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Interest Rate Monitor November 27 th 2011. 2 Top International News Map Source: Google Finland, Germany and the Netherlands have called on the International.

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Presentation on theme: "Interest Rate Monitor November 27 th 2011. 2 Top International News Map Source: Google Finland, Germany and the Netherlands have called on the International."— Presentation transcript:

1 Interest Rate Monitor November 27 th 2011

2 2 Top International News Map Source: Google Finland, Germany and the Netherlands have called on the International Monetary Fund to play a bigger part in constructing a firewall against financial market panic in the eurozone amid signs the currency blocs rescue fund will not be the bulwark once hoped for. The IMF, acting in concert with the European Financial Stability Facility (EFSF), would ensure that enough help can be made available to vulnerable member states, the countries finance ministers said in a joint statement released after a meeting in Berlin on Friday. Their call came amid growing signs that leveraging the EFSF – which has about 250bn remaining from the 440bn pledged last year by eurozone governments – could deliver as little as half the firepower European leaders expected when they finalized this step last month. At their last meeting in late October, European leaders hailed a scheme to offer insurance on losses to investors willing to buy bonds of troubled eurozone countries – a device they believed could leverage the EFSFs remaining 250bn to more than 1,000bn. But the past weeks erosion of investor confidence means the EFSF will probably have to offer potential investors more insurance than initially planned, bringing the leverage of the enhanced rescue fund down to two or three times its remaining funds. The International Monetary Fund warned in a new report that market concerns over fiscal sustainability could trigger a "sudden spike" in Japanese government bond yields that could quickly render the nation's debt unsustainable as well as shake the global economy. The fund's Japan Sustainability Report, released on Wednesday, was a signal to Tokyo policy makers that the international community is already worried about fallouts from Japan's potential fiscal problems, after debt problems in some European economies evolved into a Continent-wide crisis. Japan's public liabilities amount to roughly twice annual economic outputa ratio worse than that of any other industrialized economy, including turmoil-hit Spain and Italy. The Japanese government has been slow to move amid political reluctance to lift taxes, particularly after the March 11 earthquake. Chinas flash estimate HSBC Manufacturing PMI in November dropped markedly from to 48.1 from 51.0 in October, suggesting renewed weakness in the Chinese economy. New orders dropped significantly from 52.7 to 45.7. This is the lowest level for the new order component since March 2009 and the first drop in the new order components for four months. The weakness appears to have been driven mainly by weaker domestic demand. There is no evidence that the weakness is due to weaker exports in the wake of the European debt crisis, as export orders held up well in November. The Federal Reserve will force the biggest US banks to stress test their balance sheets against a severe eurozone recession and a US unemployment rate of 13% as part of a wide-ranging exercise launched on Tuesday. The second annual comprehensive capital analysis and review is designed to ensure that US banks are adequately capitalized to weather an economic storm at home and abroad, including a peak decline of 6.9% in eurozone real gross domestic product. The Fed emphasized the scenarios were not forecasts. The 19 biggest banks face public disclosure of their estimated capital levels and revenues under the stress scenario, while the six biggest trading institutions – including Bank of America and Goldman Sachs – have to factor in an additional global market shock stemming from a worsening eurozone crisis. Banks that do poorly on the exercise will be prevented from paying out increased dividends or share buy-backs. Fears that the UK financial system will be seriously disrupted in the next three years are at the highest level since 2008, with a sovereign debt crisis in the eurozone and a downturn in the global or UK economy leading the list of threats, the latest Bank of England systematic risk survey has found. Confidence in the UK financial system is also at its lowest level since 2009, with 28% of risk managers at big banks, hedge funds, insurers and asset managers reporting that they were not very confident and another 57% were only fairly confident. These gloomy responses, recorded in surveys conducted in September and October, reflected a marked deterioration in the outlook over the past six months and rising concern that the eurozone crisis will drag down the UK as well. Moreover, UK financial institutions see the risk that a government will default on its debts as the main threat to the stability of the financial system, according to the survey by the BoE. The sharp rise in French bond yields sparked by growing investor concerns about eurozone sovereign debt has negative implications for Frances triple A debt rating, Moodys warned on Monday. Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications, the US rating agency said in a weekly credit outlook note. Moodys warned last month that it could cut its outlook on Frances rating to negative from stable if the situation deteriorated in the next three months. Its latest note reinforced this, saying: The deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on Frances creditworthiness and the stable outlook (though not at this stage the level) of the governments (triple A) debt rating. Credit rating agency Moody's has said the failure of a US congressional committee to agree a deficit reduction plan earlier this week does not affect the country's credit rating. Moody's said the lack of agreement "does not change the US fiscal outlook". The agency has the US on a top, AAA rating, but with a negative outlook. The US national debt is above $15tn and the government wants to reduce its deficit to reassure financial markets. A congressional committee tasked with reducing the deficit by $1.2tn announced late on Monday that it had failed to reach agreement. The outcome means automatic cuts outlined in the bill that created the committee should take effect from 2013. They are to be applied over the next 10 years, split between defense and domestic budgets. A few programmes are to be protected, including Social Security and Medicaid. The Bank of England held off buying more bonds in November because policy makers saw little merit in "fine tuning" their stimulus program. Although some members felt more bond buys may eventually be needed, others judged the risks around hitting the inflation target "were more balanced," according to the minutes of the U.K.'s rate-setting Monetary Policy Committee November meeting, indicating that support for further stimulus isn't universal. Minutes of the Nov. 9-10 meeting, published Wednesday, showed the panel's nine policy makers voted unanimously to maintain the central bank's key interest rate at 0.5% and the size of its asset purchase program at £275 billion ($371.39 billion). The November minutes show policy makers thought it wise to continue with their existing program and gather information about its effects rather than sanction another extension. They also noted the availability of U.K. government bonds made it difficult to increase their rate of purchases. The minutes show the ongoing sovereign-debt turmoil in the euro zone remains central the MPC policy debate. The committee said data suggest the U.K. economy is likely to avoid contraction in the fourth quarter, although output will probably be flat. The annual rate of inflation in the U.K. was 5% in October, well above the BOE's 2% target. The minutes show the MPC believes inflation should fall sharply in 2012, but that there are "substantial uncertainties" about how far and how fast it will decline. The US economy grew more slowly than previously estimated in the third quarter, but weak inventory accumulation amid sturdy consumer spending supported views output would pick up in the current quarter. Gross domestic product grew at 2% annual rate in the July- September quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously reported 2.5%. The composition of the GDP report, especially still-firm consumer spending and the first drop in business inventories since the fourth quarter of 2009 set the platform for a stronger economic performance this quarter. Data so far suggest the fourth-quarter growth pace could exceed 3%, which would be the fastest in 18 months. But the outlook for next year has been clouded somewhat by the so-called super committees failure to agree on a package of at least $1.2 trillion in deficit reduction over 10 years. Despite the downwards revision, last quarters growth is still a step-up from the April-June periods 1.3% pace. Germany's central bank sharply lowered its growth forecast for the German economy on Monday, repeating its warning that the country could hit a "pronounced" weak patch if the euro zone's debt crisis worsens. "All in all, a weakening of economic development is expected for the coming year, whereby an increase of economic output between 0.5% and 1% in the base scenario appears realistic," the Deutsche Bundesbank wrote in its monthly bulletin. The bank added that growth will likely shift from exports to the domestic economy. In June, the Bundesbank had predicted growth of 1.8% in 2012. The German economy is expected to grow by about 3% this year. The German federal government announced in October that it expects growth next year to be 1%. The European Central Bank is considering longer-term loans to commercial banks having trouble securing funding, as officials scramble to keep the region's government debt crisis from crippling the Continent's banking system. Such a move would help banks shut out of the market for medium-term funds. But some analysts questioned whether more loanseven at longer maturitieswould provide a lasting solution, given the root problem is the government debt of Greece, Italy and other struggling euro members that banks hold on their balance sheets. The ECB may extend loans to banks at maturities of two to three years, according to people familiar with the matter. The longest loan currently is 13 months. The ECB will make that 13-month loan available next month, meaning banks that need it will have secure funding through 2012.

