We’re feeling the global markets meltdown at home: Between the EGP hitting an almost six-month low and the EGX falling, Egypt was not spared from the global equity sell-off.

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By the numbers: The EGP was changing hands at an average of 49.2 to the greenback — its lowest level since March — while the benchmark EGX30 dropped 2.3% to close at 27.8k yesterday, according to market data.

Evidence of a flexible exchange rate: The EGP weakening against the USD serves as a healthy indicator of exchange rate flexibility and puts an end to claims that authorities are manipulating the exchange rate by limiting demand, EGBank board member Mohamed Abdel Aal told Enterprise.

The global sell-off may have something to do with it: Recession fears in the US after “alarming” US economy data — including a jump in unemployment rates to 4.3% — have in recent days thrown equity markets into a tailspin, triggering a global sell-off that pushed Wall Street to its worst day in nearly two years. We have the full story in the news well, above.

You can also blame it on regional tension: Geopolitical risks across the region are the biggest contributor to the weakness of the EGP, Al Ahly Pharos analyst Esraa Ahmed told Enterprise, adding that the USD index has dipped almost 2%, signaling the greenback’s weakening against major currencies. Other emerging market currencies, like Mexico and Nigeria, did not witness any noticeable movements against the USD, she added.

MONEY OUT-

More foreign investors are exiting the local debt market: Foreign investors sold some USD 600 mn worth of local debt instruments over the past two days as they poured their capital into safe-haven assets, Economist Hany Abou El Fotouh told Enterprise, explaining that this played a part in the EGP’s slide against the greenback.

Behind the scenes: Interbank trading activity is healthy, with local banks having bought and sold an average of USD 800 mn over the past couple of days, a substantial increase from the previous average of USD 250 mn, our banking source said. Banks exchanged over USD 1 bn (over an undisclosed period) as banks scrambled to meet the surging demand for USD from investors seeking to withdraw their funds from the country, one banker told Reuters.

Not all gloomy: While markets saw foreign investors selling their EGP-dominated t-bills and converting the proceeds to USD, outflows from Egyptian treasuries amounted to no more than 10%, another banker told Reuters. “Frontier markets like Egypt are showing relative resilience, despite being somewhat affected," Goldman Sachs’ Farouk Soussa told Reuters.

Reserves remain strong: The flight of hot money over the past three days has not depleted banks’ USD reserves, seeing as a dedicated account covers these outflows as part of precautionary measures aimed at safeguarding against potential disruptions to cash reserves or USD liquidity, a high-ranking banking source told us.

Last month went differently: Foreign investors bought USD 900 mn worth of government debt instruments last month, unnamed sources tell Al Mal, adding that July did not see any foreign investors exiting government debt instruments.

Remember: June witnessed the exit of some USD 4 bn of foreign investments in government debts on the back of concerns about an impending cycle of rate cuts both in Egypt and the US. Foreign investments in Egypt’s t-bills stood at USD 35.2 bn by the end of April, up from USD 32.0 bn in March, according to central bank data.

Money in: The central bank is looking to raise EGP 115 bn from auctioning off EGP-denominated treasury bills over the coming few days, according to its website. Investors can submit bids for six and 12-month t-bills until Thursday at 11:00 am and they have until next Sunday to submit their bids for three and nine-month bills.

THE BIGGER PICTURE-

Markets across the Middle East also took a hit: The Saudi Tadawul Index fell 2.1% during yesterday’s trading, while Turkey’s Borsa Istanbul 100 Index was the hardest hit, dropping over 5.5%. Israel’s benchmark TA-35 Index fell 0.9% — at some point falling as much as 3.1% to hit its lowest level since February.

Adding fuel to the fire: There are reports that US Secretary of State Antony Blinken had told his G7 counterparts that Iran and Hezbollah could attack Israel as early as today, three sources in the know told Axios.

The most vulnerable: “There remains much greater risk to asset prices in Israel, Lebanon, and Iran, with the latter fully sanctioned for foreign investors anyway, than anywhere else in the region,” Hasnain Malik, head of equity strategy research at global data provider Tellimer, told Bloomberg.

US rate cuts approaching? The Federal Reserve could hold a surprise meeting to cut interest rates before September, Abdel Aal said, adding that he expects Chairman Jerome Powell to issue a reassuring statement tonight to calm markets. Powell had said on Wednesday that interest rates could be cut as soon as September if inflation, growth, and the labor market move in line with expectations.

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