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Macro Thoughts

Time to be the Long the Dollar and short just about everything else
except the Yen.

Home Thoughts

The state-run news agency Sana said the attacks constituted a "serious
escalation", and were aimed at derailing peace efforts.

Sana said letters condemning the bombings had been sent from the
foreign ministry to the UN.

"The ministry asserted that these terrorist bombings constitute a
serious escalation by the extremist and malicious regimes of Riyadh,
Ankara, and Doha," the report said.

"They also seek to derail the Geneva [peace] talks and the cessation
of hostilities and truce arrangements, as well as turning attention
away from the Syrian Arab Army's achievements in the war against
terrorism."

Turkey, Qatar and Saudi Arabia support various rebel forces in Syria
but are part of an international coalition battling IS.

Euro 1.1180
Dollar Index 95.45
Japan Yen 109.53
Swiss Franc 0.9924
Pound 1.4537
Aussie 0.7163
India Rupee 67.695
South Korea Won 1194.06
Brazil Real 3.5709
Egypt Pound 8.8706
South Africa Rand 15.8348

Dollar Index 3 Month Chart INO 95.45 [BUY The FED is set to pull
the trigger]


Euro versus the Dollar 3 Month Chart 1.1180 [Interest rate
differentials weighing]

Gold 6 month INO 1243.50 [Now heads to 1,200.00]
http://quotes.ino.com/charting/index.html?s=FOREX_XAUUSDO&t=c&a=50&w=1&v=d6

Conclusions

Saudi Arabia faces a vicious liquidity squeeze as capital continues to
leak out the country, with a sharp contraction of the money supply and
mounting stress in the banking system.

Three-month interbank offered rates in Riyadh have suddenly begun to
spiral upwards, reaching the highest since the Lehman crisis in 2008.

Reports that the Saudi government is to pay contractors with tradable
IOUs show how acute the situation is becoming. The debt-crippled bin
Laden group is laying off 50,000 construction workers as austerity
bites in earnest.

Societe Generale’s currency team has advised clients to short the
Saudi riyal, betting that the country will be forced to ditch its
long-standing dollar peg, a move that could set off a cut-throat
battle for global share in the oil markets.

Francisco Blanch, from Bank of America, said a rupture of the peg is
this year’s number one “black swan event” and would cause oil prices
to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still
falling by $10bn (£6.9bn) a month, despite a switch to bond sales and
syndicated loans to help plug the huge budget deficit.

The country’s remaining reserves of $582bn are in theory ample – if
they are really liquid – but that is not the immediate issue. The
problem for the Saudi central bank (SAMA) is that reserve  depletion
automatically tightens  monetary policy.

Bank deposits are contracting. So is the M2 money supply. Domestic
bond sales do not help because they crowd out Saudi Arabia’s
wafer-thin capital markets and squeeze liquidity. Riyadh now plans a
global bond issue.

While crude prices have rallied 80pc to almost $50 a barrel since
mid-February, this has not yet been enough to ease Saudi Arabia’s
financial crunch.

The rebound in crude is increasingly fragile in any case as tough talk
from the US Federal Reserve sends the dollar soaring, and Canada
prepares to restore 1.2m barrels a day (b/d) of lost output. “We feel
that markets have moved too high, too far, too soon. We still face a
large inventory overhang and supply outages are reversible,” said BNP
Paribas.

The oil rally is now at a make-or-break juncture. A growing number of
oil traders warn that speculative purchases of “paper barrels” by
hedge funds have decoupled from fundamentals. There is usually a
seasonal slide in demand over the late summer.

Adam Longson, from Morgan Stanley, said “quant” funds have taken out
big positions on Brent crude. "If trends reverse, it could be a
catalyst for liquidation," he warned.

Conclusions

Oil based economies are going to contract, currencies which have
already collapsed are going to be routed and Greek- style austerity
will be the order of the day. The melt-down is coming.

Struggling to cover a widening budget gap, Russia is selling its first
Eurobond since being hit with international sanctions two years ago,
with state bank VTB Capital as the sole organizer of the deal after
the U.S. and European Union warned foreign banks against
participating.

