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Interest Rate Monitor July 28, 2013. 2 Brief Overview  Fiscal deficit widens in the first 5 months of the year, and public debt reaches JD17.2bn Fiscal.

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Presentation on theme: "Interest Rate Monitor July 28, 2013. 2 Brief Overview  Fiscal deficit widens in the first 5 months of the year, and public debt reaches JD17.2bn Fiscal."— Presentation transcript:

1 Interest Rate Monitor July 28, 2013

2 2 Brief Overview  Fiscal deficit widens in the first 5 months of the year, and public debt reaches JD17.2bn Fiscal deficit widens in the first 5 months of the year, and public debt reaches JD17.2bn International MENA Region Local Economy  Amman Stock Exchange Amman Stock Exchange  Local Debt Monitor Local Debt Monitor  Prime Lending Rates Prime Lending Rates Markets overview New and analysis US: Bond yields rise ahead of next week’s Fed meeting and Job’s report Eurozone: Bond market remains calm as data signals that the currency bloc could emerge from economic contraction in third quarter UK: Economy picks up pace, but is it be sustainable Major Indices: US stocks end week flat amid Fed stimulus concerns Commodities & Currencies: Oil falls as China concerns fester Central Bank Meeting Calendar Interest Rate Forecast The Week Ahead Egypt: Borrowing costs drop for 4th week GCC News Highlights GCC interbank rates Comparative MENA Markets China: Data continues to signal growth slowdown Japan: Inflation rises the most since 2008, a boost for Abe

3 3 International

4 4 Treasury yields up for week, ahead of Fed meeting and jobs report Treasury yields fell Friday after the market posted its first weekly rise since early July amid renewed concerns the Federal Reserve will soon start tapering off its stimulus efforts. Benchmark 10-year Treasury yield fell to 2.56% on Friday. For the week, yields on 10-year notes rose modestly, up from last Friday's 2.49%. The yield on the 10-year US government bond eased 1bp on Friday to 2.56%, leaving it 7bp higher over the week.

5 5 Consumer confidence unexpectedly increased in July to the highest level in six years as Americans’ views of their finances improved. The Thomson Reuters/University of Michigan final index of consumer sentiment advanced to 85.1 in July from 84.1 at the end of June. Expectations were for a reading of 84 after a preliminary reading of 83.9. An increase in personal wealth tied to higher property values and stock portfolios is keeping confidence elevated and consumers spending. Stronger finances, along with job gains that have picked up from the second half of 2012, are also helping blunt the effects of higher payroll taxes. In a separate report, data indicated that the manufacturing sector picked up momentum again in July. The Markit flash U.S. Manufacturing Purchasing Managers’ Index rose to a four-month high 53.2 in July from 51.9 in June. The flash PMI index, which is based on approximately 85% of usual monthly replies, suggested that growth of the manufacturing sector quickened to a moderate pace. The Fed will therefore be encouraged by signs that the sector is showing signs of reviving, but will no doubt remain cautious with regard to the longer-term outlook for the economy and the job market. A resurgent manufacturing sector is poised to lift long-term U.S. growth if exporters can capture a bigger share of fast-growing Asian markets, according to the IMF. U.S. consumer sentiment increases to 6-year high and surveys indicate that manufacturing growth picks up to 4-month high in July

6 6 Previously owned home sales fell unexpectedly in June as tight supply and increasing rates for mortgages jeopardized the real-estate market recovery in the U.S. Purchases fell 1.2% to a 5.08 million annualized rate in June, the National Association of Realtors reported Monday. But sales were more than 15% higher from a year ago Federal Reserve Chairman Ben S. Bernanke last week said housing was one of the bright spots for growth and added policy makers will monitor the recent jump in borrowing costs to ensure it won’t derail the nascent recovery. Mortgage rates started to rise in late May. The average for a 30-year fixed- rate loan is now up about one percentage point from its recent low to 4.58%, according to Mortgage Bankers Association data also released Wednesday. Nevertheless, sales of new homes surged in June despite higher mortgage rates, maintaining momentum for a key sector driving the economic recovery. New-home sales increased 8.3% last month to a seasonally adjusted rate of 497,000, the Commerce Department said Wednesday. That was the highest level since May 2008. Sales were up 38% from a year earlier. Mixed data for U.S. housing sector

