Interest Rate Monitor

1. Interest Rate Monitor August 4, 2013

2. Brief Overview International MENA Region US: Bond yields fall as market contemplates what effect will the jobs data have on monetary policy Egypt: Central bank cuts rates for first time since 2009 Eurozone: Bond market remains calm as ECB reiterates that it won’t raise rates in the foreseeable future GCC News Highlights GCC interbank rates UK: BoE keeps policy unchanged as manufacturing sector expanded at fastest pace since March 2011 China: Manufacturing data gave mixed messages Comparative MENA Markets Japan: Growth seems to pick up speed, but recent data was mixed Local Economy Markets overview New and analysis Major Indices: US stocks edge up as investors shrug weaker than expected jobs data • Central bank issued second USD denominated bond Commodities & Currencies: Gold rebounds on jobs data but posts weekly loss Markets overview Central Bank Meeting Calendar • Amman Stock Exchange Interest Rate Forecast • Local Debt Monitor The Week Ahead • Prime Lending Rates

3. International

4. Treasury yields fall as jobs growth lag expectations • Treasury prices rallied this week, as the muted payroll report spurred demand for safe-haven assets and curbed speculation the Federal Reserve will scale back its stimulus efforts in September. • The yield on the 10-year US government bondwas down 11 basis points Friday at 2.60% after the jobs report – having risen Thursday to within striking distance of a recent two-year high above 2.7%. Over the week, the 10-year yield was up 4bp.

5. FOMC statement was slightly dovish as slow growth restrains the Fed • The Federal Reserve maintained its asset purchase program, continuing its pace of $85 billion a month, with the first Fed rate hike still not expected before 2015. • The FOMC statement made no mention of tapering, effectively signalling that it will continue QE for some time to come until there is a clear improvement in the US labour market situation. • Moreover, interest rates will hold near zero as the Fed would like to see the unemployment rate fall to around 6.5% before it starts to raise short-term interest rates • The Fed downgraded its assessment of the economy in its statement, stating that growth in the first half of the year had been “modest”, a description slightly more subdued than the Fed's previous "moderate" pace, despite an unexpectedly strong annualized second-quarter growth rate that came in at 1.7%. • It also pointed to two new downsides: mortgage rates have been rising and inflation may be too low. • The committee voted 11-1 in favour of Wednesday’s statement, with Esther George, who thinks the policy is too easy, continuing her dissent. She remains concerned over the inflation goal and risk of fiscal imbalances.

6. FOMC gave little indication of when the fed will start tapering • The Fed's policy statement appeared to be crafted to avoid sending any strong new signals about the central bank's already articulated plans to scale back its bond buying later this year. It thus remains data dependent, and as such, the door is still open for a later start to tapering. • Better than expected data earlier in the week on US manufacturing activity and weekly jobless claims had supported the view that the Federal Reserve would begin scaling back its quantitative easing programme in September. • However, the Labor Department gave its latest snapshot of the job market on Friday, were the jobs figure were slightly below expectations even as the unemployment rate fell to 7.4%. • Another job report is due before the Fed's Sept. 17-18 meeting. If August data does not disappoint, September remains the most likely candidate for a start to tapering. But Friday’s data threw uncertainty back into the mix. 7.0%: Target for Fed to end its bond buying program 6.5%: Target for Fed start conversation about raising rates

7. US jobs market hits speed bump • U.S. employers added jobs at a slower pace in July, suggesting more steady but unspectacular economic growth heading into the summer. • The U.S. economy added 162,000 jobs, marking the slowest month for hiring since March, the Department of Labor said Friday, lower than economists' median forecast of 183,000. • Also worrisome, is that the Labor Department revised down the jobs totals for the two prior months by a combined 26,000. • Meanwhile, the unemployment rate, taken from a separate survey of U.S. households, fell two-tenths of a percentage point to 7.4%, its lowest level since December 2008. But the figure was also discouraging because the drop was partly because 37,000 people dropped out of the labor force. • The latest snapshot of the job market suggests that slow economic growth may be weighing on employers. Higher taxes, federal spending cuts and slower growth abroad have held back the economy for months, though the pace of hiring has been solid so far this year. July: +162,000

