Today’s Trading Playbook
Welcome back everyone after this long vacation! Despite being an off week, it was an eventful one. As a result, the market has to digest many data points that took place on both the global and local fronts.
For a starter, U.S. consumer prices jumped 9.1% y/y in June, up from May's 8.6% rise. The CPI figures which came ahead of consensus expectations really made a number on U.S. equities throughout this past week, only for the market to find some footing at the end of such week on fine retail sales data, coupled with soothing message from the Fed officials that a 100bps rate hike is not on the cards. Consequently, the U.S. dollar gained more ground, going into parity with the Euro, and substantially pressuring commodity prices, with oil prices slipping below USD100/bbl.
Here at home, we have a bunch of very important economic data. Inflation has slowed down in June, with annual headline inflation hitting 14.7%, down from 15.3% in May 2022. On the other hand, monthly inflation came in the negative territory, registering -0.3% m/m. Calmer inflation figures on a monthly basis came thanks to negative food inflation of 2.2%. Such figures in a way came in line with the CBE’s decision not to hike interest rates last June. We continue to think that inflation should peak in August, with a gradual normalization towards CBE’s target zone to follow.
Elsewhere, Egypt’s Net International Reserves (NIR) continued to drift lower, falling to USD33.4bn in June, down by 6% m/m to USD35.5bn, reflecting mounting external pressures on the country’s net foreign reserves, in the aftermath of a drastic change to the global liquidity situation.
Finally, the Egyptian government hiked fuel price, including diesel prices, in an announcement that followed the fuel pricing committee meeting. Diesel prices were hiked by 7.4% to EGP7.25 /liter from EGP6.75/liter previously. On the other hand, Octane prices got hiked across the board by a rate ranging from 7% to 10%. Moreover, Mazut prices rose by 8.7% for all sectors except food and electricity. While hiking fuel prices should ease some pressure off the state budget, it will surely push inflation higher, further weakening Egyptians’ purchasing power as their disposable incomes narrow.
Although the overall macro picture still poses many unsolved questions, we continue to believe that individual stock stories should be a pivotal factor in building your investment strategy for the time being. That said, we continue to favor stocks with stable business models and stable USD-linked revenue streams, as we believe they will demonstrate the best fundamentals across the roster of Egypt’s equities. For more details please refer to our Trading Playbook issued on 21 March 2022.
Now, on to the top news and analysis for the day.