3 3 Euro area PMIs continue to signal recession The eurozone economy seems set for contraction in the final three months of this year as the turmoil in government bond markets takes its toll on credit availability and consumer and business confidence. The data suggested the regions debt crisis had undermined economic confidence even more than feared, resulting in business and consumers cutting back investment and spending. Earlier this week, the European Commission reported its index of eurozone consumer confidence had fallen in November for the sixth consecutive month to the lowest level since August 2009. A survey of purchasing managers published Wednesday indicated that private-sector activity declined for the third-straight month in November. Markit Economics said the composite purchasing-managers index for the eurozone rose to 47.2 from 46.5 remaining below the 50.0 level that distinguishes expansion from contraction. The PMIs for October and November suggest it is very likely that the eurozone economy will contract in the current quarter, since government spending is also slowing as austerity programs designed to cut high levels of debt are being implemented across the currency area. Markit economists believe that the survey data suggest that the eurozone is contracting at a quarterly rate of approximately 0.6% in the fourth quarter.

4 4 Euro area PMIs continue to signal recession Purchasing managers also reported that new orders declined for the fourth-straight month, indicating that activity is unlikely to pick up soon. New orders plunged by 6.4% compared with August, according to Eurostat. It was the biggest month-on-month fall since December 2008. The survey of purchasing managers indicated manufacturing output fell for the fourth-straight month to reach its lowest level since June 2009. By contrast, the contraction in the services sector eased significantly, driven in large parts by a rise in demand in Germany. However, it is far from clear that a pickup in German consumer demand, which helped drive growth in the third quarter, can be sustained for long or be of help to the currency areas weaker economies. The currency areas fiscal crisis appears to be affecting private-sector activity in a number of ways. Austerity programs that are being implemented in most of the currency areas members are reducing demand for goods and services, as well as leading to increased unemployment. That in turn is damaging confidence among consumers and business. Some economists expect that the period of economic contraction, for the eurozone, is likely to continue into 2012.

5 5 European bonds signal more pain ahead Investors growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. For Spain, despite a new government that is committed to reform and austerity, the countrys borrowing costs have surged again. The government has just had to pay a 5.1% yield on three-month paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italys new technocratic government under Mario Monti has not seen any relief either: ten- year yields remain well above 6%. Interestingly, both Rome and Madrid have paid more than Athens for short term debt this week. Moreover, the worst-received sale by Germany since the launch of the euro fuelled market fears that debt crisis was now affecting Berlin, the regions biggest economy and key to the survival of the single currency.

6 6 Eurozone Crisis No Picnic For Anyone Following Italys awful auction, a peak of 8.13% was reached on three-year bonds, according to Reuters data, as Italian debt traded deeper into territory associated with bail-outs of Greece, Portugal and Ireland in the past 18 months. Italian two-year and five-year government-bond yields soared to euro-era highs as investors began giving up on the euro zone's ability to break the political gridlock that is blocking a more decisive response to the currency bloc's debt crisis. Italian two-year and five-year yields climbed to 7.7% and 7.8%, respectively, and the 10- year yield moved further above the key 7% mark to 7.3%. The European Central Bank again bought Italian and Spanish debt on Friday but analysts have complained that its purchases are no longer sufficient to stem a wave of selling. Traders noted that volumes in secondary markets were extremely thin and this was magnifying the moves as well. Contagion in the eurozone sovereign debt crisis appears to have spread from the periphery to core countries. In what has been another terrible week in eurozone bond markets, Belgium saw its benchmark 10-year yields rise by more than a percentage point. They ended on Friday at 5.85%, up from 4.79% on Monday. German 10-year yields rose again following Wednesdays poor auction that saw fears Berlin was being sucked into the crisis. But German yields, which briefly exceeded those of UK Gilts on Thursday, are lower again than those of the UK after 10-year Gilts shot up by 14 basis points to 2.32% on Friday.

7 7 EU Pushes Scenarios For Euro Bond As the eurozone's debt crisis threatens to draw in more victims and a plan agreed to expand the currency's bailout fund looks set to disappoint, the European Union's executive arm floated this week proposals for joint issues of bonds among the currency's 17 governments. Confidence is waning that the European Financial Stability Facility, the temporary fund set up in the wake of Greece's bailout, will ever achieve the heft needed to reassure investors financing weak euro-zone governments that their lending is safe. The proposal calls for the eurozone to use its combined strength in the bond markets to replace some or all of the fund-raising currently being done by national governments. The commission discussion paper suggests three options for issuing euro bonds. –National bond issuance ceases. Eurozone governments raise new funds in euro bonds, guaranteed jointly by all 17 members. Existing bonds are converted into euro bonds. –National governments raise funds as euro bonds, guaranteed jointly by the 17 members, up to a certain limit. Beyond that, governments issue national bonds. –National governments raise funds as euro bonds up to a ceiling. Unlike in the first two options, the bonds are backed by limited guarantees from the 17 euro-zone states. Doesnt need treaty changes.

