Egypt's consumer inflation accelerated slightly to 29.8% y-y in June

Egypt’s consumer inflation accelerated slightly to 29.8% y/y in June, although the m/m change was the slowest since July 2016 at 0.8%. Food inflation has eased but remains high at 40.3% y/y. The cuts to fuel and electricity subsidies which came into effect in July are likely to fuel inflation in the coming months, even as the impact from November’s currency devaluation moderates. The authorities have passed a package to help compensate lower income households from the subsidy cuts, and the central bank last week hiked interest rates 200bps in a bid to keep inflation contained. In our view, higher interest rates are unlikely to have an impact on CPI as the inflationary pressures in Egypt are not demand driven, but due to one off price adjustments from subsidy cuts, VAT and the impact of a weaker EGP.

In a television interview yesterday, the Saudi Finance Minister said the ministry plans to issue domestic sukuk this month, which would be the first domestic debt issuance so far this year. He indicated that the Q2 budget deficit was lower than expected but was approaching planned levels. The ministry had previously announced that the Q1 budget deficit was substantially below their forecasts.

ADNOC is preparing to offer public stakes in parts of its business according to local press reports. The CEO of ADNOC, Sultan al Jaber, noted that that there would be no group level IPO similar to what Aramco is carrying out but that service companies that fall within the ADNOC group could be listed. It is unclear which unit or units could be offered up for sale and how much could potentially be raised at this stage. This would be the third Gulf NOC to consider an IPO, after Aramco and Oman Oil Company.

Prices in Egypt show signs of stabilizing

Source: Haver, Emirates NBD Research. Note: Headline CPI NSA Urban Areas

Source: Bloomberg.

Fixed Income

In an uneventful day, US Treasury curve had marginal bull flattening with yields on 2yr and 10yr UST closing at 1.39% (-1bp) and 2.38% (-1bp) respectively. Across the pond, yields on 10yr Gilts tightened 3bps to 1.27% as economic data out of UK become a bit subdued. 10 yr Bund yields also closed lower at 0.54% (-3bps)

Local GCC bond market remained under pressure from continued political tension among the GCC members leading to average credit spreads on Bloomberg Barclays GCC index to rise by a bp to 154bps. On the corporate development front Etisalat is negotiating its exit from Nigeria; Emirates Airlines is engaging in head count reduction and Equate group had an unplanned shutdown of one unit in Kuwait. None of the news was worthy of impacting the respective bond prices. Looking ahead, investors await for quarterly result announcements to begin soon.

Primary market continues to be quiet, though Saudi Arabia has announced plans to issue benchmark sized SAR denominated sukuk in its local market.

FX

NZD underperforms and softens against the other major currencies following softer than expected economic data. Data showed that in June, retail credit spending remained unchanged compared with expectations for growth of 0.8%. As we go to print, NZDUSD current trades 0.51% lower at 0.7238, having broken out of the two hour uptrend that has been in effect since May 12^th 2017, signalling further declines seem the most likely immediate path forward.

A break below 0.7231 (the one year 61.8% Fibonacci retracement) and a close below 0.7204 would indicate a break out of the daily uptrend that has been in effect since May 2017 and indicate larger losses with the 50 day moving average of 0.7120 being a realistic target.

Equities

It was a generally positive day for equities to start the week as most benchmark developed markets closed higher. The FTSE ended up 0.3% while the S&P 500 closed 0.1% higher. Regional markets were also positive with the DFM and Tadawul both gaining 0.5% and the Qatar exchange up 0.8%. The ADX was largely unchanged on the day.

Commodities

Oil markets managed to squeak out a small gain during the day on reports that Nigeria and Libya would attend an upcoming meeting between OPEC and its partners to discuss the effectiveness of production cuts. Nigeria and Libya are not participating in the production cuts and their increasing output is helping to undo some of the impact of lower volumes from other producers. Brent futures closed the day below USD 47/b while WTI is hanging below USD 45/b.

Elsewhere among OPEC members, the CEO of Aramco warned that a shortage of conventional discoveries would threaten oil balances going forward. Amin Nasser said Aramco planned to spend USD 300bn over the next 10 years to maintain Saudi Arabia's position as the leading global exporter of crude and said that the Aramco IPO was on track to be delivered in the second half of 2018.

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