Slide 1

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



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conducted in connection with this report.

33


Slide 2

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 3

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

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

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conducted in connection with this report.

33


Slide 4

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



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conducted in connection with this report.

33


Slide 5

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

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33


Slide 6

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 7

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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conducted in connection with this report.

33


Slide 8

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



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conducted in connection with this report.

33


Slide 9

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 10

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer
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33


Slide 11

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 12

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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33


Slide 13

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

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

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conducted in connection with this report.

33


Slide 14

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 15

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

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

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conducted in connection with this report.

33


Slide 16

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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conducted in connection with this report.

33


Slide 17

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

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33


Slide 18

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 19

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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conducted in connection with this report.

33


Slide 20

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



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conducted in connection with this report.

33


Slide 21

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 22

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer
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33


Slide 23

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 24

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
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33


Slide 25

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



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conducted in connection with this report.

33


Slide 26

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 27

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
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

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

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conducted in connection with this report.

33


Slide 28

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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conducted in connection with this report.

33


Slide 29

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

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

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33


Slide 30

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 31

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities
conducted in connection with this report.

33


Slide 32

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole
discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty,
express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not
be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other
investment and\or to be relied on for any act whatsoever.



Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken
in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any
evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman
Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report.



All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and
opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such.



Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer
shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date.



The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers,
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conducted in connection with this report.

33


Slide 33

Interest Rate Monitor
February 10, 2013

International

2

US Treasury bond rates
•

10-year treasury yields dropped slightly since last week. On
Monday there was a burst of tension surrounding the political
situation in Spain and Italy and added to concerns that the
euro crisis might escalate again.

•

However, yields edged up slightly on Friday as strong trade
data from three of the world’s largest economies, has raised
hopes for growth prospects in 2013 and ended a volatile
week on a positive sentiment .

•

Similarly, the spread between 10-year and 2-year Treasury
notes fell by 5 basis points, an indication that political
uncertainty still weighs on global recovery.

As of February 9 1 Week Ago A Month Ago
1 Month
3 Months
6 Months
2 Years
5 Years
10 Years
30 Years

0.03%
0.07%
0.11%
0.25%
0.83%
1.95%
3.16%

0.02%
0.07%
0.11%
0.26%
0.88%
2.01%
3.21%

0.04%
0.06%
0.09%
0.24%
0.77%
1.86%
3.06%

3

US trade data point to strong momentum into 2013
•

The U.S. trade deficit shrank in December as exports rose and imports fell,
suggesting slight economic growth late last year instead of the previously
estimated contraction.

•

The U.S. deficit in international trade of goods and services decreased nearly 21%
to $38.54 billion from a revised $48.61 billion the month before, the Commerce
Department said Friday. The decline was the biggest in nearly four years.
Oil exports hit a record high, while the amount of imported oil dropped to its
lowest level since 1997.

•

•

Friday's report suggests exports—a key engine of the U.S. recovery—are finding
their footing after stalling last year amid a slowdown in the global economy.
Demand for U.S. goods is growing as China's economy picks up and Europe claws
its way out of recession.

•

Yet economists and corporate executives remain worried about how much
exports will help the recovery this year. Earlier this month, the Institute for Supply
Management said manufacturers' exports expanded in January at a slower pace
than December.
Still, the shrinking December gap means the economy probably expanded in the
fourth quarter, rather than contracting at an annualized 0.1% rate, as the
government recently reported.

•

•

For all of 2012, the trade gap fell 3.5% to a deficit of $540.4 billion from $559.9
billion in 2011.

Q4:
-0.1%

4

US negotiations over spending cuts continue
•

President Obama on Tuesday called on Congress to pass a small package of spending
cuts and tax changes to delay the start next month of deep reductions in domestic
and defense spending that could deliver a fresh blow to a fragile economic recovery.

•

With time running out, Obama said, Congress should adopt measures to postpone the
automatic spending reductions, known as the sequester, for a few months. Without
any action, the cuts, worth $1.2 trillion over a decade, are scheduled to start March 1
and are causing deep anxiety among government workers and contractors.

•

Congressional Republicans insist that any move to waive those cuts should rely solely
on alternative reductions in spending with no additional tax increases.

