Today’s Trading Playbook
KEY THEMES
Egypt’s net international reserves (NIR) stabilized in April 2022, inching up slightly to USD37.12bn, from USD37.08bn at the end of March 2022 (+0.1% m/m). We view April NIR movements as a breathtaking moment, after reserves notably declined in March 2022, for the first time since the pandemic. Despite NIR stabilization in April, we see external pressures still lurking. Hence, measures to safeguard the country's external buffers will remain in place, in the event of a more persistent and protracted global situation and given the state of total FX position in the banking sector and significant pressures on the current account deficit (CAD). Such measures were taken last March, including a decision to hike interest rates by 100bps and loosen the grip on the local currency. After the Fed’s decision and announced plans last Wednesday, the CBE will most likely affirm its tight monetary stance in next week’s MPC meeting, with April inflation readings in sight. Meanwhile, the shape of global liquidity places more pressures on the local currency performance. However, given the strong impact of FX rate on inflation, we hypothesize that movements in FX rate will not be as wild as the latest March depreciation, as controlling inflation is such a high priority.
Moreover, the S&P Global PMI for Egypt pointed to a continuation of pressures on non-oil business activity in Egypt during April, due to higher material and energy costs in view of the war in Ukraine and a depreciation of the EGP in late March. New orders were also hit as customers reined in their spending, leading to a reduction in employment that was the most marked in exactly one year. The index reading came in at 46.9 in April, up slightly from 46.5 in March but still well beneath the 50.0 neutral threshold. The index signaled a deterioration in business conditions that was the second-fastest since June 2020. We see the PMI readings in April as no surprise within the context of mounting global inflation as well as the state of global growth and its implication on local conditions.
Elsewhere, the EGX 30 closed yesterday 0. 6% higher, after recovering early intraday losses. We view yesterday’s performance as positive, as the market was able to neutralize the negative impact of global equity market performance during the long vacation, focusing on the considerably low valuation levels. Despite thin trading activities, the index completed a 5-day winning streak. We note that the EGX 30 in USD terms is still c.14% beneath its level prior to the recent depreciation, i.e. before 21 March 2022.
Now, on to the top news and analysis for the day.
Top News & Analysis
MACRO NEWS
The Ministry of Finance will set oil prices at USD80/bbl in FY22 budget. (Enterprise)
The government is eying to bring down the debt-to-GDP ratio to 84% in FY22. (Enterprise)
The House Budget Committee has approved legislative amendments that would unlock an extra EGP6bn to help Egypt meet its debt repayments as interest rates rise at home and abroad. (Enterprise)
CORPORATE NEWS
Eastern Company [EAST] announced its 9M 2021/22 results, where net income came at EGP4.25bn (+9% y/y).
Egypt Aluminum [EGAL] reported its preliminary 9M 2021/22 results, registering a net profit of EGP1.7bn vs. net losses of EGP348mn a year earlier.
The Financial Regulatory Authority (FRA) approved GB Auto’s [AUTO] proposal to reduce capital by writing off the 8.5mn treasury shares purchased through November and December (FRA).
Remco for Touristic Villages [RTVC] standalone net loss in Q1 2022 decreased to EGP51.2mn vs. a net loss of EGP272.6mn a year earlier. (Mubasher)