7 7 The International Monetary Fund cautioned that the U.S. Federal Reserve’s exit from unprecedented asset purchases could spur market reactions causing “excessive” interest-rate volatility. That would have “adverse global implications,” the fund’s board of directors said Friday in a statement, part of an annual review of the world’s largest economy. “Effective communication on the exit strategy and a careful calibration of its timing will be critical for reducing these risks,” the Washington-based fund said. But, The IMF added, “A smooth and gradual upward shift in the yield curve might be difficult to engineer, and there could be periods of higher volatility when longer yields jump sharply–as recent events suggest.” The IMF left its U.S. growth forecast for this year unchanged at 1.7%, saying the housing and labor markets are improving even as the Fed’s decision looms and fiscal policy remains a drag on growth. The fund projected 2014 growth of 2.7%, also unchanged from a report earlier this month. The Fed is considering reducing its $85 billion in monthly bond purchases even with unemployment at 7.6% and the Fed’s preferred inflation index showing prices rising 1% from a year earlier, below the central bank’s 2 % goal. The Fed’s policy-making committee next meets July 30-31, where officials are likely to discuss whether to refine or revise "forward guidance," the words they use to describe their intentions for the next few years. IMF Urges More Clarity From Fed

8 8 Eurozone bonds market remains calm as data point to growth in activity The eurozone bond market this week was relatively calm, as tensions eased for the moment in Portugal and Greece, and with data this week signaling that the euro area could emerge from economic contraction in third quarter. Spain’s 10 year bonds fell 5bp on the week, while Italian yields were overall flat. The 10-year Bund yield, meanwhile, was flat on Friday but up 14bp on the week at 1.67%. The eurozone’s “flash” composite purchasing managers’ index released Thursday, suggested that the region had pushed back into growth territory this month for the first time since the start of 2012. The figures helped reinforce the view that the European Central Bank would leave interest rates unchanged when it meets next week. One year has passed since ECB president Draghi delivered his famous ‘Whatever it takes’-speech. Since then yields in Spain and Italy have dropped from unsustainable highs and remained relatively calm despite headwinds from the Cyprus bailout to recent political tensions in Greece and Portugal.

9 9 Eurozone business activity expands Eurozone stabilizes as PMI hits one-and-a-half year high Eurozone business activity expanded in July for the first time in 18 months, according to a closely watched survey, adding to recent evidence that the region's economy is finally stabilizing after a recession that began in late 2011. Markit's purchasing managers' index surprised with a jump to 50.4 in July, signaling a return to growth in output by breaking back above the neutral 50 level for the first time since January 2012. The latest data are leading many economists to believe the eurozone economy may well have stabilized in the second quarter or even grown slightly following six consecutive quarters of contraction. Data for second-quarter gross domestic product won't be available until mid-August. Wednesday’s survey data also suggest a further pickup at the start of the third quarter. But any recovery is likely to be anemic in the near term, as the eurozone continues to grapple with an array of problems. Governments in the 17-nation currency bloc are fighting to bring down debts, sharply limiting the scope for public spending to fuel growth. Unemployment is at a euro-era high. Weakened banks have curbed the supply of credit to many businesses, suppressing investment.