•

Just before the president’s announcement, the Congressional Budget Office
released its economic projections for the year ahead. The nonpartisan CBO said that
by the end of 2013, the federal budget deficit will come in under $1 trillion — the first
time in five years.
The deficit, gap between taxes and spending, is estimated to narrow to $845 billion or
5.3% of gross domestic product in the fiscal year that ends in September, the release
said. That is well below the 2009 peak and down from last year's deficit of $1.1
trillion, or 7% of GDP.
CBO factored the $85 billion of across-the-board cuts into its projections for 2013. If
this is the case, then the debt will be 77% of GDP by the end of the decade.

•

•

•

In the end, it will take another $2 trillion in belt-tightening over the next decade to
begin to move the federal debt closer to historic levels, according to the CBO
calculations

5

Chinese economic data on the upside but transparency
could be an issue during Lunar New Year celebrations
•

China's export growth picked up its pace and inflation slowed in January, positive signs for the world's secondlargest economy, although the data were likely distorted by the timing of the Lunar New Year holiday.

•

The trade surplus narrowed slightly to $29.2 billion in January from a month earlier, but exports and imports both
showed robust growth despite a still sluggish global economy, official data showed Friday.
Exports climbed 25% after a 14.1% rise in December, while imports jumped 28.8%, well ahead of the previous
month's 6.0% increase, according to customs data. Both figures were ahead of expectations.

•

•

However, questions remain about the figures as the weeklong Lunar New Year holiday tends to be accompanied by
a surge in inflation and out-of-kilter trade figures.

•

According to the customs agency's own calculation, exports were up 12.4% on an adjusted basis, while imports
rose 3.4%. However, economists said the figures were encouraging, even after adjusting for seasonal effects.
Although the Chinese New Year effects may have boosted the trade performance in January somewhat, we believe
that the data could also confirm that China's economy continues to gain momentum.

•

•
•

•

Meanwhile, the main measure of consumer inflation eased to 2% in January, after a 2.5% rise in December from a
year earlier, in line with economists' expectations.
Inflation is expected to pick up in February thanks to increased demand around the New Year holiday, and could be
a worry for policy makers later in the year.
Continued inflationary pressure could lead the central bank to raise interest rates later in the year, as the central
bank in its latest statement emphasized that it will focus on inflation stability and less on stimulating growth. The
People's Bank of China hasn't raised rates since July 2011.

6

Turmoil returned to euro area markets
•

Peripheral bonds have come under pressure on the back of
political headwinds on Monday, with the Spanish illegal
payment allegations and the Italian elections a particular
concern. Also, the Banca Monte dei Paschi scandal continued
to rattle markets.

•

This caused the two countries’ implied borrowing costs to
lurch higher.
The news from Spain and Italy had captured the attention of
investors and was fuelling concerns that the market rally,
following Draghi’s “whatever it takes” comment, would not
last.

•

•

•

•

Then on Thursday, a sharp fall in the single currency – after
some in the market decided to interpret comments from
European Central Bank president Mario Draghi as euro
bearish – triggered a “risk-off” reaction that swept across
asset classes.
Friday brought a much calmer environment, as reports of an
EU budget deal emerged, and after better news on Ireland’s
debt profile.
The deal will cap government contributions to the EU budget
at €959.99 billion, a €35 billion decrease after adjusting for
inflation from the last seven-year budget and down from
€1.03 trillion the European Commission, the EU's executive,
had originally proposed.

7

Draghi’s verbal intervention stops rise in euro and
interest rates
•

•

The main event in the euro area this week was the European Central Bank meeting. As expected, the ECB left
all rates unchanged and during the press conference Mario Draghi continued to succeed with verbal
interventions.
Draghi’s tone was fairly dovish and as a result interest rates and the euro exchange rate (EUR/USD) declined
during his press conference.

•

These movements followed as Draghi explained that the rise in the short rates reflects a rise in confidence. At
the same time he indicated that if short rates go up too much, the ECB will likely respond.

•

Draghi mentioned in the ECB statement the euro exchange rate as a downside risk to inflation, suggesting the
ECB could take action to stimulate the economy if the currency's strength further undermines growth prospects
and weaker-than-expected exports. The comments led to a plunge in the euro's value, reversing some of its
strong gains in recent months.
Economists worry that the euro's recent rise will further fragment economic conditions in the 17-member
currency bloc. French and Southern European exports face stiff competition from low-cost producers outside
the euro zone. In contrast, German exporters tend to focus on specialty machine parts and equipment that are
less price sensitive.
French President François Hollande on Tuesday said the euro zone should have a "foreign-exchange policy" to
keep its currency from fluctuating "depending on the mood of markets."

