Transcript Local Debt Monitor

Interest Rate Monitor
July 28, 2013
Brief Overview
International
MENA Region
US: Bond yields rise ahead of next week’s Fed
meeting and Job’s report
Egypt: Borrowing costs drop for 4th week
Eurozone: Bond market remains calm as data signals
that the currency bloc could emerge from economic
contraction in third quarter
GCC News Highlights
UK: Economy picks up pace, but is it be sustainable
China: Data continues to signal growth slowdown
Japan: Inflation rises the most since 2008, a boost
for Abe
Markets overview
Major Indices: US stocks end week flat amid Fed
stimulus concerns
Commodities & Currencies: Oil falls as China concerns
fester
Central Bank Meeting Calendar
GCC interbank rates
Comparative MENA Markets
Local Economy
New and analysis
 Fiscal deficit widens in the first 5 months of
the year, and public debt reaches JD17.2bn
Markets overview
 Amman Stock Exchange
Interest Rate Forecast
 Local Debt Monitor
The Week Ahead
 Prime Lending Rates
2
International
3
Treasury yields up for week, ahead of Fed meeting and
jobs report
•
Treasury yields fell Friday after the market posted its
first weekly rise since early July amid renewed concerns
the Federal Reserve will soon start tapering off its
stimulus efforts.
•
Benchmark 10-year Treasury yield fell to 2.56% on
Friday. For the week, yields on 10-year notes rose
modestly, up from last Friday's 2.49%.
•
The yield on the 10-year US government bond eased
1bp on Friday to 2.56%, leaving it 7bp higher over the
week.
As of July 26
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years
0.02%
0.02%
0.06%
0.32%
1.37%
2.56%
3.62%
1 Week Ago A Month Ago
0.01%
0.03%
0.07%
0.30%
1.30%
2.49%
3.57%
0.01%
0.05%
0.11%
0.36%
1.38%
2.48%
3.54%
4
U.S. consumer sentiment increases to 6-year high and surveys
indicate that manufacturing growth picks up to 4-month high in July
•
Consumer confidence unexpectedly increased in July to the highest level in
six years as Americans’ views of their finances improved. The Thomson
Reuters/University of Michigan final index of consumer sentiment advanced
to 85.1 in July from 84.1 at the end of June. Expectations were for a reading
of 84 after a preliminary reading of 83.9.
•
An increase in personal wealth tied to higher property values and stock
portfolios is keeping confidence elevated and consumers spending. Stronger
finances, along with job gains that have picked up from the second half of
2012, are also helping blunt the effects of higher payroll taxes.
•
In a separate report, data indicated that the manufacturing sector picked up
momentum again in July. The Markit flash U.S. Manufacturing Purchasing
Managers’ Index rose to a four-month high 53.2 in July from 51.9 in June.
The flash PMI index, which is based on approximately 85% of usual monthly
replies, suggested that growth of the manufacturing sector quickened to a
moderate pace.
•
The Fed will therefore be encouraged by signs that the sector is showing
signs of reviving, but will no doubt remain cautious with regard to the
longer-term outlook for the economy and the job market.
•
A resurgent manufacturing sector is poised to lift long-term U.S. growth if
exporters can capture a bigger share of fast-growing Asian markets,
according to the IMF.
5
Mixed data for U.S. housing sector
•
Previously owned home sales fell unexpectedly in June as tight supply and
increasing rates for mortgages jeopardized the real-estate market recovery in
the U.S.
•
Purchases fell 1.2% to a 5.08 million annualized rate in June, the National
Association of Realtors reported Monday. But sales were more than 15%
higher from a year ago
•
Federal Reserve Chairman Ben S. Bernanke last week said housing was one
of the bright spots for growth and added policy makers will monitor the
recent jump in borrowing costs to ensure it won’t derail the nascent
recovery.
•
Mortgage rates started to rise in late May. The average for a 30-year fixedrate loan is now up about one percentage point from its recent low to 4.58%,
according to Mortgage Bankers Association data also released Wednesday.
•
Nevertheless, sales of new homes surged in June despite higher mortgage
rates, maintaining momentum for a key sector driving the economic
recovery.
•
New-home sales increased 8.3% last month to a seasonally adjusted rate of
497,000, the Commerce Department said Wednesday. That was the highest
level since May 2008. Sales were up 38% from a year earlier.