8 8 European Leaders: No quick-fix solution Germany continued to reject common eurozone bonds, and has said it will only consider a more ambitious pooling of eurozone resources if strict rules are first created that prevent countries running up large deficits, or allowing their banking systems to become sources of regional instability. The leaders appeared to reject pressure from financial markets for a quick-fix solution, stressing that lost faith in Europe's ability to resolve the crisis could only be regained through closer alignment of European policies requiring changes to the European Union treaty. The leaders of Germany, France and Italy, the eurozones three biggest powers, at a summit on Thursday made tougher fiscal governance a top priority in their battle to stem the sovereign debt crisis but offered no immediate concessions to calls for intervention by the European Central Bank. The proposed changes to European Union treaties to improve economic governance and deepen integration among the 17 eurozone members will be discussed at an EU summit on December 9. The three leaders steered around calls, strongly resisted by Germany but previously supported by France, for the European Central Bank to intervene decisively on international bond markets to relieve the pressure building on countries such as Italy and France and even beginning to touch Germany, which had difficulty completing a bond auction on Wednesday. For bond investors, the results of the summit spelled further delays in developing a resolute response to the crisis, which many fear could become harder to contain.

9 9 Options Dwindle For the Eurozone The panic engulfing Europes banks is also alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries banks. This backdoor run is forcing banks to sell assets and squeeze lending; if the current circumstances are reinforced, the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed. The ECB, backed by Germany, rejects the idea of acting as a lender of last resort to embattled, but solvent government. Mainly, due to fears that such intervention would ease the pressure on debtor countries to embrace reform. However, the ECB and Germany will need to consider such actions, as currently there is no firewall against market attacks on big debtor countries, with borrowing costs reaching unsustainable levels in southern Europe, despite having governments committed to reform and austerity in place.

10 10 Another Awful Week For Stocks

11 11 Gold Eases on Dollar Pressure

12 12 Eurozone in Focus Greeces central bank warned Wednesday that the country faced a disorderly exit from the euro and called on the countrys new coalition government to step up the pace of reform. In its starkly worded interim monetary policy report for 2011, the Bank of Greece said the latest European Union led 130bn bailout package for Greece represented a last chance for the country to make good on its reform program. Failure to do so would lead to an uncontrolled downward trajectory that would undermine many of the achievements that have been attained in recent decades, drive the country out of the euro area and set Greeces economy, standard of living, society and international standing back many decades. The report also painted a bleak picture for Greeces economy - now entering its fifth year of recession – forecasting that gross domestic product would shrink by 5.5% or more this year and that growth wouldnt return until 2013, with only an anemic recovery of less than 1%. Portugal suffered a double blow Thursday after Fitch Ratings downgraded its debt to junk, just as a nationwide strike shut public services amid growing discontent over austerity measures that are pushing the country into a deep recession. Fitch, which matched Moody's Investors Service Inc.'s move in July to place Portugal in junk territory, lowered its rating one notch, to double-B- plus from triple-B-minus, and warned that further downgrades were possible, as a recession in the country will increase challenges for the government to comply with its austerity plans. Fitch maintained a negative outlook. "The country's large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign's credit profile is no longer consistent with an investment-grade rating," Fitch said. "However, Fitch judges the government's commitment to the program to be strong," it added. Standard & Poor's Ratings Services downgraded Belgium one notch, citing renewed funding and market-risk pressure that is increasing the likelihood of more sovereign support for the Belgian financial sector. The credit-ratings company cut Belgium's long-term sovereign credit rating to double-A from double-A-plus, leaving it two steps below the coveted AAA rating. The outlook is negative. "We think the Belgian government's capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private sector deleveraging both in Belgium and among many of Belgium's key trading partners," S&P said. S&P projects Belgium will end 2011 with general government debt at around 93% of gross domestic product in net terms, and at around 97% of GDP in gross terms. Belgium has been run by a caretaker government for nearly 18 months, a standoff that has undermined confidence in its ability to stave off the euro zone debt crisis. Belgian political parties negotiating a coalition agreement reached a deal on the 2012 budget on Saturday, clearing the last major obstacle to the formation of a new government more than 18 months after elections were held. The deal came hours after ratings agency Standard & Poors downgraded Belgiums credit to AA from AA+, piling pressure on the country to act. S&P said difficulties in Belgiums banking system and the governments inability to respond to economic pressures had contributed to the downgrade. After the downgrade late on Friday, Belgiums caretaker prime minister, Yves Leterme, urged budget negotiators to reach a deal before markets open on Monday, fearing that the countrys borrowing costs could be pushed beyond sustainable levels. The negotiators said that under the deal, Belgium would reduce its budget deficit to 2.8% of gross domestic product in 2012 from 3.6% expected this year and balance its books in 2015. The head of Greeces opposition New Democracy party sent a letter to European leaders on Wednesday affirming his commitment to the Greek governments reform agenda, in an effort to unlock a the latest tranche of badly needed aid for the country. Disbursement of 8bn in loans from Greeces eurozone partners and the IMF had been put in doubt after European leaders demanded written pledges from Greeces political party chiefs to back agreed reforms. Antonio Samaras had resisted sending a written commitment to the reforms until now, fearing voters would see such a pledge as going back on his promise to renegotiate Greeces bailout terms. However, Samaras was placed under increasing pressure as Greece is expected to run out of money by mid-December without the aid.