•

•

•

Finally, it became clear that Draghi does not regard the recent currency moves as the effect of deliberate action
but as a reflection of policies to revamp economies.

•

Although Thursday's rate decision was unanimous, there were "hints and discussions" about how the ECB could
improve financial conditions, Mr. Draghi said, suggesting the door is open to further stimulus measures if
needed.

8

Eurozone likely to depend on exports even more, as a
strengthening euro could hurt foreign trade
•

•

•

•

This week’s release of the final euro area PMIs confirmed that the euro area is off
the bottom and heading towards further moderate improvement. The euro area
PMI composite as well as PMI service increased to 48.6 from 47.2 and 47.8,
respectively in December.
The jump in the aggregate level was driven by an increase in German and Spanish
service PMI. On the other hand, there was a decline in the Italian and French service
PMI. Even though we are still at recessionary levels, we continue to expect a
moderate improvement and that the euro area will escape the recession in the
coming months.
As further evidence of the divergence between Germany and the rest of the euro,
German exports in 2012 expanded 3.4% to a record €1.097 trillion, leaving the
country's 2012 trade surplus at €188.1 billion, the second-highest on record,
Germany's federal statistics office said Friday.
However, Italian industrial production hit a 22-year low last year, as output dropped
6.7% from 2011, Italy's statistics institute Istat said Friday, as the economy remains
mired in recession.

•

Meanwhile, retail sales in the 17 countries using the euro fell sharply in December,
underscoring domestic weakness in the economy that is likely to hinder a full
recovery, despite emergent signs the bloc has passed the deepest point in its
downturn.

•

With consumer spending failing to pick up, the crisis-hit region is likely to have to
depend on exports if it is to return to economic growth.
The European Union's statistics agency said Tuesday that retail sales fell 0.8% in
December from November and 3.4% compared with December 2011. For 2012 as a
whole, retail sales fell 1.7%, the largest decline since a 2.4% fall in 2009.

•

9

Euro area auction highlights,,,
•

•

•

Despite renewed political concerns in the euro
zone about Spain and Italy, Spain sold €4.611
billion ($6.25 billion) in three government bonds
due March 2015, January 2018 and January
2029, slightly above the upper end of its €3.5
billion to €4.5 billion target range.
However, Spanish funding costs rose, likely
reflecting caution following cash scandal
allegations against senior politicians within the
Spanish government that have been vehemently
denied.
France's Treasury sold a total of €7.98 billion of
three existing government bonds, witnessing
very strong demand.

Auction Highlights
Country Amount

Type

Yield

Notes

€3.0bn 10-yea r

2.30%

Up from 2.07%yi el d a t the
previ ous s a l e on Ja n 3.

€3.2bn 14-yea r

2.85%

Down from 2.56% yi el d i n the l a s t
a uction on Dec 6.

2.82%

Up from 2.48% yi el d a month a go.
Dema nd wa s 2.21 times the
a mount s ol d, compa red wi th 2.07
l a s t month.

4.12%

Up from 3.77% yi el d a t previ ous
a uction Ja n 17. Bi d-to-cover ra tio
wa s 2.24 compa red wi th 2.32 i n
Ja n.

5.79%

Up from 5.56% a t i ts l a s t 15-yea r
benchma rk bond s a l e on Ja n 10.
Bi d-to-cover ra tio wa s 2.02
compa red to 2.85 l a s t month.

Fra nce

€2.0bn

Spa i n

3-yea r

€2.0bn

5-yea r

€610m

2029
bond

10

Bank of England keeps policy unchanged
•
•

•

•

The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid
the recovery.
The Monetary Policy Committee voted Thursday to maintain the official Bank Rate at 0.5%. The Committee also voted to
maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
According to its statement, the BoE said that over the past year, there has been considerable volatility in quarterly output
growth. The combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest
the pace of expansion is likely to remain muted in the near term.
The MPC continues to judge that the UK economy is set for a slow but sustained recovery in both demand and effective
supply, aided by a further easing in credit conditions – supported by the Bank’s programme of asset purchases and the
Funding for Lending Scheme – and some improvement in the global environment. But the risks are weighted to the
downside, not least because of the challenges facing the euro area.