6
IMF Urges More Clarity From Fed
•
The International Monetary Fund cautioned that the U.S. Federal Reserve’s exit from
unprecedented asset purchases could spur market reactions causing “excessive”
interest-rate volatility.
•
That would have “adverse global implications,” the fund’s board of directors said
Friday in a statement, part of an annual review of the world’s largest economy.
“Effective communication on the exit strategy and a careful calibration of its timing
will be critical for reducing these risks,” the Washington-based fund said.
•
But, The IMF added, “A smooth and gradual upward shift in the yield curve might be
difficult to engineer, and there could be periods of higher volatility when longer
yields jump sharply–as recent events suggest.”
•
The IMF left its U.S. growth forecast for this year unchanged at 1.7%, saying the
housing and labor markets are improving even as the Fed’s decision looms and fiscal
policy remains a drag on growth. The fund projected 2014 growth of 2.7%, also
unchanged from a report earlier this month.
•
The Fed is considering reducing its $85 billion in monthly bond purchases even with
unemployment at 7.6% and the Fed’s preferred inflation index showing prices rising
1% from a year earlier, below the central bank’s 2 % goal. The Fed’s policy-making
committee next meets July 30-31, where officials are likely to discuss whether to
refine or revise "forward guidance," the words they use to describe their intentions
for the next few years.
7
Eurozone bonds market remains calm as data point to
growth in activity
•
The eurozone bond market this week was relatively calm, as
tensions eased for the moment in Portugal and Greece, and
with data this week signaling that the euro area could
emerge from economic contraction in third quarter.
•
Spain’s 10 year bonds fell 5bp on the week, while Italian
yields were overall flat.
•
The 10-year Bund yield, meanwhile, was flat on Friday but
up 14bp on the week at 1.67%.
•
The eurozone’s “flash” composite purchasing managers’
index released Thursday, suggested that the region had
pushed back into growth territory this month for the first
time since the start of 2012.
•
The figures helped reinforce the view that the European
Central Bank would leave interest rates unchanged when it
meets next week.
•
One year has passed since ECB president Draghi delivered
his famous ‘Whatever it takes’-speech. Since then yields in
Spain and Italy have dropped from unsustainable highs and
remained relatively calm despite headwinds from the Cyprus
bailout to recent political tensions in Greece and Portugal.
8
Eurozone business activity expands
Eurozone stabilizes as PMI hits one-and-a-half year high
•
Eurozone business activity expanded in July for the first time in 18
months, according to a closely watched survey, adding to recent
evidence that the region's economy is finally stabilizing after a
recession that began in late 2011.
•
Markit's purchasing managers' index surprised with a jump to 50.4 in
July, signaling a return to growth in output by breaking back above the
neutral 50 level for the first time since January 2012.
•
The latest data are leading many economists to believe the eurozone
economy may well have stabilized in the second quarter or even
grown slightly following six consecutive quarters of contraction. Data
for second-quarter gross domestic product won't be available until
mid-August.
•
Wednesday’s survey data also suggest a further pickup at the start of
the third quarter. But any recovery is likely to be anemic in the near
term, as the eurozone continues to grapple with an array of problems.
•
Governments in the 17-nation currency bloc are fighting to bring
down debts, sharply limiting the scope for public spending to fuel
growth. Unemployment is at a euro-era high. Weakened banks have
curbed the supply of credit to many businesses, suppressing
investment.
9
Eurozone business activity expands
Recovery likely to be led by Germany
•
Data company Markit said its PMI survey showed
manufacturers reporting wafer-thin levels of expansion, but
still a sharp improvement from previous declines. Activity at
services companies continued to shrink. (The PMI for
manufacturing increased to 50.1 from 48.8 and services
increased to 49.6 from 48.3).
•
The surveys indicate that the modest expansion in activity in
July might be sustained in coming months. New orders
reported by manufacturers rose for the first time since May
2011, although there was another modest fall for service
providers.
•
Businesses continued to cut jobs, but at the slowest pace since
March 2012.
•
Moreover, the surveys indicated that any recovery will be led
by Germany, the euro zone's biggest economy. German
purchasing managers reported that activity rose at the fastest
pace since February, driven by increased domestic demand
that reflects a low unemployment rate and a recent pickup in
wage growth.
