HC comments: ” Egypt’s external position is showing resilience with: (1) net international reserves (NIR) inched up c1% m-o-m with a c6% y-t-d increase to a record USD50.1bn in October; (2) Egyptian banks’ net foreign assets (NFA) position widening significantly by c16% m-o-m and 3.98x y-t-d to USD20.8bn in September; (3) Egypt’s worker remittances increasing c35% y-o-y in August to USD3.5bn, while declining c8% m-o-m, reflecting confidence in the FX liquidity in Egypt; (4) Egypt’s 1-year CDS declining remarkably to 176 bps from 379 bps at the beginning of the year; (5) and Suez Canal revenues starting to recover in November following the Gasa ceasefire. All these factors had helped Egypt’s exchange rate to appreciate by c8% y-t-d against the USD.”
” Domestically, the PMI index rose to 49.2 in October from 48.8 in September, on improved demand; however, still below the 50 benchmark. Consumer prices are cooling off, with an accumulated m-o-m increase of c11% in 10M25, compared to c22% accumulated m-o-m increases in 10M24, although we see inflation accelerating in November by 13.0% y-o-y and 0.9% m-o-m, due to the second round effects of the 17th October energy price hikes; however, we still see inflation following a downward trajectory thereafter. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 25.49% implies a positive real interest rate of 10.7% using our 12M inflation estimate of c11% (after deducting a 15% tax rate for European and US investors), suggesting that Egypt’s Carry Trade remains attractive. Meanwhile, the recent drop in Egypt’s CDS would lower the required yield on treasuries by foreign investors, which is not yet reflected in the recent treasury auctions, in our view. Although the CBE could maintain rates at its upcoming meeting, we believe that there is room for a 100 bps cut to stimulate the economy and the private sector, due to the parameters mentioned above and our view on inflation.”
