, 2013
Date
5-Aug Mon
6-Aug Tue
7-Aug Wed
8-Aug Thu
9-Aug Fri
Currency / Event
GMT
Forecast
Previous
52.50
50.40
49.60
57.30
-1.30%
53.10
2.50%
0.80%
1.00%
-0.40%
-0.30%
-$43.5B
51.30
52.50
50.40
49.60
56.90
-0.10%
52.20
2.75%
-2.30%
-2.90%
-0.60%
-2.00%
-$45.0B
0.60%
-0.30%
-¥128.7B
$25.90B
1.00%
1.00%
-1.00%
-¥906.7B
$27.12B
-3.10%
-0.70%
CNY HSBC/Markit Services PMI
EUR German Purchasing Manager Index Services
EUR Euro-Zone Purchasing Manager Index Composite
EUR Euro-Zone Purchasing Manager Index Services
GBP Purchasing Manager Index Services
EUR Euro-Zone Retail Sales (YoY)
USD ISM Non-Manufacutring Composite
AUD Reserve Bank of Australia Rate Decision
GBP Industrial Production (YoY)
GBP Manufacturing Production (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR German Factory Orders n.s.a. (YoY)
USD Trade Balance
GBP NIESR Gross Domestic Product Estimate
GBP Bank of England Inflation Report
EUR German Industrial Production n.s.a. and w.d.a. (YoY)
JPY Trade Balance - BOP Basis (Yen)
CNY Trade Balance
CNY Exports (YoY)
CNY Imports (YoY)
JPY Bank of Japan Monetary Policy Statement
JPY Bank of Japan Rate Decision
AUD Unemployment Rate
EUR German Trade Balance (euros)
EUR German Imports s.a. (MoM)
EUR German Exports s.a. (MoM)
EUR ECB Publishes Monthly Report
CNY Consumer Price Index (YoY)
01:45
07:55
08:00
08:00
08:30
09:00
14:00
04:30
08:30
08:30
09:00
10:00
12:30
14:00
09:30
10:00
23:50
01:30
06:00
06:00
06:00
08:00
01:30
5.80%
15.0B
0.00%
1.00%
5.70%
13.1B
1.70%
-2.40%
2.80%
2.70%
CNY Industrial Production (YoY)
CNY Retail Sales (YoY)
GBP Total Trade Balance (Pounds)
GBP Construction Output s.a. (YoY)
CAD Unemployment Rate
05:30
05:30
08:30
08:30
12:30
8.80%
13.40%
-£2350
8.90%
13.30%
-£2435
-4.80%
7.10%
7.10%
27
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)
September 5
0.50%
0.50%
Bank of England (BoE)
September 5
0.50%
0.50%
August 7
0.10%
0.10%
Swiss National Bank (SNB)
September 19
0.00%
0.00%
Bank of Canada (BOC)
September 4
1.00%
1.00%
August 6
2.75%
2.75%
September 11
2.50%
2.50%
Bank of Japan (BOJ)
Reserve Bank of Australia (RBA)
Reserve Bank of New Zealand (RBNZ)
28
Regional
29
Egypt's Central Bank cuts interest rates for first time since 2009
•
Egypt’s central bank monetary policy committee announced on
Thursday that it had decided to cut its overnight deposit rate by
0.50% to 9.25%. Additionally, the lending rate and discount rate
were cut by the same margin to reach 10.25% and 9.75%
respectively.
•
This is the first cut in rates since 2009, and it seems to reflect the
government’s desire to take advantage of the influx of Gulf financial
support to introduce monetary stimulus in an effort to generate
growth in the economy.
Source: Bloomberg
•
Real GDP growth average a measly 2.3% in the first three quarters of
the 2012/13 fiscal year, and expected growth for the full year is
2.0%.
•
The rate cut came despite a sharp increase in inflation, as inflation
year-on-year in June reached 9.77%, compared with 8.18% in May.
The committee said that the downside risks to the economic outlook
outweighed the upside risks to inflation.
•
The inflow of Gulf funds helped bolster FX reserves, and has relieved
pressure on the currency. Some of the funds have been used to
cover its fiscal deficit, thereby reducing the need to borrow from
local banks to meet its financial needs. In turn, the decrease in
lending will stimulate private sector lending, enabling real GDP
growth to recover.