10
Eurozone business activity expands
•
Signs of economic expansion in July will be welcome to
the European Central Bank, which has predicted a return
to growth in the second half of 2013, having calmed
market tensions surrounding the euro zone with a vow
last year to keep the bloc intact.
•
But economists said the bank will have to do more if the
recovery is to be strong enough to help repair some of
the economic damage done, including very high levels of
unemployment among young people.
•
The continued inability of the banking system to provide
credit to businesses at affordable rates in many places is
one of the biggest hindrances to a robust recovery.
•
A survey by the ECB also released Wednesday showed
banks continue to expect demand for loans from firms to
weaken in the third quarter as they further tighten
standards, albeit at a slower pace than earlier in the year.
•
Slowing world demand for European exports could also
dampen the recovery. A similar survey of purchasing
managers released Wednesday pointed to a further
slowdown in China's economy, long a source of strong
growth for German exporters.
Q1:
-0.3%
11
Euro area consumer confidence picks up, as other positive
signs abound
•
Consumers in the euro zone are becoming steadily less pessimistic about their prospects, a development
that could support a modest pickup in spending and help the currency area emerge from its longest
postwar recession.
•
The European Commission on Tuesday said its preliminary measure of consumer confidence across the 17
countries that share the euro rose to -17.4 in July from -18.8 in June, the eighth-straight month of increases
and its highest level since August 2011. Despite the improvement, consumers remain pessimistic by
historic standards; the average going back to 1990 is -13.3. That suggests that any increase in consumer
spending will be modest.
•
For the first quarter since the recession began in late 2011, consumers didn't cut spending at the start of
the year. And there are indications they may have increased spending in the second quarter, with retail
sales up 1% in May from April. A pickup in consumer spending has become even more essential to the
eurozone's return to growth following the release of figures that indicate exports are falling, reflecting
slowdowns in the U.S. and China.
•
Other gently positive signs were also present during the week. Spain’s record unemployment is falling,
although this is traditional ahead of the peak tourist season. Irish house prices have edged higher for the
first time since their spectacular 2008 crash. Fears of a eurozone break-up, rampant a year ago, have
receded.
•
Moreover, Spain's central bank said Tuesday that the Spanish economy likely contracted 0.1% in the
second quarter from the first, the latest sign that Spain may be close to emerging from a contraction that
started in late 2011.
12
Greece wins €2.5 billion aid loan, buying time in crisis
•
The eurozone on Friday approved the payment of a € 2.5 billion loan installment to tide Greece through
the coming weeks, as European governments put off debate over Greek debt relief until after Germany’s
election in September.
•
Eurozone governments are expected to also transfer an additional €1.5 billion in profit from the European
Central Bank's bond-buying program to Athens once all national approval procedures have been fulfilled on
Monday.
•
Officials believe the approval of this aid payment will stave off further complicated discussions over
Greece's bailout program until the fall, after federal elections are held in Germany. After that, many expect
a divisive debate to ensue on how to cut Greece's massive debt mountain—more than 160% of gross
domestic product—and whether the eurozone should forgive Athens some of the money it is owed.
•
Moreover, an EU official said Friday that the bailout faces a shortfall of around €3.8 billion between now
and the end of 2014 that needs to be addressed. That gap is due to the refusal of national eurozone central
banks to buy new Greek bonds when the ones they hold mature. When the eurozone and the IMF sealed
Greece's latest aid program last year, such a rollover was part of their calculations. But since then, several
central banks have refused to follow through, claiming it would amount to financing a national
government, which central banks aren't allowed to do under EU rules.
•
On Thursday, Greek lawmakers passed the final measure needed to secure the country's latest loan
tranche, by enacting tax overhauls, as well as an amendment to a previous law detailing the transfer of
several thousand public servants into a special labor reserve.
13
Is Portugal’s recovery veering off track?
•
Portuguese Prime Minister Pedro Passos Coelho on Monday vowed to keep his government
united and the country's bailout on track in an effort to regain confidence from markets
shaken by weeks of political uncertainty. Investors responded positively, with stocks and
government bond prices climbing sharply.