10 10 Eurozone business activity expands Recovery likely to be led by Germany Data company Markit said its PMI survey showed manufacturers reporting wafer-thin levels of expansion, but still a sharp improvement from previous declines. Activity at services companies continued to shrink. (The PMI for manufacturing increased to 50.1 from 48.8 and services increased to 49.6 from 48.3). The surveys indicate that the modest expansion in activity in July might be sustained in coming months. New orders reported by manufacturers rose for the first time since May 2011, although there was another modest fall for service providers. Businesses continued to cut jobs, but at the slowest pace since March 2012. Moreover, the surveys indicated that any recovery will be led by Germany, the euro zone's biggest economy. German purchasing managers reported that activity rose at the fastest pace since February, driven by increased domestic demand that reflects a low unemployment rate and a recent pickup in wage growth.

11 11 Eurozone business activity expands Signs of economic expansion in July will be welcome to the European Central Bank, which has predicted a return to growth in the second half of 2013, having calmed market tensions surrounding the euro zone with a vow last year to keep the bloc intact. But economists said the bank will have to do more if the recovery is to be strong enough to help repair some of the economic damage done, including very high levels of unemployment among young people. The continued inability of the banking system to provide credit to businesses at affordable rates in many places is one of the biggest hindrances to a robust recovery. A survey by the ECB also released Wednesday showed banks continue to expect demand for loans from firms to weaken in the third quarter as they further tighten standards, albeit at a slower pace than earlier in the year. Slowing world demand for European exports could also dampen the recovery. A similar survey of purchasing managers released Wednesday pointed to a further slowdown in China's economy, long a source of strong growth for German exporters. Q1: -0.3%

12 12 Euro area consumer confidence picks up, as other positive signs abound Consumers in the euro zone are becoming steadily less pessimistic about their prospects, a development that could support a modest pickup in spending and help the currency area emerge from its longest postwar recession. The European Commission on Tuesday said its preliminary measure of consumer confidence across the 17 countries that share the euro rose to -17.4 in July from -18.8 in June, the eighth-straight month of increases and its highest level since August 2011. Despite the improvement, consumers remain pessimistic by historic standards; the average going back to 1990 is -13.3. That suggests that any increase in consumer spending will be modest. For the first quarter since the recession began in late 2011, consumers didn't cut spending at the start of the year. And there are indications they may have increased spending in the second quarter, with retail sales up 1% in May from April. A pickup in consumer spending has become even more essential to the eurozone's return to growth following the release of figures that indicate exports are falling, reflecting slowdowns in the U.S. and China. Other gently positive signs were also present during the week. Spain’s record unemployment is falling, although this is traditional ahead of the peak tourist season. Irish house prices have edged higher for the first time since their spectacular 2008 crash. Fears of a eurozone break-up, rampant a year ago, have receded. Moreover, Spain's central bank said Tuesday that the Spanish economy likely contracted 0.1% in the second quarter from the first, the latest sign that Spain may be close to emerging from a contraction that started in late 2011.

13 13 Greece wins €2.5 billion aid loan, buying time in crisis The eurozone on Friday approved the payment of a € 2.5 billion loan installment to tide Greece through the coming weeks, as European governments put off debate over Greek debt relief until after Germany’s election in September. Eurozone governments are expected to also transfer an additional €1.5 billion in profit from the European Central Bank's bond-buying program to Athens once all national approval procedures have been fulfilled on Monday. Officials believe the approval of this aid payment will stave off further complicated discussions over Greece's bailout program until the fall, after federal elections are held in Germany. After that, many expect a divisive debate to ensue on how to cut Greece's massive debt mountain—more than 160% of gross domestic product—and whether the eurozone should forgive Athens some of the money it is owed. Moreover, an EU official said Friday that the bailout faces a shortfall of around €3.8 billion between now and the end of 2014 that needs to be addressed. That gap is due to the refusal of national eurozone central banks to buy new Greek bonds when the ones they hold mature. When the eurozone and the IMF sealed Greece's latest aid program last year, such a rollover was part of their calculations. But since then, several central banks have refused to follow through, claiming it would amount to financing a national government, which central banks aren't allowed to do under EU rules. On Thursday, Greek lawmakers passed the final measure needed to secure the country's latest loan tranche, by enacting tax overhauls, as well as an amendment to a previous law detailing the transfer of several thousand public servants into a special labor reserve.