8. US jobs report complicates Fed’s tapering decision • The latest employment report shows that labor markets continue to heal, albeit slowly. The U.S. has added an average of 192,000 nonfarm jobs per month so far this year, hardly a robust pace but more than enough to keep up with population growth. • The unemployment rate fell mostly because the number of employed people rose, though some also dropped out of the labor force. The unemployment figures are derived from a survey of households, while payroll numbers are based on a survey of employers. The two surveys can tell a slightly different story from month to month, but generally converge over time. • The income part of the report was also soft. Average hourly wages were up by less than 2% in July from a year earlier, continuing a pattern of weak wage growth in the recovery. This will likely restrict consumer spending in the coming months. • The conflicting job-market signals complicate the job of the Fed as it considers when to begin winding down its $85 billion-a-month bond-buying program. • The Fed has said it expects the unemployment rate to be about 7% when it stops buying bonds, a mark that could now be within reach by year's end. Yet Fed policy makers have also stressed that they are keeping close watch on other measures of labor-market health many of which have shown less improvement.

9. U.S. economy grows faster than expected in Q2, though overall growth remains tepid • The U.S. economy picked up slightly in the second quarter of the year, though the overall pace of growth remained lackluster as consumers held back and the federal government continued to cut spending. • The nation's gross domestic product, the broadest measure of goods and services produced across the economy, expanded at an annualized 1.7% pace from April to June. • GDP data came in stronger than the 1% growth rate forecast by analysts, as robust consumption and investment offset the drag from public spending and a slowing global economy. • Still, the April-June performance was only a small acceleration after the first quarter's revised paltry 1.1% growth rate and represents little comeback from the end of last year, when the economy nearly ground to a halt. So the overall size of the economy looked similar but there was more short-term momentum. • Nevertheless, the report marks the straight quarter of GDP growth below 2% , a pace that normally would be too soft to bring down unemployment. Q2: +1.7%

10. U.S. GDP growth: Silver lining in revisions • The overall performance shows that the U.S. economy has struggled to gain momentum amid slow growth abroad, domestic political uncertainty, higher taxes and sweeping federal budget cuts. • Still, some data suggest that the economy may perk up a little in coming months, supported by a resurgent housing market, renewed business spending and the diminishing effects of government tax and spending policies. • On the other hand, broad revisions to the data show that the U.S. economy expanded at a stronger pace in 2012 and the downturn wasn't quite as bad as previously thought. • GDP last year expanded at a 2.8% pace versus a previous estimate of 2.2%. The change comes as part of a comprehensive overhaul of gross domestic product data dating from 1929 through the first quarter of 2013. • The government revised the figures to include new measures it says better capture the U.S. economy. For example, for the first time the Commerce Department released data on intangible assets like research and development, and entertainment and the arts. In the second quarter, these categories contributed to GDP.

11. US manufacturing sector rebounds after stumble • U.S. factories posted their best month in two years in July, suggesting a spring slowdown in manufacturing may be giving way to a more robust recovery. • The Institute for Supply Management on Thursday said its broad index, in which any reading above 50 indicates expansion, jumped to 55.4 from 50.9 in June—the biggest one-month jump since 1996. Factories ramped up production to the highest level in nine years as new orders hit a two-year high, while exports continued growing, though more slowly. • Moreover, hiring at factories hit the strongest level in a year after four straight months in which manufacturers had shed jobs. • A separate report showed that demand for U.S. factory goods rose in June, boosted by higher demand for aircraft, as businesses stepped up investments but at a slower pace than earlier in the spring. Total factory orders expanded 1.5% to a seasonally adjusted $496.7 billion from May, the Commerce Department said Friday. Orders have risen for four of the past five months. • The latest data is evidence that increasing spending by U.S. businesses and consumers, the housing recovery and some improvements overseas are helping America's factories rebound after a stumble.

12. Eurozone bonds market sentiment mostly positive supported by positive news flow from the euro area • Italian and Spanish government bonds advanced for a third week after reports showed factory output in the euro area expanded for the first time in two years and the number of people unemployed in Germany declined. • After nervousness about the political situation in Portugal, market sentiment has mostly been positive, supported by positive news flow from the euro area and promises of continued loose monetary policy until the recovery has gained firm footing. • The German Bund traded within a narrow range for most of the week. Its yield edged down 2bp to 1.65% following the US jobs data, leaving it 2bp lower for the five-day period. • Italy’s 10-year yield fell 14bp over the week to 4.27%, as the conviction of Silvio Berlusconi, former prime minister, for tax fraud appeared not to threaten the survival of the country’s governing coalition. Though tensions in parliament are high and risks continue as members of Berlusconi’s party had threatened to bring down the coalition if the conviction was confirmed. • Meanwhile, Spain’s 10-year yield fell 5bp over the week to end Friday at 4.57%