•

Meanwhile, Mark Carney, the Bank of England's next governor, told a parliamentary committee Thursday that the U.K.
should debate its methods of setting monetary policy, though he sounded skeptical notes about any radical change to the
inflation-watching regime that has long been the tool of choice in major economies.

•

Mr. Carney, now the governor of the Bank of Canada, said repeatedly that he thought charging the central bank with
holding inflation steady and moderate was the best policy, but he peppered his comments with reflections on how the
bank could be more flexible.
Speaking to committee member he repeatedly invoked the U.S. Federal Reserve and his experiences at the Bank of
Canada, which he has led since 2008.
The Bank of England has also bought assets in a massive quantitative-easing program, but its current governor, Mervyn
King, has long resisted committing rate setters to future policy. Currently, the Bank of England's sole mandate is to target
inflation.

•
•

11

Mixed signals on UK economy
•

The economy shrank 0.3% between October and the end of the year; another
contraction in the first few months of 2013 would mark the U.K.'s third recession in
five years. A recession is typically defined in the U.K. as two consecutive quarters of
falling output.

•

The latest business surveys suggest that outcome may be narrowly avoided. A gauge
of activity in the dominant services sector rose in January to its highest level in four
months. The purchasing managers' index for the sector, published by financial
information firm Markit and the Chartered Institute of Purchasing and Supply,
increased to 51.5 from 48.9 in December. January's reading was the highest since
September last year, when the index stood at 52.2. A reading above 50 indicates
activity is expanding.

•

A separate poll of retailers published by the British Retail Consortium recorded a
bounce-back in sales last month after a disappointing December. Another survey of
purchasing managers showed factory activity increased in January, albeit at a slower
pace than the month before. Construction activity remains subdued.
Also data showed this week that the UK manufacturing output rose 1.6% in
December from the previous month. Total industrial production increased 1.1%.

•

•

•

However, The National Institute of Economic and Social Research cut its 2013 growth
forecast to 0.7% from 1.1% this week and said the economy will narrowly escape
recession but is at risk of a prolonged stagnation.
The Organization for Economic Cooperation and Development Wednesday said that
the UK faces a “slow and uneven” recovery, and warmed the government that the
consequences of losing market confidence in its economic plans would be sudden and
severe, with Britain's high level of indebtedness making any rise in interest rates
particularly damaging.

12

Stocks end a volatile week on a positive note after strong
trade data

13

Brent crude rises to a nine month high

14

Fixed Income Credit Spreads’ Developments
•

Global high yield bonds’ spreads, as
calculated by Moody's, widened
substantially from 475 bps to 497
bps in the last week.

•

Global Investment grade bonds
slightly narrowed from 113 bps to
111 bps in the last week.

•

The difference between financial &
industrial bonds’ yields spreads
reached a significantly low level last
week; mainly due to serious
measures
adopted
by
Euro
governments to protect the regions'
banks.

15

Fixed Income Credit Spreads’ Developments
•

The high yield spreads widened last couple of weeks; amid relatively weak economic figures
in the US, and soaring sovereign yields of peripheral European bonds.

•

The widening spreads prove that recent rally in capital markets is due to lower risk free rates,
not better economic conditions.

16

Major Interest Rate Forecasts

Market yield
(February 9)

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

US 10-year

1.95

1.83

1.95

2.07

2.23

2.43

2.58

Fed Fund Target Rate

0.25

0.25

0.25

0.25

0.25

0.25

0.25

1.61

1.57

1.68

1.8

1.95

2.09

2.25

0.75

0.75

0.63

0.63

0.63

0.75

0.75

2.09
0.50

1.97
0.50

2.07
0.50

2.21
0.50

2.3
0.50

2.51
0.50

2.67
0.50

Rate (%)
United States

Germany
Germnay 10-year
ECB Main Refinancing Rate
United Kingdom
UK 10-year
BoE Bank Rate
Source: Bloomberg

17

The Week Ahead,,,
Economic Data Release Calendar
February 10, 2013 - February 15, 2013
Date

