Egypt hikes rates and gets greater assistance from IMF

Egypt has secured a staff level agreement with the IMF to increase the size of the fund’s support package to USD 8bn from USD 3bn initially agreed. The IMF will also support an additional USD 1.2bn for sustainability financing and has agreed on first and second reviews of Egypt’s economic reform policies. The increase in assistance from the fund follows an unscheduled 600bps hike from the Central Bank of Egypt and a devaluation of the Egyptian pound to 50 against the US dollar from 30.88 a day earlier. In its statement accompanying the hike, the CBE said that it would allow “the exchange rate to be determined by market forces” and that “the unification of the exchange rate is crucial.”

Fed chair Jerome Powell testified to a house panel committee yesterday saying that the FOMC would only move rates lower once it “has gained greater confidence that inflation is moving sustainably toward 2%.” He gave no clear indication on timing of any cuts from the Fed, saying only that the central bank would “approach that step carefully and thoughtfully.” Markets are currently pricing in slightly more than three rate cuts by the end of 2024.

The US JOLTS report estimated there were 8.86m job openings in January, down from 8.89m a month earlier. While the headline number has fallen from more than 12m printed early in 2022 it is stabilizing at a substantially higher level than pre-pandemic, pointing to still robust labour market demand. The quits rate was at its lowest level in the past three years at 3.39m in January. Elsewhere, the ADP survey of private sector payrolls estimated 140k jobs added in February, up from 111k recorded a month earlier.

Retail sales in the Eurozone rose by 0.1% m/m in January, falling short of market expectations but reversing a drop of 0.6% in December. On an annual basis, retail sales were down 1%. Food and fuel prices were behind the marginal monthly increase as non-food products dropped by 0.2% m/m. At a country level, retail sales in Germany contracted on a monthly basis for the third month in a row while in France sales rose by more than 1%, reversing the prior month’s decline. The ECB sets policy today with no change expected.

Today’s Economic Data and Events

• 11:00 GE factory orders m/m Jan: forecast -6.0%
• 17:15 EC ECB deposit facility rate: forecast 4.00%
• 17:30 US initial jobless claims Mar 2: forecast 217k

Fixed Income

• US Treasuries closed near unchanged overnight as Fed chair Jerome Powell’s statements to a House committee didn’t provide any new details on the Fed’s outlook for rates. Yields on the 2yr UST settled at 4.5536% while the 10yr yield dropped 5bps to 4.102%. Benchmark bonds elsewhere closed moderately stronger with gilt yields down 2bps at 3.989% as the UK spring budget made no substantial waves beyond a cut in national insurance rates.
• Egyptian bonds closed stronger overnight while CDS spreads tightened after the central bank announced a surprise hike to rates and moved to a flexible exchange rate.

FX

• The US dollar sold off against peers overnight with EURUSD managing a gain of almost 0.4% at 1.0899 while GBPUSD rose 0.2% to 1.2731. USDJPY also moved in favour of the yen, down 0.45% at 1.49.38.
• Commodity currencies also had a strong day with USDCAD dropping almost 0.6% at 1.3514 in favour of the Loonie while AUSDUD jumped 0.9% to .06564 and NZDUSD gained 0.7% at 0.6129.

Equities

• Global equity markets recovered some ground from the prior day with the Dow Jones up 0.2%, the S&P rallying 0.5% and the NASDAQ adding 0.6%. European markets were also stronger with a 0.5% rise in the EuroStoxx index and a 0.4% gain in the FTSE.
• Asian markets have opened up modestly in the red in early trade today.
• Regional markets settled mixed. The DFM was marginally higher while the ADX fell about 0.1%. In Saudi Arabia, the Tadawul gained 0.7%.

Commodities

• Oil prices pulled higher overnight with a 1.1% gain in Brent futures to USD 82.96/b and a move back above USD 83/b in early trade today. WTI added 1.3% to USD 79.13/b. US commercial crude inventories added 1.4m bbl last week while there were decent draws of more than 4m bbl in both gasoline and distillates, leaving overall stockpiles lower. US production dropped by 100k b/d 13.2m b/d.