14 14 Is Portugal’s recovery veering off track? Portuguese Prime Minister Pedro Passos Coelho on Monday vowed to keep his government united and the country's bailout on track in an effort to regain confidence from markets shaken by weeks of political uncertainty. Investors responded positively, with stocks and government bond prices climbing sharply. Mr. Passos Coelho's ruling coalition fell into a deep crisis earlier this month after two ministers resigned amid disputes over softening the austerity measures imposed as a condition of the €78 billion bailout program designed by the EU and the IMF. The two center-right parties in the coalition eventually resolved their problems but President Aníbal Cavaco Silva asked them to reach a broader agreement with the main opposition Socialist Party to keep the country's program on track. The Socialists, who have accused the government of implementing too much austerity, leading to a three-year recession, refused to join the pact. Mr. Silva on Sunday dispelled fears of snap elections by throwing his support behind the ruling coalition. Portuguese yields, however, are still at a level that would rule out regular debt sales, while some analysts are warning that political tension over the pace of austerity in Portugal could easily resurface. Portugal aims to make a full return to private markets next June. Portugal's challenges remain immense. the country's budget deficit at 6.4% hasn't come down as much as expected, which has in turn necessitated new measures. The nonstop austerity made Portugal's economy contract a combined 4.8% in 2011 and 2012, with a further 2.3% drop expected this year.

15 15 U.K. economy picks up pace Britain’s economy accelerated in the second quarter of 2013, showing growth of 0.6% from the first quarter, according to preliminary estimates released Thursday. It follows expansion of 0.3% in the first three month of the year. Economic output was 1.4% higher compared with the second quarter of 2012—the strongest expansion since the first quarter of 2011. The figure was in line with forecasts and will reduce the pressure for new Bank of England Governor Mark Carney to pump more cheap money into the economy by increasing the central bank's quantitative easing program. All of the economy’s major sectors – agriculture, production, construction, and services – expanded quarter-on-quarter, for the first time in three years, with services leading the way, getting a boost from rising consumer confidence, and contributing 0.48 percentage points to the 0.6% GDP rise. Activity in the service sector hit a 27-month high in June, according to purchasing managers’ index data. Britain’s construction sector grew for a second month in June, while manufacturing recorded its strongest growth in more than two years in June, according to PMI data. The IMF increased its forecast for U.K. GDP growth in 2013 to 0.9% earlier this month.

16 16 Is the U.K. growth sustainable? Economic output remains 3.3% below its pre-crisis peak in the first quarter of 2008. And since the coalition government came into office in the second quarter of 2010, output has grown just 2.1%. But the economy has now delivered two consecutive quarters of expansion for the first time in nearly two years. House prices are increasing at their fastest rate in more than three years, helped by record low interest rates and government programs that encourage banks to lend and make it easier for riskier borrowers to buy a home. Stock markets have rallied as strong retail sales data provided more evidence that a recovery in the U.K. may be gaining momentum. Also, the labor market is also looking healthier -- unemployment is falling at its fastest rate in three years. But the economy still faces a number of challenges, particularly the squeeze on household incomes as wages fail to keep pace with price increases. With households' real pay still falling, bank lending flat and public sector austerity measures building, and no sign of a real pickup in investment and exports, the economy may struggle to maintain its recent rate of growth in the second half of this year.

