Today’s Trading Playbook
KEY THEMES
Globally, central banks are fiddling with a high interest rate environment. Most central banks have either raised interest rates or plan to do so even further in the near future. A case in point is the U.S. Federal Reserve which is now more likely to raise interest rates by 50bps than 25bps in its May meeting. Today, we have the European Central Bank (ECB) interest rate decision which is expected to maintain its stance as is for the time being despite rising inflation readings and the ongoing war between Russia and Ukraine.
Locally, the Central Bank of Egypt has one more inflation reading for April before its MPC meeting in May to decide whether or not to raise interest rates further and if so by how much. Our expectation for the time being is another 100bps.
As for the Egyptian stock market, we reiterate our view that it will continue to be event driven. With the ADQ deal behind, investors will look forward to other events that may drive the market either higher or lower. Just this morning, First Abu Dhabi Bank [ADX: FAB] decided to withdraw its non-binding offer for a potential cash acquisition of EFG Hermes Holding [HRHO] at EGP19/share. This alone will pressure the stock price lower, having risen by 23% since the offer was first submitted on February 9. This brings back a 10-year memory when QInvest’s agreement to acquire HRHO expired with no deal.
Elsewhere, yesterday‘s announcement by the government that cement and steel prices may have gone a little bit too far could put a lid on their advances. Thus, cement and steel stocks are likely to be pressured in the short term as the ability the raise prices (i.e. their pricing power) comes under scrutiny. It is now unclear whether or not the quota agreement reached last July between cement producers and the Egyptian Competition Authority will be renewed, further putting pressure on cement stock prices as they strive to maintain the profitability levels they enjoyed last year.