Currency/Event

11-Feb Mon GBP RICS House Price Balance
EUR Eurogroup Meeting
12-Feb Tue USD Consumer Confidence
JPY Machine Tool Orders (YoY)
GBP Consumer Price Index (YoY)
GBP Core Consumer Price Index (YoY)
USD NFIB Small Business Optimism
USD Monthly Budget Statement
13-Feb Wed EUR Euro-Zone Industrial Production w.d.a. (YoY)
GBP Bank of England Inflation Report
USD Retail Sales Ex Auto & Gas
USD Advance Retail Sales
JPY Gross Domestic Product (QoQ)
JPY Gross Domestic Product Annualized
14-Feb Thu JPY Bank of Japan Rate Decision
CNY Actual FDI (YoY)
EUR French Gross Domestic Product (QoQ)
EUR French Gross Domestic Product (YoY)
EUR German Gross Domestic Product s.a. (QoQ)
EUR German Gross Domestic Product w.d.a. (YoY)
EUR German Gross Domestic Product n.s.a. (YoY)
EUR Italian Gross Domestic Product s.a. and w.d.a. (YoY)
EUR ECB Publishes Monthly Report
EUR Italian Gross Domestic Product s.a. and w.d.a. (QoQ)
EUR Euro-Zone Gross Domestic Product s.a. (YoY)
EUR Euro-Zone Gross Domestic Product s.a. (QoQ)
JPY Industrial Production (YoY) (DEC F)
15-Feb Fri USD G20 Finance Ministers and Central Bank Governors Meeting in Russia
GBP Retail Sales w/Auto Fuel (YoY)
GBP Retail Sales (YoY)
EUR Euro-Zone Trade Balance s.a. (euros)
USD Industrial Production
USD U. of Michigan Confidence

GMT

Forecast

Previous

19:01

0.00%

00:00
01:00
04:30
04:30
07:30
14:00
05:00
05:30
08:30
08:30
18:50
18:50

39.20
-27.50%
2.70%
2.40%
88.00
-3.70%

-0.10%
0.10%
0.50%
0.10%
-4.30%

01:30
01:30
02:00
02:00
02:00
04:00
04:00
04:00
05:00
05:00
23:30
04:30
04:30
05:00
09:15
09:55

0.60%
0.50%
-0.90%
-3.50%
0.10%
-4.50%
0.10%
0.00%
0.20%
0.90%
0.40%
-2.40%
-0.20%
-0.60%
-0.10%
-7.80%

0.30%

0.30%
1.10%
11.0B
0.30%
73.80

18

Central Bank Meetings Calendar
Calendar for upcoming meetings of main central banks :
Current
Rate

Expected Rate
Decision

March 20

0.25%

0.25%

European Central Bank (ECB)

March 7

0.75%

0.75%

Bank of England (BoE)

March 7

0.50%

0.50%

Bank of Japan (BOJ)

February 13

0.10%

0.10%

Swiss National Bank (SNB)

March 14

0.00%

0.00%

Bank of Canada (BOC)

March 6

1.00%

1.00%

Reserve Bank of Australia (RBA)

March 5

3.00%

3.00%

Reserve Bank of New Zealand (RBNZ)

March 13

2.50%

2.50%

Central Bank

Month

US Federal Reserve (FOMC)

19

Regional

20

Egypt foreign reserves critically low
•

Egypt is on the verge of a liquidity crisis, with street violence and political
instability keeping away tourists and foreign investors two years after the
country's revolution. Political strife has triggered a flight into dollars and
other foreign currencies, putting renewed pressure on Egypt’s stock of
foreign currency.

•

Egypt's foreign currency reserves dipped to the critically low level of
$13.6 billion at the end of January, falling by 10%, the central bank said
Tuesday, a day after it took more steps to prop up its battered currency.
The number fell short of the critical $15 billion in foreign currency that
the International Monetary Fund recommends countries maintain to
cover imports for three months, adding to Egypt's economic desperation.
Reserves stood at around $36bn before the uprising against Hosni
Mubarak.

•

•

•

•

•

Source: Bloomberg

The available policy options for the central bank and the government
would be limiting imports and allowing the Egyptian pound to depreciate
further.
Hisham Ramez, the new governor of the central bank, was reported on
Tuesday to have instructed local banks to prioritize access to foreign
currency for imports of basic foods, industrial inputs, fuels and medicines.
In order to shore up its faltering reserves, the central bank has taken
increasingly aggressive measures by allowing a gradual depreciation of
the pound.
It introduced a system of auctions in which it sold dollars to local banks,
and has allowed the pound to slide by 9% against the dollar since the end
of December.