17 17 Gauge of Chinese manufacturing activity falls to 11-month low China's economy showed fresh signs of weakness in July as an initial gauge of manufacturing activity slumped to an 11-month low, leading some economists to make comparisons to conditions seen shortly after the global financial crisis of 2008 and 2009. The HSBC flash China Manufacturing Purchasing Managers Index released on Wednesday fell for the third month in a row, potentially testing the resolve of policy makers as they try to rebalance the economy and avoid using major stimulus measures to boost growth. HSBC said the measure "deteriorated at the fastest rate for almost a year in July, signaling one of the steepest downturns seen since the 2008-2009 financial crisis." The preliminary gauge of nationwide manufacturing activity fell to 47.7 in July from a final reading of 48.2 in June. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction. Of particular concern to policy makers is the labor market, which had been one area of strength in the economy. HSBC's employment sub-index came in below the headline number at 47.3, the lowest level since March 2009, when firms laid off workers en masse in the teeth of the global financial crisis. The pressure on China's manufacturing sector, once the mainstay of the economy, has been ratcheting up in recent years as rising wages and a slowly strengthening currency conspire to erode competitiveness.

18 18 China leaders offer stimulus as growth lags China's government appears to be warming to the idea of stimulus measures as it is confronted with a steady drizzle of bad news on the economy. The measures announced include a tax break for small businesses, reduced export fees and a pledge to accelerate railway construction and investment. The policy shifts were announced by the State Council following a meeting of the group led by Premier Li Keqiang. The stimulus measures announced Thursday are focused, hitting only a few key sectors of the economy. In widely reported, though unverified, remarks this week, the premier stressed his commitment to meeting the 7.5% GDP target for this year. Growth fell to 7.5% on year in the second quarter from 7.7% in the first and many economists think it will slow further, making the annual target a write-off. That would make Mr. Li the first premier to miss the target since 1998. Weaker growth puts China's ruling Communist Party in a tough spot, and could derail efforts meant to shift the world's second-biggest economy to a more sustainable growth model. President Xi Jinping is by all accounts determined to proceed with reforms, even if it means tolerating slower growth for now.

19 19 Japan prices rise most since 2008, a boost for Abe Japan consumer prices rose the most since 2008 in June, an early sign that the world’s third-biggest economy may be starting to shake off 15 years of deflation. Consumer prices excluding fresh food increased 0.4% in June from a year earlier, the statistics bureau said in a statement today. Excluding energy as well, prices dropped 0.2%, continuing more than four years of declines. As Prime Minister Shinzo Abe’s policies weaken the yen and energy costs rise, the increase in consumer prices could stoke inflation expectations and encourage companies and consumers to spend more, bolstering the economic recovery. Separately, data showed that Japanese exports rose for the fourth consecutive month and are now up 7.4% from a year earlier as a result of the weaker yen’s positive impact on Japan’s competitiveness. Imports increased close to 12% from a year earlier. The yen lost almost 21% against the dollar in the past year, pushed down by the government’s calls for unlimited easing and the Bank of Japan’s April policy expansion. Meanwhile, Prime Minister Shinzo Abe and his LDP-led coalition government as expected won another landslide victory in Sunday’s Upper House election. The government now has a majority in both the Lower and Upper House which implies that Japan finally seems to be entering a phase with political stability. In light of that the policy agenda is expected to shift towards longer-term structural reforms and bringing public debt under control.

20 20 U.S. stocks inch higher Friday to end week flat in the face of a mixed batch of earnings amid speculation over Fed stimulus

21 21 Oil falls as China concerns fester

22 22 Major Interest Rate Forecasts

23 23 The Week Ahead,,,

24 24 Central Bank Meetings Calendar Expected Rate Decision Current Rate MonthCentral Bank 0.25% September 18US Federal Reserve (FOMC) 0.50% August 1European Central Bank (ECB) 0.50% August 1Bank of England (BoE) 0.10% August 7Bank of Japan (BOJ) 0.00% September 19Swiss National Bank (SNB) 1.00% September 4Bank of Canada (BOC) 2.75% August 6Reserve Bank of Australia (RBA) 2.50% September 11Reserve Bank of New Zealand (RBNZ) Calendar for upcoming meetings of main central banks :