13 13 The Week Ahead,,,

14 14 Central Bank Meetings Calendar Expected Rate Decision Current RateMonthCentral Bank 0.25% December 13US Federal Reserve (FOMC) 0.50% December 8Bank of England (BOE) 1.25% December 8European Central Bank (ECB) 0.10% December 20Bank of Japan (BOJ) 4.50% December 6Reserve Bank of Australia (RBA) 0.00% December 15Swiss National Bank (SNB) 1.00% December 6Bank of Canada Rate (BOC) 2.50% December 7Reserve Bank of New Zealand (RBNZ) Calendar for Upcoming meetings of central banks:

15 15 Regional

16 16 MENA in a Week Map Source: Google AME info- Qatar Investment Authority, the Gulf country's sovereign wealth fund, has signed an agreement with the Moroccan government to set up a $2bn, 50-50 investment joint venture to help the cash-strapped North African economy fund major development projects, Reuters has reported. The accord follows the invitation in May by the GCC, of which Qatar is a member, to Jordan and Morocco to join their alliance. Gulf News- The Omani finance ministry has said the country's 2012 draft budget has been set with a deficit of OR1.2bn ($3.1bn). Spending by the Sultanate is seen to rise 10% from an increased 2011 plan, after the government boosted the budget to create thousands of new jobs, the ministry said. "We set aside more expenditure for 2012 to create more jobs since we expect thousands of graduates to leave higher education next year, which results in a higher deficit," an official at the ministry's budget office told the news service. Gulf News- The African Development Bank said Wednesday it had decided to provide a 224-million-euro ($300 million) loan to Morocco to support development of the banking sector. The loan is to help finance the second phase of the project that was launched in 2009 and aims to improve management in the sector while opening access to financial services to more of the population and businesses, said AfDB's representative in Morocco, Amani Abou-Zeid. Ak News- Investment in Iraq is at its highest for years says the Iraqi Investment board. Salar Mohammed Amin, deputy head of Iraqi Investment Board, told AKnews: "The size of investment projects granted to foreign and local companies through 2011 stood at almost $50 billion USD (60,000 billion IQD). He did not provide any figures for comparison. Overall 150 contracts and licenses were signed-off this year. On a different note, Japan will offer Iraq loans totaling $750 million to help rebuild the oil-rich country, Prime Minister Yoshihiko Noda said Tuesday in his meeting with visiting Iraqi leader Nouri al-Maliki. The money will go toward refurbishment of oil refineries and other infrastructure and health care projects, according to the Japanese foreign ministry. Saudi gazette- Year-on-year inflation in Saudi Arabia dipped to 5.2 percent in October from 5.3 percent in September owing to lower food price inflation, Jadwa Investment Research Department said in a report Tuesday. AME info- The governor of Bahrain's central bank has said economic growth is expected to be positive in the third quarter, as the economy has already overcome a major part of the impact of social unrest earlier this year, Reuters has reported. "For the third quarter, from feedback we are getting, it will be positive growth," Rasheed al-Maraj said. Bahrain, which pegs its dinar to the US dollar, boosted its government spending by 22% this year from its original target to ease social tensions. It sold a $750m sukuk earlier this month, which was its first sovereign debt issue since March 2010 Reuters- Rasheed al-Maraj, the governor of Bahrain's central bank has said inflation in the country is under control and the kingdom's banking system remains liquid and stable, Reuters has reported. "The most important thing in Bahrain is to ensure financial stability," Maraj said. "So far the banking system remains liquid and stable." In October, inflation climbed to an eight-month high of 0.9% year-on-year and prices jumped 1% on the month as hotel prices rose during the haj pilgrimage season. Reuters- Saudi finance minister, Ibrahim Al-Assaf has said if Europe's debt crisis