Inflation in Egypt continues to ease

Headline CPI inflation in Egypt slowed to 27.5% y/y in June, down from 28.1% the previous month. This marks the slowest pace of annual price growth since January 2023 as the eradication of the parallel exchange rate following the official devaluation in March, and a greater of FX availability generally, has seen price pressures moderate sharply. Inflation accelerated on the monthly measure, rising 1.5% m/m compared with a 0.7% fall in May, as a hike in the cost of subsidised bread saw food and non-alcoholic beverage prices rise 2.6% m/m. With more subsidy cuts in the pipeline, the pace of disinflation will likely be somewhat slower than it has been over the past several months but price growth should continue to ease through the remainder of the year – we forecast a year-end inflation rate of 25.0% with risks to the downside. Nevertheless, we expect a hold from the Central Bank of Egypt next week even as real rates have shrunk to barely negative at -0.25% (the benchmark overnight deposit rate is 27.25%), rather forecasting that the bank will wait until Q4 when we forecast a cumulative 200bps of cuts.

Fed chair Jerome Powell continued his testimony to the US Congress overnight, saying that he did have “some confidence” that inflation was dropping but that he was not yet “sufficiently confident” that it would converge on to the Fed’s 2% target. Like his comments to the Senate committee a day earlier, Powell remarked on the “considerable softening in the labor market” as risks to the US economy are more balanced.

Industrial production in Turkey dropped by 0.1% y/y in May thanks to a drop in manufacturing output. On a monthly basis, output rose by 1.7%, a turnaround from the 5% drop reported a month earlier. Elsewhere the unemployment rate in Turkey fell to 8.4%, down marginally from 8.5% recorded a month earlier.

Today’s Economic Data and Events

• 10:00 UK monthly GDP May m/m: forecast 0.2%
• 10:00 UK industrial production May m/m: forecast 0.3%
• 16:30 US CPI June m/m: forecast 0.1%
• 16:30 US initial jobless claims July 6: forecast 235k

Fixed Income

• US Treasuries had a choppy session but closed little changed overnight. Yields on the 2yr UST closed at 4.62%, essentially unchanged, while the 10yr yield was lower by 1bp at 4.2841%.
• Bond markets in general had a strong session with gains across benchmarks as well high-yield and USD emerging market bonds.
• Saudi Aramco raised USD 6bn in new bond issuances yesterday after seeing massive orders of more than USD 31bn. Aramco issued a USD 2bn 10yr at T+105, a USD 2bn 30yr at T+145 and a USD 2bn 40yr at T+155.

FX

• It was a mixed day for currency markets overnight with the US dollar broadly losing ground against most peers. EURUSD managed to gain about 0.2% to close at 1.083 while GBPUSD was the notable outperformer with a rise of 0.5% to 1.2849. USDJPY, however, nudged higher to 161.69.
• In commodity currencies NZDUSD showed the biggest move with a 0.7% drop to 0.6082 as the RBNZ gave some dovish commentary around its outlook for policy rates. Both AUD and CAD closed stronger against the US dollar.

Equities

• Global equity markets had a strong close overnight with the Dow Jones up 1.1%, the S&P 500 adding 1% and the NASDAQ rising by 1.2%. The gains were matched in European markets with a 1.1% rise in the Euro Stoxx while the FTSE 100 added 0.7%.
• Asian equity markets have also caught a bounce in trading today with the Nikkei up 0.9% while the Hang Seng has added 1.5%.

Commodities

• Oil prices reversed some losses of the previous few days with a 0.5% rise in Brent futures to USD 85.08/b and WTI added 0.9% to USD 82.10/b. Data from the EIA showed a 3.4m bbl draw in crude inventories along with a draw in gasoline stockpiles. Distillate inventories were higher. Oil production rose by 100k b/d to 13.3m b/d.
• OPEC left its 2024 demand growth forecast unchanged at 2.25m b/d and also held its 2025 view unchanged at 1.85m b/d. The IEA will publish its forecast for oil market fundamentals later today.