25 25 Regional

26 26 Egypt's borrowing costs drop for 4 th week as banks lock-in rates Egypt’s treasury yields fell for the 4 th consecutive week and bids for one-year treasury bills rose to a three-month high as banks sought to lock in higher rates on bets yields will keep falling once political tensions settle. Additionally, Egypt’s finance minister Ahmed Galal has stated that $9 billion of the $12 billion in aid from the Gulf will be added to support FX reserves, which will help lift pressure off FX rates and ease pressure on yields. The remaining $3 billion will be used to buy strategic goods. Last Tuesday, Egypt sold 4 billion EGP of one-year T-bills, meeting its target as the average yield decreased 19 basis points to 13.82%, the lowest since March. The auction attained a 2.56 coverage ratio, the highest since April, according to central bank data. One-year yields have plunged by 158 basis points in the four auctions since the army forced former President Mohammed Morsi out of office on July 3 rd. Egypt’s credit default swaps, contracts insuring the nation’s debt against default, have risen 28 basis points this week to 776, after increasing 93 basis points last week. Source: Bloomberg

27 27 Moody’s affirms Egypt’s negative outlook Moody's Investors Service has Wednesday affirmed Egypt's Caa1 government bond rating and is maintaining the negative rating outlook. The rating affirmation is supported by the following considerations: –The substantial boost in Egypt's international liquidity provided by the $12 billion external financial support package from the gulf governments; –The road map laid out by the interim, military-installed government for a return to democracy by early 2014; and –The recent containment of the government's debt-financing costs, below post-Revolution peaks. The maintenance of the negative outlook on Egypt's Caa1 rating is driven by Moody's view of the country's considerable economic and political challenges. Egypt's Caa1 bond rating indicates a material probability of default, although this is not necessarily imminent.

28 28 GCC Economic Highlights: Kuwait issues 2013/14 budget decree According to the Ministry of Finance, the 2013/14 budget-covering the fiscal year commencing April 1st 2013-projects a deficit of KD2.9bn (US$10.2bn). This is due to the government calculating oil income very conservatively. The government's budget for the previous fiscal year assumed an even larger deficit, of KD7.4bn. Although final figures for 2012/13 are still to be released, the actual outcome is likely to reveal a surplus of at least KD11bn. The 2013/14 budget is based on a total revenue projection of KD18.1bn, 93% of which comprises oil income. Total spending is estimated at KD21bn, where current spending has been set at KD17.8bn, equivalent to around 85% of total outlays. Salaries (KD5.2 bn) and subsidies (KD4.9 bn) will together account for 48% of total expenditure. Investment spending, however, remains comparatively meagre, at 15% of planned outlays; this is low compared with some of Kuwait's regional peers, such as Qatar where capital spending accounts for one third of it’s budget. In addition, Kuwait has typically under spent its capital budget owing to persistent political gridlock, red tape and capacity constraints, all of which have had a negative impact on the implementation of development plans. Kuwait’s government budget as a % of GDP Source: Trading Economics

29 29 GCC Economic Highlights: Dubai GDP sharply up by 4.7% in Q2 Dubai’s economy continued to recover and expanded by around 4.7% in the second quarter of 2013 compared to the same period last year, driven by strong performance in trade and most non-hydrocarbon sectors, according to reports of official data. The emirate's real GDP grew by 4.1% in the first quarter before picking up in the second quarter. The report showed that Dubai is making steady progress in programs to ease reliance on volatile oil exports, with the hydrocarbon sector expected to contribute only around 12% of the 2013 budget. It showed non-oil sectors dominated the emirate's GDP, estimating the share at 28% for trade, 16% for manufacturing, 14% for financial enterprises, 13% for real estate and 8% for construction. Turning to finance, the report also showed that Dubai cut the fiscal deficit from around Dh1.8 billion in 2012 to Dh1.5 billion in 2013 despite a 5.8% increase in expenditure. It attributed the decline in the shortfall to a 7.2% rise in revenue to Dh32.6 billion in 2013 from Dh30.6 billion in 2012. Oil revenues were estimated at Dh3.9 billion in 2013, only around 12% of the total earnings. Source: Trading Economics