21

Political rift adds to uncertainty and impedes
economic reform
•

Mr Ramez further tightened the pound’s trading band in the interbank
foreign exchange market and reduced the frequency of foreign currency
auctions on Monday, apparent moves to slow the currency’s decline.

•

The bank also removed a 1% commission on foreign currency purchases,
and reduced the cap on Egyptian depreciation during its foreign currency
auctions to 1 piaster (1/100th of a pound) from 0.5%. Banks may now only
buy or sell dollars or their equivalent to other banks in a band of 0.01
pounds above or below the weighted average bid at the central bank’s
regular currency auctions.

•

In another move, the central bank also signaled it would reduce the number
of foreign currency auctions held on a weekly basis to two from three .
On Wednesday the pound traded at 6.7 to the dollar on the interbank
market according to the central bank website.

•

•

Egyptian policy makers worry that a rapid, disorderly devaluation could
widen the country's budget deficit, which rose to 91.5 billion Egyptian
pounds ($13.65 billion), or 5.1% of economic output during the last six
months of 2012.

•

The government is now negotiating with the IMF for a much-delayed $4.8
billion loan that could restore confidence in the cratering Egyptian
economy. Those talks were put on hold in December amid political turmoil
surrounding a new constitution.
Egypt is also in talks with the European Union over a $900m loan, along
with smaller loans from the US and the African Development Bank

•

22

GCC economic news highlights
•

Fitch upbeat on GCC infrastructure growth: Fitch Ratings says the
MENA construction sector will continue to be supported by
government spending with another year of solid economic
performance ahead for the region's oil exporters rated by Fitch
(Bahrain, Kuwait and Saudi Arabia, Abu Dhabi and Ras Al-Khaimah).

•

Qatar's international reserves rebound to USD40bn in a year:
Favorable energy prices and prudent fiscal management had led to a
"rebound" in Qatar's international reserves to $40bn in November
2012 compared with a low of $14bn in November 2011, a QNB
report shows.
Qatar's "healthy savings" are also reflected in the country generating
a surplus in current account balance to $16.6bn in the third quarter
of 2012, QNB Financial Services said in the report. This indicates a
year-on-year (y-o-y) growth of 9.3%, a good sign of the country's
economic activity. A surplus in current account balance is indicative
of an economy that is a net creditor to the rest of the world.

•

•

•

Qatar posts $26 bn budget surplus in July-Sept: Qatar’s government
budget leaped into a large surplus of 94.6 bn riyals ($26.0 bn) in the
July-September period, the second quarter of its 2012/13 fiscal year,
preliminary central bank data showed on Thursday.
The fiscal surplus of the world’s No. 1 exporter of liquefied natural
gas was equivalent to 53.9% of gross domestic product in the period,
according to the central bank. It was more than double the 42.2 bn
riyal surplus recorded in the same quarter of the previous year, and
compared with an 18.5 bn riyal deficit in April-June. That put the
cumulative surplus at 76.1 bn riyals in April-September.

23

GCC economic news highlights
•

Saudi real non-oil GDP seen declining: Saudi Arabia's real GDP is expected to grow
at 3.6% and 3.4% respectively in the near-term on the back of high oil prices as well
as a surge in government infrastructure spending and public sector wage growth,
the National Bank of Kuwait ( NBK ) said in its latest monthly review, adding that
they will continue to generate solid growth going forward. Longer-term growth
prospects depend upon enhancing the role of the private sector through structural
reforms, it noted. Nevertheless, NBK said it was expecting a 1% drop in real non-oil
GDP this year and 2% the following year.

•

Youth unemployment in the Arab region is the highest in the world, the US
International Labor Organization (ILO) report named "Rethinking Economic
Growth: Towards Productive and Inclusive Arab Societies" released Tuesday said.
"As a region, youth unemployment is the highest globally at 23.2%, compared to a
world average of 13.9%, and varies significantly within sub-regions," it said.

•

•
•

•

•

Countries in the region were able to tackle debt and inflation during the 1990's and
2000's, they also managed to spur economic growth and create jobs.
However, growth lagged behind global standards and the newly created jobs were
focused in the arena of low productivity sectors. Governments paid scant attention
to the social consequences of their economic policies.
Meanwhile, according to the report, the private sector has remained among the
least competitive globally due to low rates of investment as well as a poor
regulatory environment. There is also the noted issue of widespread nepotism and
corruption.
According to the report, economic growth in the next decade is dependent on good
governance - which must improve to attract higher rates of investment and enable
structural and institutional reforms.