13. ECB reiterates that it won’t raise rates in the foreseeable future • The European Central Bank kept its benchmark interest rate unchanged at a record low of 0.5% after economic data signaled that the euro-area may be recovering from its longest-ever recession. • ECB President Mario Draghi sought to dispel doubts about the strength of the central bank's recent guidance on interest rates by reaffirming its commitment to keep borrowing costs low for as long as Europe struggles to recover. • Moreover, Draghi tempered recent surveys signaling the eurozone's economy is on the mend, saying that while the economy seems to be stabilizing, the expected recovery will be weak. • While euro-area manufacturing expanded for the first time in two years in July and business confidence improved for a third month, lending to companies and households fell the most on record in June. • Unless data significantly improve, interest rates will likely remain at current record-low levels, or go even lower, for "an extended period," Mr. Draghi told a news conference after the ECB's monthly meeting. • Mr. Draghi indicated an interest-rate cut wasn't on the table Thursday, unlike last month when that option was extensively discussed. Q1: -0.3%

14. Value of forward guidance is debatable • Draghi's forward guidance, first issued last month, surprised financial markets, because of the ECB's tradition of never pre-committing on future rate decisions. Draghi said the ECB board had discussed whether to repeat the message about interest rates, and concluded it might not repeat forward guidance if it is convinced markets grasp that the message still holds. • While Draghisaid that policy makers didn’t discuss defining the guidance in terms of fixed time horizons or economic targets, he went a step further than last month and warned money markets against betting on rate increases any time soon. • The most important signal from Draghi was that he said that even as the economy improves, current expectations of rate hikes in the money market are unwarranted. • Moreover, the commitment to low rates is contingent upon the bank's assessment that inflation will remain benign over the medium term, Mr. Draghi said. ECB staff expects inflation to average just 1.3% next year, well below the bank's 2% target, which many analysts take to mean rates will stay very low at least for an additional 18 months. Eurostat said Wednesday that the annual inflation rate in the eurozone was unchanged in July at 1.6%.

15. ECB minutes not a done deal • Draghi also said that ECB officials are considering the earlier publication of the minutes from its monthly meetings and that the Executive Board will present a proposal to the Governing Council in the fall. Minutes are currently scheduled to be published 30 years after each rate decision. • Investors were intrigued by this possibility after some ECB members voiced their support for earlier publication earlier in the week. • While Draghi said a proposal about releasing minutes would be considered this fall, there were concerns that the information could have a negative impact on individual members of the ECB's governing council. • Draghi explained that ECB members had to act in the best interest of the eurozone as a whole. If minutes showed members were not necessarily acting in the best interest of their home countries, that could hurt their credibility back home, he said.

16. Eurozone economy signals stabilization as manufacturing expanded the first time in two years • Recent reports suggest the euro zone's economy is slowly emerging from its recession, which began in late 2011. Gross domestic product likely stabilized or even grew modestly in the second quarter, breaking a string of six-straight quarterly contractions, many economists say, citing reports on industrial production and exports. • A closely watched survey of purchasing executives signaled an expansion of activity in the manufacturing sector for the first time in two years. The purchasing managers' index rose 1.5 points to 50.3 in July, according to data firm Markit Thursday. Index readings above 50 signal expansion in business activity. • Countries in both the core and the periphery of the currency bloc have shown signs of improvement. Germany, Europe’s largest economy, saw business confidence increase for a third month and unemployment hold near a two-decade low in July. Spain’s contraction slowed to 0.1% in the second quarter from 0.5% in the first. • However, one sign that the euro-area recovery has a long way to go is unemployment, which remained stubbornly high at a record 12.1% in June, weighing on consumer spending. Spain had the highest rate at 26.3%. • Also, fiscal-austerity measures in much of Europe will likely weaken activity this year and in 2014. Many economists expect GDP to expand in the third and fourth quarters, but just barely and at insufficient rates to bring down the unemployment rate.

17. IMF warns Greece about new funding shortfall • Greece faces an additional financing shortfall of nearly €11 billion by the end of 2015, the International Monetary Fund said on Wednesday, warning that the gap could be bigger if growth falls short of estimates. • That figure is higher than earlier eurozone projections, and combined with the IMF's estimate of the amount of debt relief Athens needs, would force Europe to cover any extra financing needed to keep Greece afloat, including potential write-offs of rescue loans extended to Greece over the past three years, in order to make the country's debt load sustainable. • That puts the IMF at odds with the eurozone's strongest member, Germany, where the government is avoiding talk of debt reductions and new Greek loans ahead of elections in September. • Without additional eurozone financing, the IMF said, Greece might not be able to pay back its loans to the fund. That would make it even more difficult for Athens to tap private financing or attract investment needed to spur growth. • The details, revealed by the fund in its latest assessment of the international bailout for Greece, are likely to add to Athens's troubles as the coalition government struggles to maintain its bailout program and political power.