•
Mr. Passos Coelho's ruling coalition fell into a deep crisis earlier this month after two
ministers resigned amid disputes over softening the austerity measures imposed as a
condition of the €78 billion bailout program designed by the EU and the IMF.
•
The two center-right parties in the coalition eventually resolved their problems but
President Aníbal Cavaco Silva asked them to reach a broader agreement with the main
opposition Socialist Party to keep the country's program on track. The Socialists, who have
accused the government of implementing too much austerity, leading to a three-year
recession, refused to join the pact.
•
Mr. Silva on Sunday dispelled fears of snap elections by throwing his support behind the
ruling coalition.
•
Portuguese yields, however, are still at a level that would rule out regular debt sales, while
some analysts are warning that political tension over the pace of austerity in Portugal could
easily resurface. Portugal aims to make a full return to private markets next June.
•
Portugal's challenges remain immense. the country's budget deficit at 6.4% hasn't come
down as much as expected, which has in turn necessitated new measures. The nonstop
austerity made Portugal's economy contract a combined 4.8% in 2011 and 2012, with a
further 2.3% drop expected this year.
14
U.K. economy picks up pace
•
Britain’s economy accelerated in the second quarter of 2013, showing
growth of 0.6% from the first quarter, according to preliminary
estimates released Thursday. It follows expansion of 0.3% in the first
three month of the year.
•
Economic output was 1.4% higher compared with the second quarter of
2012—the strongest expansion since the first quarter of 2011.
•
The figure was in line with forecasts and will reduce the pressure for
new Bank of England Governor Mark Carney to pump more cheap
money into the economy by increasing the central bank's quantitative
easing program.
•
All of the economy’s major sectors – agriculture, production,
construction, and services – expanded quarter-on-quarter, for the first
time in three years, with services leading the way, getting a boost from
rising consumer confidence, and contributing 0.48 percentage points to
the 0.6% GDP rise.
•
Activity in the service sector hit a 27-month high in June, according to
purchasing managers’ index data. Britain’s construction sector grew for
a second month in June, while manufacturing recorded its strongest
growth in more than two years in June, according to PMI data.
•
The IMF increased its forecast for U.K. GDP growth in 2013 to 0.9%
earlier this month.
15
Is the U.K. growth sustainable?
•
Economic output remains 3.3% below its pre-crisis peak in the first quarter of 2008.
And since the coalition government came into office in the second quarter of 2010,
output has grown just 2.1%.
•
But the economy has now delivered two consecutive quarters of expansion for the
first time in nearly two years.
•
House prices are increasing at their fastest rate in more than three years, helped by
record low interest rates and government programs that encourage banks to lend
and make it easier for riskier borrowers to buy a home.
•
•
Stock markets have rallied as strong retail sales data provided more evidence that a
recovery in the U.K. may be gaining momentum. Also, the labor market is also
looking healthier -- unemployment is falling at its fastest rate in three years.
•
But the economy still faces a number of challenges, particularly the squeeze on
household incomes as wages fail to keep pace with price increases.
•
With households' real pay still falling, bank lending flat and public sector austerity
measures building, and no sign of a real pickup in investment and exports, the
economy may struggle to maintain its recent rate of growth in the second half of this
year.
16
Gauge of Chinese manufacturing activity falls to 11-month
low
•
China's economy showed fresh signs of weakness in July as an initial gauge of
manufacturing activity slumped to an 11-month low, leading some economists to
make comparisons to conditions seen shortly after the global financial crisis of
2008 and 2009.
•
The HSBC flash China Manufacturing Purchasing Managers Index released on
Wednesday fell for the third month in a row, potentially testing the resolve of
policy makers as they try to rebalance the economy and avoid using major stimulus
measures to boost growth.
•
HSBC said the measure "deteriorated at the fastest rate for almost a year in July,
signaling one of the steepest downturns seen since the 2008-2009 financial crisis."
•
The preliminary gauge of nationwide manufacturing activity fell to 47.7 in July from
a final reading of 48.2 in June. A reading above 50 indicates expansion from the
previous month, while a reading below 50 indicates contraction.
•
Of particular concern to policy makers is the labor market, which had been one
area of strength in the economy. HSBC's employment sub-index came in below the
headline number at 47.3, the lowest level since March 2009, when firms laid off
workers en masse in the teeth of the global financial crisis.