worsens the kingdom has the means to deal with any renewed challenges and will continue its investment programs, Reuters has reported. "If worse comes to worst, I am confident that we have the means to deal with any renewed challenges," the minister told an energy conference in Riyadh. "Notwithstanding the looming challenges facing the global economy, I am confident that Saudi Arabia's immediate and medium term growth prospects remain strong," he said. Zawya- The International Monetary Fund called on Wednesday for Lebanon to adopt a cautious budget for next year as the country faces challenges from unrest in neighboring Syria. "High downside risks call for a prudent 2012 budget," the IMF said in a statement following a Fund mission in Beirut. The two-week mission examined the country's economy as part of annual surveillance of IMF member nations, called an Article IV consultation. "Growth could increase to 3.0 to 4.0 percent in 2012. But risks are high and to the downside, reflecting among others an uncertain global and regional environment, particularly in Syria," the head of the IMF mission, Kristina Kostial, said in the statement. Lebanon's economy has lost momentum after four years of strong growth averaging 8.0 percent, reflecting domestic political uncertainty and regional unrest, she said. With the latest indicators pointing to some pick- up in activity, the economy could grow at a 1.0 to 2.0 percent pace in 2011, the IMF estimated. 7Days- Egypt's economy is in shambles under the weight of ongoing political uncertainty and is limping towards financial meltdown. "We're not far off," said Neil Shearing, chief emerging markets economist with Capital Economics. "There's enough money left in the coffers to get through the year, but not much beyond that. Crunch time is two to three months away." The country's main stock market tanks daily and foreign reserves have fallen by almost 40 per cent so far this year. Egypt's vital tourism industry is also being rocked to its core. "Most shops have either let go of most of their employees or cut their salaries by at least 50 per cent," said Khaled Osman, who owns a shop near the pyramids in Cairo employing about 20 people. Ahram weekly- The value of the Egyptian pound dropped again, following unrest that swept the country this week. This time it traded at LE6.05 to the dollar on Monday, its lowest value since 2004. The slide came after one of the most violent confrontations between security forces and protesters that erupted Saturday in Tahrir Square. CBE believes that banks have the needed supply to stabilize the market but are afraid to transfer money to their branches and exchange companies at this time. As is the case during all crises, the black market has flourished, where the dollar is sold at an even higher price. This leads to a further weakening of the local currency.

17 17 Tear-gassing the economy The Egyptian economy is faltering under renewed clashes in Tahrir square. Stock market indices went into free fall. The CASE30 index, the main tracker of Egyptian stocks, declined to its lowest level in 32 months on Monday and Tuesday. This was amid heavy selling from foreigners trying to limit their exposure to risk in a country suffering high instability. Meanwhile a gloomy atmosphere prevails. Egypt was heading towards monetary turmoil as the Central Bank of Egypt (CBE) battled to keep the pound stable by running down its foreign exchange reserves. The reserves declined from $36 billion in January to $22 billion in October. Covering 4 months of imports. October's depletion rate, at eight per cent, was the highest in the 10 month period. Egypt's economy posted a marginal quarterly growth of 0.4% in the fourth quarter of 2010/2011, ending the fiscal year with a low GDP growth of 1.8 per cent. The depressed investment mood is another repercussion. Local press reported on Tuesday said that a number of global companies have suspended some $15 billion worth of investments, given the current political upheaval. Those companies include British Petroleum (BP), Misr Oil Processing Company (MOPCO) and Mostorod Refinery.