30 30 GCC Economic Highlights: Bahrain: Inflation softens slightly in June Bahrain’s year-on-year inflation eased slightly to 3.3% in June, down from 3.6% in May, in large part reflecting a substantial 4.8% decline in the transport sector. On the other hand, the main upward contribution for June’s inflation compared to last year came from rises in food and beverage prices by 4.3%, household equipment by 7.1%, and water, electricity, and gas by 10.4%. According to Bahrain’s Central Informatics Organization (CIO), the sharp fall in transport costs came on the back of a decline in the price of private vehicles. The decreased in transport costs was sufficient to offset a pick- up in the sectors mentioned above. However, there is potential risk that inflation will continue to rise in July, partly due to the holy month of Ramadan. Other potential upside risks is delays in processing transport vehicles at customs. Moreover, inflation increased by 0.2% in June when compared with May. Source: Trading Economics

31 31 GCC Economic Highlights: UAE inflation at highest in June Inflation in the UAE reached its highest level in June as food prices continued to increase. Inflation grew by 1.25% in June 2013 compared to June 2012, while inflation was up by 0.31% in June 2013 compared to May of the same year. In June 2013, housing and utility costs, which account for over 39% of consumer expenses, climbed 0.3% year-on-year and 0.2% month-on-month in June. Transportation and housing prices grew 0.88% and 0.28% for the same time periods, respectively. Food prices, which make up nearly 14% of the basket, rose 3.7% from a year ago and 1.25% from a month earlier. The prices of food items are on the rise since the Indian rupee started sliding against the dollar. Inflationary trends were monitored in all emirates, but the highest increase of 0.46% was recorded in Abu Dhabi and Sharjah. Dubai inflation was at 0.41% followed by Umm Al Quwain at 0.40%. Source: Trading Economics

32 32 GCC interbank rates Source: Bloomberg

33 33 Comparative MENA Markets For the period 21/07 – 26/07

34 34 Locally

35 35 The budget balance deteriorated significantly during the first five months of the year, with a deficit of JD460 million compared to last year’s JD251 million for the same period. Total revenues and grants increased by JD108 million in the first five months of the year, as a result of an increase of foreign grants by JD218 million for the same period, compared to an overall drought of grants last year. However, domestic revenues decreased by around JD88 million during the same period, despite an increase in tax revenues, due to a sizeable decrease in “other revenues”. On the other hand, both current and capital expenditures increased, resulting in a total increase in expenditure of around JD317 million for the same period, with the increase in current expenditure mainly stemming from an increase in military spending. Meanwhile, if we look at the fiscal deficit before grants, then we will find that the deterioration in budget balances is even more significant, as the deficit reached JD 678 million during the first five months of the year, an increase of JD405 million from the same period last year. Fiscal deficit widens significantly despite increase in foreign grants JD Million Jan – May 2013 Jan - May 2012 Total Revenues and Grants2,2273.02,164.8 Domestic Revenue2,054.82,143.1 Foreign Grants218.221.7 Total Expenditures2,732.92,416.1 Current Expenditures2,462.62,264.8 Capital Expenditures270.3151.3 Fiscal Deficit/Surplus Including Grants -459.9-251.3 Fiscal Deficit/Surplus Excluding Grants -678.1-273.0