Russia said in the prospectus Monday that none of the proceeds would
go to entities subject to U.S. and EU restrictions. But there were
still questions about whether foreign investors would be able to trade
the bonds easily. The prospectus said that there could be “no
assurance” that the bonds would be eligible for major international
clearing systems, such as Euroclear Bank SA and Clearstream Banking
SA, on which many foreign funds rely.

"It will be a case-by-case basis whether investors will be able to
participate on the primary market,” said Sergei Strigo, who helps
oversee $3.5 billion in emerging-market assets as a money manager at
Amundi Asset Management in London. “Everyone has their own compliance
department and it’s up to them to give them the go-ahead."

The initial price guidance on the 10-year dollar-denominated notes is
a yield of 4.65 to 4.9 percent, according to people familiar with the
matter, who weren’t authorized to speak publicly about the deal and
asked not to be identified. That’s a modest premium above the 4.02
percent yield for Russia’s September 2023 Eurobond. The Finance
Ministry didn’t indicate how large the issue would be, but this year’s
budget authorizes as much as $3 billion.

VTB Capital had received $5.5 billion of bids for the bonds as of
Monday evening in Moscow and final pricing is expected tomorrow, the
people said. Some administrative issues are still being worked out and
the organizer will consider Asian investors early Tuesday, they said.

Beyond raising cash, the deal could have important symbolic value for
the Kremlin, which has sought to minimize the impact of sanctions
since they were imposed in 2014 over the conflict in Ukraine.

“For Moscow this is not about the money, it is about the messaging of
undermining and eroding sanctions,” said Tim Ash, head of
emerging-market strategy at Nomura International Plc in London. EU
officials are expected to extend the restrictions next month or in
early July.

Russia’s attempt to find underwriters for the Eurobond in February
failed after warnings from the U.S. and EU led banks including Goldman
Sachs Group Inc. and Deutsche Bank to drop out of the bidding process.
Russian officials had said they wanted prominent U.S. or European
banks involved to ensure the success of the issue and had shelved the
plans when it became clear they wouldn’t join. The Finance Ministry
declined to comment Monday on the timing of the placement.

Sovereign dollar and euro bond sales from emerging markets have
reached $65 billion this year, more than half of last year’s volume,
according to data compiled by Bloomberg.

Coca-Cola Co. is halting production of sugar-sweetened beverages in
Venezuela as the company’s namesake soda pop becomes the latest victim
of a lack of raw materials in the cash-strapped country.

The iconic drink is the latest to join a group of basic products
becoming scarce in a country beset by currency controls, goods
shortages and the world’s highest inflation rate. Kraft Heinz Co. and
Clorox Co. have also had to interrupt operations in Venezuela, where
it’s now common for citizens to wait in long lines for household items
such as deodorant, toilet paper and medicine.

“Sugar suppliers in Venezuela have informed us that they will
temporarily cease operations,” Kerry Tressler, a Coca-Cola
spokeswoman, said in an e-mail. The company is talking with suppliers,
government authorities and others to work on a solution.

Venezuela is experiencing the worst recession in decades as the
falling price of oil, which accounts for about 95 percent of foreign
currency earnings, pushes international reserves to a 13-year low of
$12 billion. The economy contracted 5.7 percent in 2015 and is
expected to shrink an additional 8 percent this year, according to the
International Monetary Fund. The inflation rate is projected to climb
to almost 500 percent.

Frontier Markets

Africa's economic performance held firm in 2015 amid global headwinds
and regional shocks. The continent remained the second fastest growing
economic region after East Asia. According to the report's prudent
forecast, the continent's average growth is expected at 3.7% in 2016
and pick up to 4.5% in 2017, provided the world economy strengthens
and commodity prices gradually recover.

In 2015, net financial flows to Africa were estimated at USD 208
billion, 1.8% lower than in 2014 due to a contraction in investment.
At USD 56 billion in 2015, however, official development assistance
increased by 4%; and remittances remain the most stable and important
single source of external finance at USD 64 billion in 2015.

The continent is urbanising at a historically rapid pace coupled with
an unprecedented demographic boom: the population living in cities has
doubled from 1995 to 472 million in 2015. This phenomenon is unlike
what other regions, such as Asia, experienced and is currently
accompanied by slow structural transformation, says the report's
special thematic chapter.