•
The pressure on China's manufacturing sector, once the mainstay of the economy,
has been ratcheting up in recent years as rising wages and a slowly strengthening
currency conspire to erode competitiveness.
17
China leaders offer stimulus as growth lags
•
China's government appears to be warming to the idea of stimulus
measures as it is confronted with a steady drizzle of bad news on the
economy.
•
The measures announced include a tax break for small businesses,
reduced export fees and a pledge to accelerate railway construction and
investment. The policy shifts were announced by the State Council
following a meeting of the group led by Premier Li Keqiang. The stimulus
measures announced Thursday are focused, hitting only a few key sectors
of the economy.
•
In widely reported, though unverified, remarks this week, the premier
stressed his commitment to meeting the 7.5% GDP target for this year.
Growth fell to 7.5% on year in the second quarter from 7.7% in the first
and many economists think it will slow further, making the annual target a
write-off. That would make Mr. Li the first premier to miss the target since
1998.
•
Weaker growth puts China's ruling Communist Party in a tough spot, and
could derail efforts meant to shift the world's second-biggest economy to
a more sustainable growth model. President Xi Jinping is by all accounts
determined to proceed with reforms, even if it means tolerating slower
growth for now.
18
Japan prices rise most since 2008, a boost for Abe
•
Japan consumer prices rose the most since 2008 in June, an early sign that the world’s
third-biggest economy may be starting to shake off 15 years of deflation.
•
Consumer prices excluding fresh food increased 0.4% in June from a year earlier, the
statistics bureau said in a statement today. Excluding energy as well, prices dropped
0.2%, continuing more than four years of declines.
•
As Prime Minister Shinzo Abe’s policies weaken the yen and energy costs rise, the
increase in consumer prices could stoke inflation expectations and encourage
companies and consumers to spend more, bolstering the economic recovery.
•
Separately, data showed that Japanese exports rose for the fourth consecutive month
and are now up 7.4% from a year earlier as a result of the weaker yen’s positive impact
on Japan’s competitiveness. Imports increased close to 12% from a year earlier.
•
The yen lost almost 21% against the dollar in the past year, pushed down by the
government’s calls for unlimited easing and the Bank of Japan’s April policy expansion.
•
Meanwhile, Prime Minister Shinzo Abe and his LDP-led coalition government as
expected won another landslide victory in Sunday’s Upper House election.
•
The government now has a majority in both the Lower and Upper House which implies
that Japan finally seems to be entering a phase with political stability. In light of that
the policy agenda is expected to shift towards longer-term structural reforms and
bringing public debt under control.
19
U.S. stocks inch higher Friday to end week flat in the face of a mixed
batch of earnings amid speculation over Fed stimulus
20
Oil falls as China concerns fester
21
Major Interest Rate Forecasts
Market yield
(July 26)
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
US 10-year
2.56
2.46
2.64
2.79
2.91
3.04
3.15
Fed Fund Target Rate
0.25
0.25
0.25
0.25
0.25
0.25
0.25
1.66
1.61
1.76
1.88
1.98
2.08
2.23
0.50
0.50
0.50
0.50
0.38
0.50
0.50
2.33
0.50
2.34
0.50
2.44
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
22
The Week Ahead,,,
Economic Data Release Calendar
July 28, 2013 - August 3, 2013
Date
29-Jul Mon
30-Jul Tue
31-Jul Wed
1-Aug Thu
2-Aug Fri
Currency / Event
JPY BoJ Governor Kuroda Speaks at Research Insitute of Japan
USD Pending Home Sales (YoY)
JPY Jobless Rate
JPY Industrial Production (YoY)
EUR Spanish GDP (YoY)
EUR Euro-Zone Consumer Confidence
EUR German Consumer Price Index (YoY)
EUR German Consumer Price Index - EU Harmonised (YoY)
USD S&P/Case-Shiller Composite-20 (YoY)
USD Consumer Confidence
GBP GfK Consumer Confidence Survey
JPY Nomura/JMMA Manufacturing Purchasing Manager Index
USD Federal Reserve FOMC Meeting
EUR German Retail Sales (YoY)
EUR German Unemployment Rate s.a.