24

Comparative MENA Markets
For the period 03/02 – 08/02

25

Locally

26

Local interest rates forecasts and major developments
Rate (%)

Market yield
Q1 2013 Q2 2013 Q3 2013 Q4 2013
(February 9)

Jordan
2-year Treasury
Window Rate

7.95
4.00

7.95
4.00

9.75
4.00

7.95
4.25

8.25
4.25

Source: CAB forecasts

•

The excess liquidity in the banking
system has decreased by more than JD
200 Million since the beginning of 2013.

•

The drop in liquidity is mainly attributed
to the issuance of JD 400 million
government bonds against redemptions
of JD 200 million for the same period (net
increase in domestic debt by JD 200).

27

FX reserves reach $7.7bn end of January

`

Jordan and Saudi Arabia on Thursday signed four
agreements to finance development projects at a total of
According
FX reserves
to reports,
increased
Jordan's
by
17%
Egyptian
inHafez
January
gassaid
supplies
compared
havetoaveraged
the
Finance
Minister
Suleiman
that Jordan
has
$299.4 million (around JD212.36 million).
around
end 130
ofreceived
the
million
year,cubic
to reach
feet $7.7
per day
billion,
the previous
covering4.5
month.
months
However,
of
an
additional
grant
from Saudi
Arabia
Of the $299.4 million, $42.4 million will be used to finance
the imports,
actualtotaling
supplies
an increase
remain
of $1
volatile,
billion
as
from
reports
the Custodian
end
indicate
of 2012
that
some
$200
million,
ordered
by
oflevel
the
economic development zones' infrastructure, while $62
daysofsupplies
$6.7
billion.
edge
up to 150 King
mcf and
othersBin
it Abdulaziz.
drops to around 80
Two
Holy Mosques,
Abdullah
million will fund technical community colleges and university
mcf.
The grant will be used to support the kingdom's
infrastructure development projects, Planning Minister Jafar
Nevertheless,
The main
reason
last
behind
officials
the
increase
was
thethe
Ministry
$1Friday.
billion
of UAE
Energy
budget,
theweek
minister
said
in from
a statement
on
Hassan told journalists following the signing ceremony.
released
deposit
statements
disclosed
the
week.
average
If the
gas
UAEsupplies
deposit did
was
Hafez
praisedindicating
theprevious
Saudithat
support
of
Jordan,
stressing
the not
A total of $75 million will be used to finance the
exceed
excluded,
100
mcf
foreign
in" the
reserves
past three
would
months,
havewhich
remained
againthe
stagnant
remains
strong
brotherly''
relations
between
two far
establishment of Al Shiddiyeh Railway, which is part of the
below
through
the
240mcf
the first
month
outlined
of thein year;
the gas
which
agreement
reflects lower
between
countries
atrate
various
levels.
national railway project. The remaining $120 million will be
Amman
external
and
position
Cairo
.
pressures
on
the
economy.
The grant comes in addition to assistance approved at
used for the reconstruction of the road linking the central
Easinga external
position pressures
will help
in improving
local
Gulf Co-operation
Council (GCC)
summit
in December
city
of
Zarqa
with thegas
Jordanian-Saudi
border
atforced
the Omari
Thecurrency
drop
in
Egyptian
supplies
in
2012
has
Jordan
liquidity
in the
banking
2011
whereby
Saudi
Arabia,sector.
the UAE, Kuwait and Qataronto
crossing
point. oil imports, which has ballooned the national energy
costlier heavy
agreed to extend USD 5 billion over 5 year period to
"The
Zarqa-Omari
projectand
willpushed
improve
road
and reduce
bill to
some
JD4.4
billion
thethe
cost
of electricity
Jordan's
economy
is forecast
to expand
this with
year subsidies
from
support
development
projects
in 3.5%
Jordan
each
accidents,"
the
minister said.
to over
JD1
billion.
an estimated
3.0%
in
2012,
while
inflation
is
projected
to
fall
state contributing USD 1.25 billion.
"The
agreements
are
a continuation
of previously
signed
NEPCO
losses
are
estimated
to
reach
JD715
million
this
year,
to 3.9% from 4.5% last year, according to the International the
financing
deals between
the daily
two sides,
totalling
$487 million,
figure
assumed
an average
Egyptian
gas supply
of around
Monetary
Fund
(IMF). Though
those numbers
seem
unlikely140
under
the first stage of continued
Saudi Arabia's
grant to
the then
Kingdom,"
mcf,ifhowever,
at today’s
rates
losses
could
the priceif levels
hikes due to lifting
subsidies
are taken
into
he
added.
reach
to $1 as
billion
againinthis
year. If reached
this was7.2%.
to happen, then the
account,
inflation
December
These
are will
earmarked
serve projects
several
externalfunds
position
be undertopressure
again andinlikely
result in a
sectors,
including
drop in FX
reserveshealth,
levels.education, water and transport, the
minister said.
The overall first part of the grant amounts to $786.4 million
out of Saudi Arabia's $1.25 billion contribution to a $5 billion
Gulf Cooperation Council (GCC) grant pledged to the
Kingdom in 2011 to be paid over five years.