According to the authors, lack of urban planning leads to costly urban
sprawl. In Accra, Ghana, for example, the population nearly doubled
between 1991 and 2000, increasing from 1.3 million to 2.5 million
inhabitants at an average annual growth rate of 7.2%. During the same
period, the built up area of Accra tripled, increasing from 10
thousand hectares to 32 thousand hectares by an average annual rate of
12.8%.

Urbanisation is a megatrend transforming African societies profoundly.
Two-thirds of the investments in urban infrastructure until 2050 have
yet to be made.

Africa’s economic performance held firm in 2015, amid global headwinds
and regional shocks. Growth in real GDP is estimated at 3.6%, higher
than the 3.1% for the global economy and 1.5% for the euro area.
Africa remained the world’s second fastest growing economy after East
Asia. In 2015, sub-Saharan Africa (excluding South Africa) grew faster
than the continental average, at 4.2%, with East Africa leading the
way at 6.3%. Growth in Central, North and West Africa was above 3%,
while Southern Africa grew by an average of 2.2%. Looking ahead,
average growth in Africa is expected to remain moderate at 3.7% in
2016 but could accelerate to 4.5% in 2017.

Several African countries (Côte d’Ivoire, Djibouti, Ethiopia,
Mozambique, Rwanda and Tanzania) were among the fastest-growing
countries in the world with growth between 6% and around 10%.

The US can now sell chicken to South Africans but that doesn’t mean
they’ll eat it
http://qz.com/688881/the-us-can-now-sell-chicken-to-south-africans-but-that-doesnt-mean-theyll-eat-it/

Dollar versus Rand 6 Month Chart INO 15.8348
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Egypt Pound versus The Dollar 3 Month Chart INO
http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1

Egypt EGX30 Bloomberg
http://www.bloomberg.com/quote/CASE:IND

Nigeria All Share Bloomberg
http://www.bloomberg.com/quote/NGSEINDX:IND

Ghana Stock Exchange Composite Index Bloomberg
http://www.bloomberg.com/quote/GGSECI:IND

The Resource Curse is a much talked-about phenomenon, but what about
the ‘presource curse’ – when a country’s economy is derailed not by
resource exports, but the mere prospect of them?

Mozambique is the latest country to fall victim to this ill. The
government took out more than $2 billion in secret, state-backed loans
in 2013 and 2014 on the assumption they would be easy to repay once
gas revenues from its giant Rovuma Basin LNG projects started flowing
in 2018. But that date always looked optimistic: now, after the oil
price collapse, even a 2021 startup – when the largest of the debt
repayments is due – looks unlikely. With the government broke and at
real risk of a sovereign default, the FIDs could be pushed back
further still.

Brazil and Ghana, for example, are both arguably cases where elevated
expectations of oil returns led to macroeconomic recklessness. But
Tanzania is perhaps an interesting counter-example.

"Like Mozambique, Tanzania has been planning LNG investments for
years. Unlike Mozambique, it looks more certain to miss out on these
altogether. Tanzania didn’t go as far down the investment path as
Mozambique or Ghana, and perhaps as a consequence didn’t get into any
deep fiscal problems either," said Jim Cust, director of research and
data at the Natural Resource Governance Institute. "It’s hard to prove
the counter-factual, but they just got a ringing endorsement from the
International Monetary Fund on the state of the economy."

So while Mozambique may beat its northern neighbour in the race to
export LNG from East Africa, Tanzania could be the real economic
winner in the long term. "Time will tell, but looking at Ghana and now
Mozambique, it’s not hard to think Tanzania might have dodged a
‘resource’ bullet, in the short run at least," said Cust

 Mozambique was heading toward a default on Monday after the
government failed to honour a sovereign guarantee behind a $535
million loan taken out by a state-run company to build shipyards that
have not materialised, a Finance Ministry source said.

The repayment crisis in what was once one of the continent's brightest
economic prospects is likely to trigger a reappraisal of the wave of
commercial lending to African governments during the past decade of
relatively strong regional growth.

The state firm, Mozambique Asset Management (MAM), was unable to make
the $178 million payment and the government - which last month
admitted to $1.35 billion of secret foreign borrowing - also failed to
come up with the cash, the source said.

