Good morning, friends. We have a big issue for you this morning as the workweek roars to a close.

The two BIG STORIES HERE AT HOME: The European Union is said to be mulling a package of investmentin Egypt that could clock in at nearly USD 10 bn — and that it wants to “explore options with member states to help Egypt address its heavy debt burden.” That would be very welcome news indeed, possibly giving the central bank a bit of breathing room to tackle a float of the EGP as pressure builds. The greenback broke past the EGP 50 mark yesterday on the parallel market and forwards have hit a new low, as we note below.

MEANWHILE: Eastern faces monopoly complaint. Two major cigarette distributors have filed a complaint with the Egyptian Competition Authority alleging that Eastern Company and a key shareholder have engaged in unfair competitive practices. We have that story in the news well, below.

MAJOR EU ASSISTANCE PACKAGE COMING?

WATCH THIS SPACE- Brussels is putting together a major financial assistance package for Egypt: The EU plans to marshal bns of EUR of investment for Egypt and potentially provide debt relief in some form as the bloc tries to help stabilize the economy and curb migration across the Mediterranean in the wake of the conflict in Gaza, Bloomberg reported yesterday, citing sources familiar with the matter.

The plan: The EU wants to mobilize EUR 9 bn of investment (USD 9.8 bn) in sectors including digital, energy, agriculture and transport — and hold an investment conference in spring 2024. It would also include measures to strengthen the country’s border security and crack down on smuggling as part of plans for a wider strategic partnership with Egypt.

This is much more ambitious than what we’ve heard so far: Sparse details reported by the Financial Times last month claimed that the bloc was looking to fund job creation and the green transition, as well as provide access to more Ukrainian grain and fertilizers.

VdL will be in Cairo this weekend: EU Commission President Ursula von der Leyen will visit Cairo for talks with President Abdel Fattah El Sisi on Saturday, her spokesperson, Eric Mamer, said yesterday. Mamer didn’t get into what’s on the agenda, though Bloomberg’s sources suggested that the rescue package will be a key focus of the talks. VdL will head to Jordan to meet with King Abdullah following the meeting.

The key line: “The EU was already exploring a partnership but now wants to accelerate the push given Cairo’s strategic significance and concerns about increasing refugee flows,” Bloomberg writes. The story was reported by the business information service’s Brussels bureau.

BNS MORE FROM AFREXIMBANK?

A lot more Afreximbank funding could also be in the works: The continental lender is looking to extend USD 11 bn in credit facilities to a number of Egyptian companies, the bank’s director of trade and corporate finance Ayman El Zoghby told CNBC Arabia yesterday. Afreximbank inked 65 agreements worth a combined USD 40 bn during this week’s Intra-African Trade Fair in Cairo, USD 3 bn of which went to projects led by Egyptian corporates. The bank is also looking to set up its own freezone in Egypt and aims to finish up the necessary paperwork during 1Q 2024.

MOUNTING PRESSURE ON THE EGP

EGP WATCH- Pressure continued to build on the EGP in the parallel and derivatives markets yesterday, raising pressure on policymakers to move ahead with a true float of the currency.

#1- The USD / EGP breaks the 50.0 barrier in the parallel market: The EGP weakened to a record low against the greenback in the parallel market yesterday. Local media reported the currency changing hands at more than 50.0 per USD yesterday, more than 60% below the official exchange rate of 30.9.

#2- Currency forwards hit a fresh record low: Non-deliverable forwards (NDF) contracts have fallen to a record low since the war in Gaza began last month. The three-month EGP contract is down 14% over the period to 37.7 and the 12-month NDF has slid 11% since late September to 47.0, Bloomberg reports.

How to think about the gap between forwards and the parallel market. In a nutshell: Black market = our current mental state. Forwards = future direction of travel. Forwards often miss the mark, but the market for them is a lot more liquid — and a vastly more transparent — than the parallel market. The parallel market is disproportionately influenced by the sentiment of individual sellers rather than by corporates making (comparatively) large purchases to cover L/Cs and transfers.

Retail sentiment matters: The greenback was already changing hands at EGP 40-41 in the parallel market — 30% lower than the official rate — in the middle of October, but the CBE’s decision to impose restrictions on credit card use triggered a rush out of the EGP. Within a week, the exchange rate had weakened to 48.00 from 42.00. It has since slid further due to anxiety about the impact of the war on the Egyptian economy.

#3- The gap between CIB’s London- and Egypt-listed securities is widening: CIB’s London-listed depository receipts are now trading at a 46% discount to the bank’s shares on the EGX, the widest the gap has been since 1997.