28

Amman Stock Exchange
For the period 03/02 – 07/02
ASE free float shares’ price index ended the week at
(2028.8) points, compared to (2045.7) points for the last
week, posting a decrease of 0.83%. The total trading
volume during the week reached JD(44.0) million compared
to JD(60.2) million during the last week. Trading a total of
(61.8) million shares through (21,232) transactions
The shares of (173) companies were traded, the shares
prices of (59) companies rose, and the shares prices of (68)
declined.
Top 5 losers for the last week

Top 5 gainers for the last week
Stock

% chg

Stock

% chg

First National Vegetable Oil Industries Co.

25.00%

United Arab Investors

(33.33%)

Arab Company For Investment Projects

16.67%

The Investors And Eastern Arab For Industrial And Real Estate
Investments

(20.00%)

Intermediate Petrochemicals Industries Co. Ltd.

16.33%

Al-isra For Education And Investment "plc"

(13.44%)

Emmar Investments & Realestate Development

12.09%

Arab Union International Insurance

(12.68%)

National Aluminium Industrial

10.81%

Int'l Arabian Development And Investment Trading Co.

29
(11.36%)

Local Debt Monitor
Latest T-Bills


As February 10, the volume of excess reserves, including the overnight window deposits held at the CBJ
JD(1,731) million.

3 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

29/2011

14/12/2011

14/03/2012

50

2.898%

28/2011

12/12/2011

12/03/2012

50

2.844%

6 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

02/2012

14/02/2012

14/08/2012

50

3.788%

01/2012

23/01/2012

23/01/2012

50

3.433%

27/2011

08/12/2011

08/06/2012

50

3.232%

9 months T-Bills

Issue Date

Maturity Date

Size - million

Yield (%)

05/2012

04/03/2012

04/12/2012

75

4.285%

04/2012

29/02/2012

29/11/2012

75

4.229%

03/2012

22/02/2012

22/11/2012

75

4.169%

1 year T-Bills

Issue Date

Maturity Date

Size - Million

Coupon (%)

01/2013

27/01/2012

27/01/2014

70

6.755%

22/2012

24/12/2012

24/12/2013

60

6.750%

21/2012

04/12/2012

04/12/2013

50

6.905%

20/2012

22/11/2012

22/11/2013

70

6.180%

30

Local Debt Monitor
Latest T-Bonds Issues

2 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0313

05/02/2013

05/02/2015

60

7.950%

T0313

29/01/2013

29/01/2015

70

7.950%

T0213

22/01/2013

22/01/2015

80

7.950%

3 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0613

07/02/2013

07/02/2016

50

8.600%

T0413

31/01/2013

31/01/2016

60

8.600%

T6812

30/12/2012

30/12/2015

60

8.600%

4 year T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0312

15/01/2012

15/01/2016

37.5

7.246%

T4211

16/11/2011

16/11/2015

50

6.475%

5 years T-Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

T0712

11/03/2012

11/03/2017

75

7.750%

T0412

19/01/2012

19/01/2017

50

7.489%

Public Utility Bonds

Issue Date

Maturity Date

Size - million

Coupon (%)

PB55 (Water Authority)

05/09/2012

05/09/2015

26

8.134%

PB005 (Housing & Urban Development)

29/07/2012

29/07/2015

20

7.966%

PBO12 (National Electricity)

26/04/2012

26/04/2017

150

7.724%31

Prime Lending Rates

32

Disclaimer


The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the
materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any
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discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its
materials described in the report at any time without notice.



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

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

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

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33