Spotlight on Egypt

With the front pages dominated by news of the crisis in Egypt, it’s hard to escape the chaos that has brought the country to a virtual standstill.

Protestors demonstrating against corruption, elevated inflation, chronic unemployment and a lack of democracy are currently exorcising their democratic right, which has been thwarted for too long by Murbaraks 30-year dictatorship.

Their frustrations have come to the fore, with the disruption spilling over to a seventh day – the impact understandably having an effect on the global markets (something I’m sure the demonstrators, quite rightly, aren’t that concerned about).

A by-product of this political turmoil has been for Moody’s to downgrade Egypt’s government bond ratings to Ba2 from Ba1, and changing their outlook from stable to negative. In the currency markets, the Egyptian pound has also taken a hammering sinking to a four and a half year low against the safe-haven dollar, with the Turkish Lira and Israeli Shekel among the other currencies under selling pressure due to their relative proximity to the disorder.

The classic safe havens of gold, oil and the US dollar were the immediate beneficiaries of this crisis, with traders pulling out of riskier stocks whilst keeping a watchful eye on these uncertain times - hoping the seeds of discontent aren’t sewn too close to the oil exporter counties of the Middle East, and the Suez canal – an artery responsible for the shipment of around a million barrels of crude and refined oil a day. Indeed oil has already climbed back to within a whisker of $100 per barrel and could quickly climb through that level if risks to production manifest themselves.

Uncertain times indeed then. However, perhaps rather surprisingly, the market’s today do seem to be regaining lost ground. The yen, US dollar, and Swiss franc have all given back Friday’s gains suggesting that Egypt’s civil unrest is not yet undermining broader risk appetite. Have we seen an end to this story? I expect not.

Edward Knox
Analyst