Thndr Claps - Economic pressures and slowdown

A weekly wrap-up of the most prominent news in the U.S. & Egyptian markets.

Egypt Claps

Several platforms for trading gold stopped announcing prices for the precious metal last Thursday following “chaos in the market”, according to Al Mal Newspaper.

What

Prices for one gram of 21-karat gold & 24 karat passed the EGP 2,650 & EGP 3,050 marks, respectively, according to digital gold trading platform iSagha.

iSagha’s CEO said gold’s current price implies a USD/EGP exchange rate of around 50, even higher than that of 1-year non-deliverable forwards.

So What

One member of the board of directors of Egypt’s General Division for Gold said that demand for gold is clearly high, but it still doesn’t justify the current prices. He added that there’s something odd about Egypt’s gold market, which increases when global prices increase, but doesn’t necessarily react when global price decrease.

Now What

The Ministry of Supply & Internal Trade will be submitting a proposal to allow Egyptian ex-pats to enter Egypt with limited quantities of gold without having to pay tariffs, thereby increasing supply in the market.

Investors are increasingly worried about Egypt’s debt markets & the possibility of the country defaulting on its bonds within the next year, says Bloomberg.

What?

86% of Egypt’s Eurobonds (bonds denominated in a different currency than the local one) have a yield that’s more than 10% bigger than what US Treasuries offer.

So What

That high of yield makes these Eurobonds ‘distressed’, meaning they’re considered risky and more likely to default.

Now What

According to emerging markets research house ‘Tellimer’, the prices of Egypt’s bonds correspond to a 75% chance of default over the next 10 years and 15% over the next six months.

Egypt’s hotel room occupancy rate is up between 20%-25% in Q1-2023 on an annual basis, according to one official in the Tourism industry speaking to Asharq Business.

What?

The rise came despite the ongoing Russian-Ukrainian crisis, with both countries being significant historical contributors to Egypt’s tourism scene.

As the government targeted other nationalities, tourists from Poland, Germany, the UK, Czech, & Italy, along with a devalued EGP that made Egypt cheaper to foreigners, more than offset the effects of the Russian-Ukrainian crisis.

So What

Tourism contributes 15% of Egypt’s economy & is a main source of foreign currency. That’s why the government aims to increase its revenues from tourism from $11 billion/year to $30 billion/year over the next three years.

Now What

Egypt’s Minister of Tourism had stated that hotel rooms should increase in line in light of the goal to increase the number of tourists (25%-30%).

US Claps

GDP in the US for Q1 2023 grew at 1.1% on an annual basis, less than the expected 2%.

What

The slowdown in GDP growth was largely driven by the Fed’s continuous interest rate hikes in the ongoing battle against inflation.?

GDP, or gross domestic product, is the value of all the final goods and services produced and sold in a specific time period.

So What

Despite a slowdown in GDP growth, the PCE index, which tracks people’s spending, increased by 4.2% annually, significantly higher than the 3.7% estimate.

This gives a strong indicator that consumers have continued to spend despite higher prices.

Now What

Inflation has begun slowing down as per last month’s report but is still far from the Fed’s 2% target.

The UK’s Competition and Markets Authority (CMA) blocked Microsoft’s (NASDAQ:MSFT) $69 billion?acquisition?of Activision Blizzard (NASDAQ:ATVI) following antitrust allegations.

What

Microsoft failed to reassure the CMA over antitrust allegations, despite promises to allow rivals to offer the blockbuster game “Call of Duty” on their platforms.?

The CMA blocked the deal due to competition concerns in the nascent cloud gaming market. One expert indicated that Microsoft already boasts a strong position over competitors in cloud gaming, so this deal would allow the company to undermine smaller competitors.

The?US Federal Trade Commission?(FTC) and the?European Union?have yet to decide on the deal, as they await the formal hearing in the summer.

So What

Following the news, Activision Blizzard ended the session down more than 11%. Activision Blizzard released their earnings early in an effort to cool investors’ concerns, citing that net income increased to $740 million in Q1 2023 from $395 million a year earlier.

Microsoft, on the other hand, saw its stock surge more than 7% during the trading session.?

Now What

Microsoft has expressed its plans to appeal the decision, while Activision is set to support Microsoft in the appeal.

Meta (NASDAQ:META) reported an EPS of $2.20 and revenues of $28.65 billion during Q1 2023, beating analysts’ expectations on both the top and bottom lines.

What

The company also provided an optimistic forecast for revenue in Q2, expecting revenues between $29.5 billion – $32 billion vs $29.5 billion expected.

The strong earnings and rosy guidance were driven by a rebound in digital ad sales, with Q1 sales rising to $28.6 billion after declining for three quarters straight.

Alphabet (NASDAQ:GOOGL) and Meta have managed to lure advertisers to them as economic uncertainty prevails, potentially hurting smaller digital ad sellers.

So What

Meta’s stock surged nearly 12% in extended trading following the strong earnings report and surprise rebound in digital ad sales.

Now What

Meta CEO Mark Zuckerberg said that the company will focus on the Metaverse and?AI, citing that both pushes will be expensive, but that the company has already made big progress in AI.