EUR Euro-Zone Consumer Price Index - Core (YoY)
EUR Euro-Zone Consumer Price Index Estimate (YoY)
EUR Euro-Zone Unemployment Rate
USD ADP Employment Change
USD Bureau of Economic Analysis Release Annual Revisions of GDP
CAD Gross Domestic Product (YoY)
USD Gross Domestic Product (Annualized)
USD Federal Open Market Committee Rate Decision
CNY Manufacturing PMI
CNY HSBC/Markit Manufacturing PMI
EUR German Purchasing Manager Index Manufacturing
EUR Euro-Zone Purchasing Manager Index Manufacturing
GBP Purchasing Manager Index Manufacturing
GBP BOE Asset Purchase Target
GBP Bank of England Rate Decision
EUR European Central Bank Rate Decision
USD Markit US PMI Final
USD ISM Manufacturing
GBP Purchasing Manager Index Construction
USD Unemployment Rate
USD Change in Non-farm Payrolls
USD Factory Orders
CNY Non-manufacturing PMI
GMT
Forecast
Previous
03:30
14:00
23:30
23:50
07:00
09:00
12:00
12:00
13:00
14:00
23:05
23:15
11.50%
4.00%
-2.90%
-1.80%
-17.40
1.70%
1.80%
12.40%
81.00
-19.00
12.50%
4.10%
-1.10%
-2.00%
-17.40
1.80%
1.90%
12.10%
81.40
-21.00
52.30
0.50%
6.80%
1.20%
1.60%
12.20%
180K
0.40%
6.80%
1.20%
1.60%
12.10%
188K
1.60%
1.00%
0.25%
49.80
47.70
50.30
50.10
52.80
375B
0.50%
0.50%
53.20
52.00
51.50
7.50%
185K
2.30%
1.40%
1.80%
0.25%
50.10
48.20
50.30
50.10
52.50
375B
0.50%
0.50%
06:00
07:55
09:00
09:00
09:00
12:15
12:30
12:30
12:30
18:00
01:00
01:45
07:55
08:00
08:30
11:00
11:00
11:45
12:58
14:00
08:30
12:30
12:30
14:00
01:00
50.90
51.00
7.60%
195K
2.10%
53.90
23
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)
August 1
0.50%
0.50%
Bank of England (BoE)
August 1
0.50%
0.50%
Bank of Japan (BOJ)
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%
Reserve Bank of Australia (RBA)
Reserve Bank of New Zealand (RBNZ)
24
Regional
25
Egypt's borrowing costs drop for 4th week as banks lock-in rates
•
Egypt’s treasury yields fell for the 4th consecutive week and bids
for one-year treasury bills rose to a three-month high as banks
sought to lock in higher rates on bets yields will keep falling once
political tensions settle.
•
Additionally, Egypt’s finance minister Ahmed Galal has stated that
$9 billion of the $12 billion in aid from the Gulf will be added to
support FX reserves, which will help lift pressure off FX rates and
ease pressure on yields. The remaining $3 billion will be used to
buy strategic goods.
•
Last Tuesday, Egypt sold 4 billion EGP of one-year T-bills, meeting
its target as the average yield decreased 19 basis points to
13.82%, the lowest since March. The auction attained a 2.56
coverage ratio, the highest since April, according to central bank
data.
•
One-year yields have plunged by 158 basis points in the four
auctions since the army forced former President Mohammed
Morsi out of office on July 3rd.
•
Egypt’s credit default swaps, contracts insuring the nation’s debt
against default, have risen 28 basis points this week to 776, after
increasing 93 basis points last week.
Source: Bloomberg
Source: Bloomberg
26
Moody’s affirms Egypt’s negative outlook
•
Moody's Investors Service has Wednesday affirmed
Egypt's Caa1 government bond rating and is maintaining
the negative rating outlook.
•
The rating affirmation is supported by the following
considerations:
–
–
–
The substantial boost in Egypt's international liquidity
provided by the $12 billion external financial support
package from the gulf governments;
The road map laid out by the interim, military-installed
government for a return to democracy by early 2014; and
The recent containment of the government's debt-financing
costs, below post-Revolution peaks.
•
The maintenance of the negative outlook on Egypt's Caa1
rating is driven by Moody's view of the country's
considerable economic and political challenges.
•
Egypt's Caa1 bond rating indicates a material probability
of default, although this is not necessarily imminent.