Source: Bloomberg
30
Egypt's 2012/2013 budget deficit estimate raised to 12.5%
•
Last week, the Ministry of Finance revised budget estimates for the
2012/13 fiscal year, and put deficit for the year as a percentage of GDP
at 12.5%, compared with the previous target of 10.7% set in December
2012. Up to May, the fiscal deficit stands at 11.8% of GDP.
•
Revenues have been revised downwards, from 396.8bn EGP to 393.5bn
EGP. However, after 11 months, actual revenue has reached only
271.4bn EGP, equal to 69% of the full-year estimate. This hints that the
government will need to collect lagging tax payments and other due
payments, or revenues will fall a long way short of the target.
•
On the other hand, spending estimates has increased from 587.5bn
EGP to 616.4bn EGP, mainly resulting from additional allocations for
subsidies (up to 163bn EGP from 147bn EGP), and interest payments
(up to 151.3bn EGP from 138.6bn EGP). Revised estimates for food
subsidies is 26.6bn EGP, however, actual spending on food subsidies in
the first 11 months was higher, at 29.1bn EGP.
•
Al Borsa, an Egyptian financial paper, cited a government document
stating that Egypt’s end of fiscal year deficit reached 13% of GDP.
•
2013/14 budget projects a deficit of 9.1% of GDP, as expenditure will
increase by 11.8% in nominal terms, and revenue rising by 28.4%, due
to big increase in receipts from corporate tax and sales tax.
Source: Egypt’s Ministry of Finance
31
GCC Economic Highlights:
Kuwait: credit growth hits 6.4%, fastest pace since 2009
•
Total bank credit rose by KWD 290 million in May to reach KWD 27.8 billion, with a year on
year credit growth of 6.4%, the fastest pace since 2009. Monthly credit gains so far this year
have average at KWD 200 million, doubling its average for the comparable period last year.
•
Credit gains was led by the non-financial business sectors, which maintained a streak of
healthy monthly gains.
•
Credit lending is expected to register growth of 7% in 2013, the strongest reading since
2009.
•
Personal facilities rose by KD 104 million, reflecting a sustained healthy growth in this sector.
Year-on-year growth accelerate to 18% boosted by strong demand and a healthy household
sector.
•
Meanwhile, credit to non-bank financial institutions was up only by KWD 6 million in May
compared to April. Compared to a year ago, credit lending in this sector has fallen by 17.3%.
•
Non-financial business activity witnessed a big jump in May of KWD 181 million, further
supporting the recent accelerating growth trend. Year-on-year change registered a 4.9%
growth in this sector.
•
Meanwhile, deposits at local Kuwaiti banks were up a total of KWD 584 million, exclusively
in local currency, giving banks more room for credit expansion.
32
GCC Economic Highlights:
Kuwait: inflation accelerate to 3% yoy in May
•
The Central Statistical Bureau (CSB) released the inflation rate for
May, showing an increase of 3.0% from May of 2012, and up from
2.8% in the previous. However, in month-on-month terms price
were unchanged.
•
The CSB has published a revised series for consumer price
inflation, using 2007 as the new base year. Additionally, it has
altered some of the items included in the consumer basket and
assigned new weights.
Source: Trading Economics
•
Now, the impact of housing (mainly rent) is even higher, making
up 28.9% of the index compared with 26.7% previously.
•
On the other hand, the relative importance of food to the basket
is virtually unchanged, comprising 18.4% of the index.
•
Therefore, the overall trend in inflation will continue to be driven
mainly by food and housing costs. Food inflation is expected to
slow down in the second half of this year, reflecting a stronger
dollar and subdued global food prices.
33
GCC Economic Highlights:
UAE: government cuts stimulus spending as economy improves
•
The UAE government is cutting back on the billions of dollars in
stimulus it injected into the country to help ease the pressure of the
global financial crisis as it looks to return to sustainable levels of
spending, the IMF said.
•
Total government spending as a percentage of GDP dropped to
26.9% last year, from a peak of 40.2% in 2009, according to the IMF.
The fund estimates that spending will fall moderately this year to
26.3%.