36 36 Public debt reached around JD 17.2 billion by the end of May 2013, around 71.8% of 2013 GDP according to the Ministry of Finance’s calculations. This posts an increase of JD646 million during the first 5 months of the year. Breaking down the increase, we find that domestic debt increased by around JD 213 million during the first five months of the year, compared to the end of 2012. On the other hand, external debt increased by around JD432 million during the same period. External debt increased by more than domestic debt, which is in line with expectations that the government will be relying on external financing to meet borrowing needs this year. The government is still expected to issue a Eurobond later this year, which will further increase its dependency on external borrowing. Public Debt reaches around JD17.2 billion JD Million May 2013 20122011 External Debt5,364.14,932.44,486.8 Percent of GDP22.4%22.5%21.9% Internal Debt11,862.0 11,648. 0 8,915.0 Percent of GDP49.4%52.7%43.5% Public Debt17,226.1 16,581. 0 13,401. 8 Percent of GDP71.8%75.5%65.4%

37 37 Amman Stock Exchange For the period 21/07 – 25/07 ASE free float shares’ price index ended the week at (1979.6) points, compared to (1944.0) points for the last week, posting an increase of 1.83%. The total trading volume during the week reached JD(30.5) million compared to JD(32.0) million during the last week, trading a total of (22.6) million shares through (12,068) transactions The shares of (169) companies were traded, the shares prices of (70) companies rose, and the shares prices of (61) declined. Top 5 losers for the last week Stock % chg Jordan Wood Industries JWICO (18.57%) Arab Investors Union Co. For Real Estates Developing (16.67%) Model Restaurants Company Plc. (11.76%) Darwish Al-Khalili and sons Co. Plc (11.11%) South Electronics (10.00%) Top 5 gainers for the last week Stock % chg Arab Jordanian Insurance Group 42.86% National Steel Industry 30.43% Jordan Phosphate Mines 29.80% International For Medical Investment 21.88% Bindar Trading & Investment Co. Plc. 15.53%

38 38 Local Debt Monitor Latest T-Bills  As of July 28, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(2,714) million. Yield (%)Size - millionMaturity DateIssue Date3 months T-Bills 2.898%5014/03/201214/12/201129/2011 2.844%5012/03/201212/12/201128/2011 Yield (%)Size - millionMaturity DateIssue Date6 months T-Bills 3.788%5014/08/201214/02/201202/2012 3.433%5023/07/201223/01/201201/2012 3.232%5008/06/201208/12/201127/2011 Yield (%)Size - millionMaturity DateIssue Date9 months T-Bills 4.285%7504/12/201204/03/201205/2012 4.229%7529/11/201229/02/201204/2012 4.169%7522/11/201222/02/201203/2012 Coupon (%)Size - MillionMaturity DateIssue Date1 year T-Bills 5.654%5028/07/201428/07/201306/2013 5.535%5021/07/201421/07/201305/2013 5.345%7515/04/201415/04/201304/2013 6.750%7026/02/201426/02/201303/2013

39 39 Local Debt Monitor Latest T-Bonds Issues Coupon (%)Size - millionMaturity DateIssue Date2 years T-Bonds 6.404%5024/07/201524/07/2013T4113 6.299%5008/07/201508/07/2013T3813 6.129%5024/06/201524/06/2013T3613 Coupon (%)Size - millionMaturity DateIssue Date3 years T-Bonds 6.745%5017/07/201617/07/2013T4013 6.686%5002/07/201602/07/2013T3713 6.546%5018/06/201618/06/2013T3513 Coupon (%)Size - millionMaturity DateIssue Date4 year T-Bonds 7.246%37.515/01/201615/01/2012T0312 6.475%5016/11/201516/11/2011T4211 Coupon (%)Size - millionMaturity DateIssue Date5 years T-Bonds 7.692%5011/07/201811/07/2013T3913 7.561%5010/06/201810/06/2013T3413 Coupon (%)Size - millionMaturity DateIssue DatePublic Utility Bonds 7.786%2030/06/201830/06/2013PB59 (Water Authority) 7.703%1213/06/201813/06/2013PB58 (Water Authority) 7.684%1506/06/201806/06/2013PB57 (Water Authority) 7.966%2029/07/201529/07/2012PB005 (Housing & Urban Development)

40 40 Prime Lending Rates

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