18 18 Tear-gassing the economy Nonetheless, the CBE has managed so far to maintain the pound's value through the last months by purchasing it from the market and selling dollars. Despite the CBEs protective measures, the value of the pound dropped again. This time it traded at LE6.05 to the dollar on Monday, its lowest value since 2004. Moreover, citing the heightened risk, the Monetary Policy Committee has decided to raise the overnight deposit rate by 100 bps to 9.25 percent while raising the overnight lending rate and the 7-day repo by 50 bps to 10.25 percent and 9.75 percent, respectively. The discount rate was also raised by 100 bps to 9.5 percent. The accompanying statement showed tremendous concern about the economic status in the country and reiterated the intention of the Central Bank to take all necessary measures to protect the banking system and stabilize the currency.

19 19 Comparative MENA Markets For the period 20/11 – 25/11

20 20 Locally

21 21 Economic News Map Source: Google Jordan Times- Minister of Planning and International Cooperation Jafar Hassan discussed last week with the Group of Eight ambassadors and representatives of several international financing institutions means to support Jordan, within the framework of the Deauville Partnership, which seeks to help Arab countries in their transition to free and democratic societies, according to a ministry statement. During the meeting, attended by Finance Minister Umayya Toukan, the ambassadors reiterated their commitment to support the country to achieve reform and implement mega-projects.Japans Ambassador Junichi Kosuge said Japan is currently examining the possibility of extending a loan totalling $250 million to the Kingdom. The World Bank representative said the bank will allocate $600 million, including the development policy loan to support the state budget. The Russian envoy expressed Moscows interest in supporting a number of mega-projects. There was a broad agreement on the need to focus on the water, energy and education sectors besides competitiveness, financial and economic reform in addition to legislative amendments Jordan Times- Jordan and China on Monday signed two economic cooperation agreements, under which Beijing will offer financial and technical assistance to the Kingdom worth $10.7 million. The accords were signed by Planning and International Cooperation Minister Jafar Hassan, Chinas Commerce Vice Minister Zhong Shan and Chinese Ambassador in Amman Yue Xiaoyong. Beijing will provide $7.9 million (50 million yuan) grant to finance development projects in Jordan in addition to delivering fire fighting and first aid equipment to the Civil Defence Department in Amman. The equipment are worth $2.8 million, according to the Ministry of Planning and International Cooperation. Noting that Jordanian exports to China have doubled in the past few years, Hassan stressed that Jordan is keen to strengthen political and economic ties with Beijing. Jordan's trade balance deficit rose by 21.6% until the end of September this year to JD5.2 billion, compared to JD4.3 billion in the same period of 2010, according to Department of Statistics (DoS) figures. They showed that the trade deficit, which is the difference between total exports and imports, went up due to a 19% rise in the Kingdom's imports that hit JD9.5 billion. Foreign trade data issued today showed that the rate of coverage of imports by the proceeds of exports was around 44.5% compared to 45.8% in the same period, a drop of 1.3%. The value of exports and re-exports until the end of September have risen by 15.4% at JD4.2 billion compared to JD3.6 billion in the same period in 2010. According to the figures, the value of national exports reached JD3.5 billion while re-exports stood at JD664 million. The Kingdom's imports jumped by 18.8% at the end of September this year standing at JD9.5 billion compared to JD8.0 billion in the same period of last year. Jordan's major trading partners were member countries of the Greater Arab Free Trade Agreement, the North American Free Trade Agreement as well as non-Arab Asian countries. Jordan Times- The Kingdoms exports to the Greater Arab Free Trade Agreement (GAFTA) member countries rose by 11 per cent by the end of September this year, according to the Department of Statistics (DoS) figures on foreign trade. The exports amounted to JD1,714 million compared to JD1,542 million during the same period in 2010, the figures revealed. The Iraqi market ranked first as it received the highest portion of the Kingdoms exports, amounting to JD560 million, followed by Saudi Arabia with JD331 million. The Kingdoms imports from GAFTA member states increased by 33 per cent, which stood at JD3,604 million compared to JD2,708 million during the same period last year. Al Rai- The Ministry of Finance announced on Thursday that Jordans budget deficit including grants reached JD 443.7 million at the end of October 2011, compared to a deficit of JD 711.9 million during the same period of 2010. Moreover, the budget deficit before grants continued its deterioration streak as it approached the JD 1.5 billion level, compared to JD 990 million in the same period of 2010. The Minister of Finance has officially announced that Jordan is expected to keep its budgeted deficit of JD 1.16 billion by the end of 2011 as the JD 1 billion Saudi grants helped offset the higher spending resulting from economic relief package and subsidizing fuel and food prices.