18. Greece bailout doubts resurface as Cyprus seems to be on track with its overhauls • Greece's bailout faces a €4.4 billion financing gap in 2014 and an additional €6.5 billion in 2015, according to the IMF's assessment. • In mid-June, a European Commission spokesman said a hole in Greece's funding gap projected at €3.8 billion through the end of 2014 could be plugged by using leftover funding from a €50 billion package earmarked to recapitalize the country's banks. • Greece's bank-rescue fund said on Tuesday that it has roughly €12 billion left over from that package, hinting that might be able to plug the financing gap if it doesn't widen beyond the fund's current estimate. • Meanwhile, the European Commission, ECB and the IMF on Wednesday said neighboring Cyprus is on track with overhauls, but that challenges remain, potentially opening the door for the country to receive more international assistance. • Cypriot authorities announced Tuesday that the country's largest lender, Bank of Cyprus had been fully recapitalized with 47.5% of deposits above €100,000 converted into shares. The country's second largest lender, Cyprus Popular Bank PCL closed with its healthy assets becoming part of Bank of Cyprus. • The Troika said that the short-term economic outlook "remains difficult and subject to considerable uncertainty" as economic output is set to drop by about 13% cumulatively in 2013 and 2014. The Troika said growth is then expected to recover modestly beginning in 2015.

19. IMF warns Spain of tough jobs outlook • The International Monetary Fund told Spain on Friday it faces five more years with an unemployment rate topping 25% as it pressed Madrid to enact new reforms including measures to help firms slash wages instead of axing staff. • Spain's economy, the fourth largest in the eurozone, has been shrinking for two years and official data show the unemployment rate hit 26.26% in the second quarter of this year, slightly below the record 27.16% posted in the first quarter. • The outlook for Spain's economy, the fourth largest in the eurozone, is "difficult and risks are high," the IMF's annual report said, predicting a 1.6% economic contraction this year, zero growth in 2014 and growth of just 0.3% in 2015. • "The weak recovery will constrain employment gains, with unemployment remaining above 25% in 2018," said the report compiled by IMF staff. • IMF executive directors praised Madrid for economic reforms, including 2012 legislation making it cheaper to lay off workers and easier to change staff hours and cut wages. • "However the economy remains in recession, with unacceptably high unemployment, and the outlook remains difficult," the directors said.

20. BoE kept policy unchanged before key inflation report next week • The Bank of England opted to maintain its main interest rate at 0.5% on Thursday and keep its asset purchase program on hold at £375 billion, but did not issue a statement about future policy following the decision. • This outcome matches that of last month's meeting, which was the first in the tenure of new BoE governor Mark Carney. • Minutes released of the July meeting revealed that the Monetary Policy Committee (MPC) had voted unanimously against further money stimulus, following months of disagreement over the issue. • But the nine members of the MPC worry that signs of a sustained return to economic growth will generate expectations that they will raise the central bank's benchmark interest rate as early as next year. • In a significant break with tradition, the central bank surprised investors by releasing a statement about future policy moves following the meeting last month. • MPC members saw a rise in market interest rates ahead of their July meeting as a premature withdrawal of stimulus, and took the unprecedented step of issuing a statement declaring that those moves were out of line with the state of the economy. • Investors were keen for more insight this time, but were left somewhat disappointed as no statement was issued by the BoE on Thursday. However, the central bank said it would release more information next week about its plans for providing forward guidance with the inflation report.

21. UK recovery picks up speed as manufacturing roars back to life • The U.K. manufacturing sector expanded at the fastest pace in over two years in July, suggesting that economic growth recorded in the first two quarters of the year looks set to continue. • The monthly purchasing managers index for the manufacturing sector, compiled by data firm Markit and the Chartered Institute of Purchasing & Supply, showed a sharp increase in U.K. manufacturing in July, with the index hitting a 28-month high. That marks the fifth consecutive month of improvement. • The July purchasing managers index for manufacturing jumped to 54.6 from an upwardly revised 52.9 in June, where a reading above 50 indicates growth. This was its strongest reading since March 2011, beating economists forecasts by a wide margin. • Total new orders grew at the fastest pace since February 2011 and benefited from a double boost from both the domestic and export markets, helping to lift employment numbers for a third straight month.