Analysts are split over how soon after next month’s election the central bank will float the currency: Analysts at Societe Generale think the central bank could move soon after the presidential election, while Deutsche Bank and Morgan Stanley are forecasting a move in the first quarter of 2024, according to Bloomberg.

The sooner the better: “The later authorities adjust the valuation of the currency, the more they’ll need to do. Time is certainly against them,” SocGen emerging markets strategist Gergely Urmossy told Bloomberg.

Bloomberg is now factoring in Egypt’s refusal to take in Palestinian refugees into its outlook: “Adding to the negative outlook, hopes are fading that Egypt will quickly receive any meaningful financial assistance related to its role in supporting Palestinians fleeing Israel’s bombardment of the Gaza Strip,” it writes.

DATA POINT-

Read the latest budget figures through your fingers (or not at all): Sharply higher borrowing costs mean that the Finance Ministry’s latest fiscal report (pdf) isn’t exactly light reading material.

  • Interest bill more than doubles:We spent EGP 391.8 bn on debt service in the first two months of the fiscal year. That’s 160% higher than the EGP 149.9 bn spent in the same period last year.
  • That’s almost double revenues: The government brought in EGP 206.9 bn during the two-month period. The debt service bill alone was almost double this.
  • Budget deficit widens: The surging interest bill caused the budget deficit to widen to 3.2% of GDP in the two-month period from 1.4% the year before.
  • New forecasts are probably going to be needed: The government forecast interest payments to rise 45% to EGP 1.12 tn across the entire 2023-24 fiscal year. We’ve spent more than a third of this in just the first two months.

PSA- Attention, shopaholics: The Central Bank of Egypt (CBE) has doubled the limit on daily and monthly prepaid cards, financial inclusion accounts, and mobile wallets, according to a circular (pdf) published yesterday. Individuals can now withdraw, transfer, or make purchases of up to EGP 60k a day, up from EGP 30k, while the monthly limit has doubled to EGP 200k.

There’s also good news for registered companies and microenterprises: Registered companies and microenterprises can now use EGP 80k a day and EGP 400k a month, double the previous allowance.

Worry not, unregistered microenterprises and the self-employed: The daily and monthly limit for unregistered microbusiness and self-employed workers is doubling to EGP 60k a day and EGP 200k a day, the same as for individuals.

HELP GAZA-

Want to support relief efforts in Gaza, but don’t know how? We’ve got you. More than 1 mn people in Gaza have been thrown from their homes and every human being there lacks access to food, water, and fuel amid the most intense bombardment any population has endured this century.

The folks at Talabat are processing donations for a range of Gaza relief appeals by charities including the Egyptian Food Bank and Misr El Kheir. Pay in EGP using your credit card.

Or check out our list of charities to which you can make direct donations via bank deposit and / or Fawry.

THE BIG STORIES ABROAD-

It was all going so well at the big Biden-Xi meet: Presidents Biden and Xi agreed to restore military communications and strengthen cooperation in several areas including AI in a potentially landmark meeting in San Fran aimed at patching things up between the two rivals. In what was only their second face-to-face meeting since Biden entered the White House in 2021, the discussions took place against the backdrop of rising tensions between the two superpowers over tech supremacy and Beijing’s ambitions regarding Taiwan.

But then… In a move almost certain to undo any goodwill generated during the sit-down, Biden again referred to the Chinese president as a dictator in an off-the-cuff remark at a media briefing. When asked by a reporter whether he still considers Xi a dictator, the US president responded by saying, “Well, look, he is.” *facepalm*

One Fed official thinks it’s too soon to declare victory against inflation: One Federal Reserve official is trying to temper the market elation that greeted this week’s soft inflation report, yesterday cautioning that the slower-than-expected figures don’t necessarily mean that the central bank is done raising rates. The Fed needs to be “thoughtful, take our time, not rush to judgment and not make declarations,” head of the San Francisco Fed, Mary Daly, told the Financial Times.

This matters to markets: Stocks soared on Tuesday and Wednesday after new US inflation data stoked optimism that the Federal Reserve will call time on its tightening cycle and not raise rates further.

SIGN OF THE TIMES-

Could AI be the answer to the scourge of “fake weather news” our elected representatives recently tried to outlaw? AI research lab Google DeepMind has developed an AI model that can generate 10-day weather forecasts in under one minute and with greater accuracy than the industry gold-standard weather simulation system. “We believe this marks a turning point in weather forecasting,” the lab said in a peer-reviewed study published this week

More on the story here: Financial Times | Washington Post | BBC.

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