•
The fund has advised the country to reduce energy subsidies to help
mitigate risks of fluctuating oil prices as a part of the drop in
government spending. IMF estimates show that subsidies in the UAE
accounted for 5.5% of GDP in 2012.
•
In Abu Dhabi, spending on large affordable house scheme will be
offset by cuts in other capital expenditure including loans and
equity.
•
On the other hand, spending Dubai will be scaled down this year
after completing a series of infrastructure projects, except for a rise
in wages.
Source: Trading Economics
34
GCC interbank rates
Source: Bloomberg
35
Comparative MENA Markets
For the period 28/07 – 02/08
36
Locally
37
CBJ issues second USD denominated internal bond of the year
•
The Central Bank of Jordan (CBJ) auctioned today its second USD
denominated internal bond of the year in the amount of $650
million, for tenure of 3 years, with an interest rate of 4.75%.
•
The issue is expected to be advantageous for the Jordanian
government from the following perspectives:
–
–
–
The bond will reduce government’s borrowing costs by 2.00% or
JD 9.21 million per year.
The bond will push JD excess liquidity in the market by JD 460
million
The bonds will push foreign reserves levels by $650 million.
•
Since the beginning of the year, FX reserves recovered from an
almost critical point to $9.7 billion up to May.
•
This was due to the government receiving $2.4 billion in grants
and loans, a drop in foreign currency deposits at bank by $500
million, USD/JOD swaps with banks in the amount of $1.6 billion,
and the first auctioned USD denominated internal bond in the
amount of $500 million. Additionally, Jordan’s oil bill decreased by
$1 billion up until the end of May.
•
However, despite that drop in the oil bill, imports only fell by
around JD100 million up to May, which shows excessive pressure
on Jordan’s trade balance.
38
Amman Stock Exchange
For the period 28/07 – 01/08
ASE free float shares’ price index ended the week at
(1945.9) points, compared to (1979.6) points for the last
week, posting an decrease of 1.70%. The total trading
volume during the week reached JD(33.4) million compared
to JD(30.5) million during the last week, trading a total of
(40.1) million shares through (11,271) transactions
The shares of (160) companies were traded, the shares
prices of (39) companies rose, and the shares prices of (92)
declined.
Top 5 losers for the last week
Top 5 gainers for the last week
Stock
% chg
Stock
% chg
Comprehensive Land Development and Investment
13.95%
Specialized Investment Compounds
(19.12%)
Arab International Hotels
8.82%
Jordan Phosphate Mines
(15.92%)
Assas For Concrete Products Co. Ltd
6.06%
Int’l Arabian Development And Investment Trading Co.
(15.29%)
Transport & Investment Barter Company
6.03%
Jordan Telecom
(14.18%)
Siniora Food Industries
5.84%
Kafa’a For Financial & Economical Investments (p.l.c.)
(11.67%)
39
Local Debt Monitor
Latest T-Bills

As of August 4, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(2,559) 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 (%)
08/2013
01/08/2013
01/08/2014
50
5.766%
07/2013
30/07/2013
30/07/2014
50
5.736%
06/2013
28/07/2013
28/07/2014
50
5.654%
05/2013
21/07/2013
21/07/2014
50
5.535%
40
Local Debt Monitor
Latest T-Bonds Issues
2 years T-Bonds
Issue Date
Maturity Date
Size - million
Coupon (%)
T4113
24/07/2013
24/07/2015
50
6.404%
T3813
08/07/2013
08/07/2015
50
6.299%
T3613
24/06/2013
24/06/2015
50
6.129%
Issue Date
Maturity Date
Size - million
Coupon (%)
T4013
17/07/2013
17/07/2016
50
6.745%
T3713
02/07/2013
02/07/2016
50
6.686%
T3513
18/06/2013
18/06/2016
50
6.546%
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 (%)
T3913
11/07/2013
11/07/2018
50
7.692%
T3413
10/06/2013
10/06/2018
50
7.561%
Issue Date
Maturity Date
Size - million
Coupon (%)
PB59 (Water Authority)
30/06/2013
30/06/2018
20
7.786%
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%
3 years T-Bonds
4 year T-Bonds
5 years T-Bonds
Public Utility Bonds
41
Prime Lending Rates
42
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
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43