27
GCC Economic Highlights:
Kuwait issues 2013/14 budget decree
•
According to the Ministry of Finance, the 2013/14 budget-covering the fiscal
year commencing April 1st 2013-projects a deficit of KD2.9bn (US$10.2bn).
This is due to the government calculating oil income very conservatively.
•
The government's budget for the previous fiscal year assumed an even
larger deficit, of KD7.4bn. Although final figures for 2012/13 are still to be
released, the actual outcome is likely to reveal a surplus of at least KD11bn.
•
The 2013/14 budget is based on a total revenue projection of KD18.1bn,
93% of which comprises oil income.
•
Total spending is estimated at KD21bn, where current spending has been set
at KD17.8bn, equivalent to around 85% of total outlays. Salaries (KD5.2 bn)
and subsidies (KD4.9 bn) will together account for 48% of total expenditure.
•
Investment spending, however, remains comparatively meagre, at 15% of
planned outlays; this is low compared with some of Kuwait's regional peers,
such as Qatar where capital spending accounts for one third of it’s budget.
•
In addition, Kuwait has typically under spent its capital budget owing to
persistent political gridlock, red tape and capacity constraints, all of which
have had a negative impact on the implementation of development plans.
Kuwait’s government budget as a % of GDP
Source: Trading Economics
28
GCC Economic Highlights:
Dubai GDP sharply up by 4.7% in Q2
•
Dubai’s economy continued to recover and expanded by around 4.7% in
the second quarter of 2013 compared to the same period last year,
driven by strong performance in trade and most non-hydrocarbon
sectors, according to reports of official data.
•
The emirate's real GDP grew by 4.1% in the first quarter before picking up
in the second quarter.
•
The report showed that Dubai is making steady progress in programs to
ease reliance on volatile oil exports, with the hydrocarbon sector
expected to contribute only around 12% of the 2013 budget.
•
It showed non-oil sectors dominated the emirate's GDP, estimating the
share at 28% for trade, 16% for manufacturing, 14% for financial
enterprises, 13% for real estate and 8% for construction.
•
Turning to finance, the report also showed that Dubai cut the fiscal deficit
from around Dh1.8 billion in 2012 to Dh1.5 billion in 2013 despite a 5.8%
increase in expenditure.
•
It attributed the decline in the shortfall to a 7.2% rise in revenue to
Dh32.6 billion in 2013 from Dh30.6 billion in 2012. Oil revenues were
estimated at Dh3.9 billion in 2013, only around 12% of the total earnings.
Source: Trading Economics
29
GCC Economic Highlights:
Bahrain: Inflation softens slightly in June
•
Bahrain’s year-on-year inflation eased slightly to 3.3% in June,
down from 3.6% in May, in large part reflecting a substantial
4.8% decline in the transport sector.
•
On the other hand, the main upward contribution for June’s
inflation compared to last year came from rises in food and
beverage prices by 4.3%, household equipment by 7.1%, and
water, electricity, and gas by 10.4%.
•
According to Bahrain’s Central Informatics Organization (CIO),
the sharp fall in transport costs came on the back of a decline in
the price of private vehicles.
•
The decreased in transport costs was sufficient to offset a pickup in the sectors mentioned above.
•
However, there is potential risk that inflation will continue to
rise in July, partly due to the holy month of Ramadan. Other
potential upside risks is delays in processing transport vehicles
at customs.
•
Moreover, inflation increased by 0.2% in June when compared
with May.
Source: Trading Economics
30
GCC Economic Highlights:
UAE inflation at highest in June
•
Inflation in the UAE reached its highest level in June as food
prices continued to increase.
•
Inflation grew by 1.25% in June 2013 compared to June 2012,
while inflation was up by 0.31% in June 2013 compared to May of
the same year.
•
In June 2013, housing and utility costs, which account for over
39% of consumer expenses, climbed 0.3% year-on-year and 0.2%
month-on-month in June. Transportation and housing prices grew
0.88% and 0.28% for the same time periods, respectively.
•
Food prices, which make up nearly 14% of the basket, rose 3.7%
from a year ago and 1.25% from a month earlier. The prices of
food items are on the rise since the Indian rupee started sliding
against the dollar.