22 22 S&P downgrades Jordan local credit rating Standard & Poors on Wednesday lowered Jordans long-term local-currency sovereign credit rating to BB from BB+ expressing concern about the countrys economic and political situation. The rating agency also maintained its BB/B long- and short-term foreign-currency sovereign credit ratings on the Kingdom as well as the short-term local-currency rating at B. The outlook is negative. The recovery rating is 4. The transfer and convertibility assessment is BBB-, the agency said in a statement. S&P said Jordan, like many other Arab countries in 2011, has suffered external shocks from commodity price inflation and the fallout from regional instability, which has resulted in slower economic growth and larger fiscal deficits, it added. However, these challenges are partially mitigated by Jordans close relations with donor countries supporting comparably modest external borrowing needs, though these are rising. The report warned that the general government budget deficit remains sizable according to S&Ps estimates, at 6.2% of GDP in 2011, compared with 6.7% in 2009; While the composition of spending has shifted away from capital expenditures and toward current expenditures such as food and energy subsidies or transfer payments; The fiscal deficit would be higher without foreign grants, notably a transfer from Saudi Arabia this year amounting to 18% of general government revenues. However, S&P considers Jordan's bi-lateral international governmental support is an important buffer. Similarly, foreign reserves have declined by about 3.5% to cover the loss of foreign investment in response to regional unrest. Nevertheless, sufficient foreign reserves and prudent monetary policy should view prevent any risks to the Jordanian dinar's peg against the dollar.

23 23 Amman Stock Exchange For the period 20/11 – 24/11 ASE free float shares price index ended the week at (1997.6) points, compared to (2027.0) points for the last week, posting a decrease of 1.452%. The total trading volume during the week reached JD(34.6) million compared to JD (48.2) million during the last week. Trading a total of (42.2) million shares through (19560) transactions The shares of (182) companies were traded, the shares prices of (50) companies rose, and the shares prices of (98) declined. Top 5 losers for the last week Stock % chg Darwish Al-khalili And Sons Co. Plc (16.28%) Alentkaeya For Investment&realestate Development Company Plc (15.91%) Middle East Complex For Eng., Electronics And Heavy Industries (15.38%) Shira Real Estate Development & Investments (12.73%) First Jordan Investment Company Plc (10.53%) Top 5 gainers for the last week Stock % chg Int'l Arabian Development And Investment Trading Co. 15.38% Nopar For Trading And Investment 13.87% Kafa`a For Financial & Economical Investments (p.l.c) 9.68% Al Barakah Takaful 7.69% Amana For Agr.& Industrial Investment 6.98%

24 24 Local Debt Monitor Latest T-Bills / T-Bonds Issues As of Nov 27, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(3,157) million. Yield (%)Size - millionMaturity DateIssue Date6 months T-Bills 3.046%8127/05/201227/11/201122/2011 3.016%5014/05/201214/11/201120/2011 Coupon (%)Size - MillionMaturity DateIssue Date1 year T-Bills 3.776%10020/11/201220/11/201121/2011 3.982%5025/09/201225/09/201118/2011 Coupon (%)Size - millionMaturity DateIssue Date2 years T-Bonds 5.783%10022/11/201322/11/2011T4411 5.625%7523/10/201323/10/2011T3811 Coupon (%)Size - millionMaturity DateIssue Date3 years T-Bonds 6.477%10024/11/201424/11/2011T4511 6.156%5017/11/201417/11/2011T4311 Coupon (%)Size - millionMaturity DateIssue Date4 year T-Bonds 6.475%5016/11/201516/11/2011T4211 6.492%503/11/20153/11/2011T4111 Coupon (%)Size - millionMaturity DateIssue Date5 years T-Bonds 6.858%5001/11/201601/11/2011T4011 6.921%5018/10/201618/10/2011T3611 Coupon (%)Size - millionMaturity DateIssue DatePublic Utility Bonds 6.240%48.621/11/201421/11/2011PB010 (National Electricity) 6.110%3515/11/201415/11/2011PB054 (Water Authority)

25 25 Prime Lending Rates

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