Foreign creditors behind the loan, organised by Russia's VTB Bank, had
rejected the war-scarred Southern African country's initial proposals
to renegotiate payments, but were still in talks to try to reach a
deal, the source added.

VTB declined to respond to questions submitted by Reuters earlier in
the day. Calls and messages sent to Finance Minister Adriano
Maleiane's mobile phone went unanswered.

Although a grace period built into most loans means Mozambique is not
in formal default, the secret borrowing revelations - which takes its
foreign debt obligations to $9.86 billion, or 80 percent of GDP - made
a repayment crunch almost inevitable.

Conclusions

Its spreading. And we are still a long way off the Elections.

Kenya's central bank reduced its policy lending rate on Monday by 100
basis points to 10.5 percent, saying inflation was expected to decline
further.

Eight out of 12 analysts polled by Reuters had expected the bank to
hold rates but the bank's Monetary Policy Committee (MPC) said lower
inflation had created room to ease policy.

"Overall inflation is expected to decline and remain within the
Government target range in the short-term," the MPC said in a
statement.

Inflation fell to 5.27 percent in April from 6.45 percent in March,
well within the government's preferred band of 2.5-7.5 percent.

NAIROBI (Reuters) - Kenya's central bank governor said on Tuesday the
economy was expected to expand by 6 percent in 2016 after 5.6 percent
growth last year, while the current account deficit was expected to
narrow to 5.5 percent of GDP in 2016 from 6.8 pct.

Governor Patrick Njoroge was speaking at a news conference a day after
the central bank cut interest rates by 100 basis points to 10.5
percent, saying falling inflation offered room for an easing of
monetary policy.

Imperial Bank shareholders induced its auditors with a $5 million
(Sh500 million) low-interest loan to turn their attention away from a
Sh34 billion embezzlement scheme at the collapsed lender, the Kenya
Deposit Insurance Corporation has claimed in court filings.

The KDIC, Imperial Bank’s receiver manager, says in documents filed at
the Milimani High Court that top managers at audit firm PKF Kenya were
lent Sh500 million through a real estate company they owned to rope
them into the multibillion-shilling scandal.

Suppliers of Uchumi Supermarkets Ltd. agreed to resume stocking
Kenya’s only publicly traded retailer as the company’s biggest
shareholder said it would ensure they received payment.

The 40-year-old company that was placed into receivership in 2006,
from which it emerged in 2010, owes creditors including Nairobi-based
lender KCB Group Ltd. a total of 3.6 billion shillings ($35.8
million). Over the past year, the company has closed down almost half
its stores to cut costs and conserve cash.

After a meeting between management and government officials on Friday,
suppliers agreed to convert half of the company’s debt into equity and
to channel future payments through a jointly managed escrow account.
In addition, Uchumi’s biggest shareholder, closely held lender Jamii
Bora Bank Ltd., offered suppliers invoice discounting, or short-term
loans based on purchase orders from the retailer.

“That has been sorted out so now we know that Uchumi will fly again,”
said Samuel Kimani, chief executive officer of Jamii Bora, which owns
15.2 percent of the retailer. “The revival of Uchumi is very
important. It means the value of the shares should go up.”

The stock fell to a record low of 3.4 shillings on May 19, bringing
its decline to almost 70 percent so far this year -- the most of any
of the 25 companies ranked in the FTSE NSE Kenya 25 index. Shares of
the 1.37 billion-shilling ($13.6 million) company gained 8.7 percent
on May 20 after the company said it was in talks with creditors for
more time to pay off its debts.

The company plans to dispose off one of its biggest outlets to raise
additional money and has also asked the government for a 1.2
billion-shilling bridging loan. Part of the proceeds will pay 800 of
the smallest companies providing Uchumi with merchandise and owed a
total 40 million shillings, according to Chief Executive Officer
Julius Kipng’etich, who was appointed in September after his
predecessor was fired.

The biggest threat to the recovery plan is a commercial court case by
seven suppliers seeking to wind up Uchumi over a 300 million-shilling
debt, according to Kipng’etich. No lenders can extend any facility to
the chain while the matter is still before a judge.

“It is now a question of just unlocking that court case,” said Richard
Rugendo, the chairman of the Association of Kenya Suppliers, a lobby
group for some of Uchumi’s creditors.

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