•
Inflationary trends were monitored in all emirates, but the
highest increase of 0.46% was recorded in Abu Dhabi and
Sharjah. Dubai inflation was at 0.41% followed by Umm Al
Quwain at 0.40%.
Source: Trading Economics
31
GCC interbank rates
Source: Bloomberg
32
Comparative MENA Markets
For the period 21/07 – 26/07
33
Locally
34
Fiscal deficit widens significantly despite increase in foreign grants
•
•
•
The budget balance deteriorated significantly during the first five
months of the year, with a deficit of JD460 million compared to
last year’s JD251 million for the same period.
Total revenues and grants increased by JD108 million in the first
five months of the year, as a result of an increase of foreign
grants by JD218 million for the same period, compared to an
overall drought of grants last year.
However, domestic revenues decreased by around JD88 million
during the same period, despite an increase in tax revenues, due
to a sizeable decrease in “other revenues”.
•
On the other hand, both current and capital expenditures
increased, resulting in a total increase in expenditure of around
JD317 million for the same period, with the increase in current
expenditure mainly stemming from an increase in military
spending.
•
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 678 million during the first
five months of the year, an increase of JD405 million from the
same period last year.
Jan – May
Jan - May
Total Revenues and Grants
2013
2,2273.0
2012
2,164.8
Domestic Revenue
2,054.8
2,143.1
218.2
21.7
2,732.9
2,416.1
Current Expenditures
2,462.6
2,264.8
Capital Expenditures
270.3
151.3
-459.9
-251.3
-678.1
-273.0
JD Million
Foreign Grants
Total Expenditures
Fiscal Deficit/Surplus
Including Grants
Fiscal Deficit/Surplus
Excluding Grants
35
Public Debt reaches around JD17.2 billion
•
•
•
External Debt
Percent of GDP
May
2013
5,364.1
22.4%
This posts an increase of JD646 million during the first 5
months of the year.
Internal Debt
11,862.0
Breaking down the increase, we find that domestic debt
increased by around JD 213 million during the first five
months of the year, compared to the end of 2012.
Public Debt
Public debt reached around JD 17.2 billion by the end of May
2013, around 71.8% of 2013 GDP according to the Ministry of
Finance’s calculations.
•
On the other hand, external debt increased by around JD432
million during the same period.
•
External debt increased by more than domestic debt, which is
in line with expectations that the government will be relying
on external financing to meet borrowing needs this year.
•
The government is still expected to issue a Eurobond later this
year, which will further increase its dependency on external
borrowing.
JD Million
Percent of GDP
Percent of GDP
49.4%
17,226.1
71.8%
2012
2011
4,932.4
22.5%
11,648.
0
52.7%
16,581.
0
75.5%
4,486.8
21.9%
8,915.0
43.5%
13,401.
8
65.4%
36
Amman Stock Exchange
For the period 21/07 – 25/07
ASE free float shares’ price index ended the week at
(1979.6) points, compared to (1944.0) points for the last
week, posting an increase of 1.83%. The total trading
volume during the week reached JD(30.5) million compared
to JD(32.0) million during the last week, trading a total of
(22.6) million shares through (12,068) transactions
The shares of (169) companies were traded, the shares
prices of (70) companies rose, and the shares prices of (61)
declined.
Top 5 losers for the last week
Top 5 gainers for the last week
Stock
% chg
Stock
% chg
Arab Jordanian Insurance Group
42.86%
Jordan Wood Industries JWICO
(18.57%)
National Steel Industry
30.43%
Arab Investors Union Co. For Real Estates Developing
(16.67%)
Jordan Phosphate Mines
29.80%
Model Restaurants Company Plc.
(11.76%)
International For Medical Investment
21.88%
Darwish Al-Khalili and sons Co. Plc
(11.11%)
Bindar Trading & Investment Co. Plc.
15.53%
South Electronics
(10.00%)
37
Local Debt Monitor
Latest T-Bills

As of July 28, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(2,714) 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 (%)
06/2013
28/07/2013
28/07/2014
50
5.654%
05/2013
21/07/2013
21/07/2014
50
5.535%
04/2013
15/04/2013
15/04/2014
75
5.345%
03/2013
26/02/2013
26/02/2014
70
6.750%
38
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
39
Prime Lending Rates
40
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
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
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41