22. Gauges of Chinese manufacturing give mixed messages • China got a mixed message on the state of its manufacturing health in July, leaving economists little evidence of an upturn as the world's second-largest economy continues to struggle. • The official China Manufacturing Purchasing Managers' Index was up slightly for the month, showing gains in almost all the categories it measures, data released Thursday showed, while a private index drawn up by banking giant HSBC showed a further softening. • The official manufacturing PMI, which is heavily weighted towards larger state-owned enterprises, stood at 50.3 for July, up from 50.1 in June and higher than the 49.8 that economists polled by The Wall Street Journal had expected. A number above 50 indicates expansion from the previous month; a number below, contraction. • But the HSBC index, which covers a wider range of smaller export-oriented companies, came in at 47.7—an 11-month low, down from June's 48.2 and unchanged from the "flash" or preliminary measure for July issued late last month. • Hit by sluggish demand for exports as well as weak demand at home, economic growth in China slowed in the second quarter, with gross domestic product up 7.5% from a year earlier, compared with 7.7% in the first quarter. • The government has taken a number of fine-tuning measures of late that could be a factor in the slightly improved sentiment

23. Japan growth appears to pick up some speed, though recent data have been mixed • Japanese industrial production took a surprise 3.3% tumble in June, but the government kept its outlook for the sector unchanged, saying that output is gradually recovering. But officials noted that production for the April-June quarter was up 1.4% from the previous quarter and manufacturers surveyed as part of the data said they expect a strong rebound in July with a projected 6.5% gain. • Also, household spending fell by 0.4% year-on-year, confounding market expectations for a 1% increase. • On the other hand, Japan's jobless rate fell to 3.9% in June, its lowest level since October 2008, while other figures showed a tighter labor market that suggests the government's drive to reinvigorate the economy is gaining traction. • The outlook for the labor market is seen as an important element for the administration of Prime Minister Shinzo Abe in gauging the health of the economy ahead of a critical decision on whether to raise the national sales tax in April. • The government is due to decide this fall whether the economy is strong enough to sustain the expected negative impact of a tax rise. The tax increase is meant to shore up the government's shaky finances and any delay could spark selling in the government bond market, analysts say. • While Mr. Abe's policies of fiscal stimulus and aggressive monetary easing, known as Abenomics, have helped spark an expansion of the economy and a weakening of the yen, concerns remain that the tax increase could wipe out the momentum gained so far.

24. U.S. stocks edge up as investors shrug weaker than expected jobs data

25. Gold rebounds on jobs data but posts weekly loss

26. Major Interest Rate Forecasts

27. The Week Ahead,,,

28. Central Bank Meetings Calendar Calendar for upcoming meetings of main central banks :

29. Regional

30. Egypt's Central Bank cuts interest rates for first time since 2009 • Egypt’s central bank monetary policy committee announced on Thursday that it had decided to cut its overnight deposit rate by 0.50% to 9.25%. Additionally, the lending rate and discount rate were cut by the same margin to reach 10.25% and 9.75% respectively. • This is the first cut in rates since 2009, and it seems to reflect the government’s desire to take advantage of the influx of Gulf financial support to introduce monetary stimulus in an effort to generate growth in the economy. • Real GDP growth average a measly 2.3% in the first three quarters of the 2012/13 fiscal year, and expected growth for the full year is 2.0%. • The rate cut came despite a sharp increase in inflation, as inflation year-on-year in June reached 9.77%, compared with 8.18% in May. The committee said that the downside risks to the economic outlook outweighed the upside risks to inflation. • The inflow of Gulf funds helped bolster FX reserves, and has relieved pressure on the currency. Some of the funds have been used to cover its fiscal deficit, thereby reducing the need to borrow from local banks to meet its financial needs. In turn, the decrease in lending will stimulate private sector lending, enabling real GDP growth to recover. Source: Bloomberg Source: Bloomberg

31. Egypt's 2012/2013 budget deficit estimate raised to 12.5% • Last week, the Ministry of Finance revised budget estimates for the 2012/13 fiscal year, and put deficit for the year as a percentage of GDP at 12.5%, compared with the previous target of 10.7% set in December 2012. Up to May, the fiscal deficit stands at 11.8% of GDP. • Revenues have been revised downwards, from 396.8bn EGP to 393.5bn EGP. However, after 11 months, actual revenue has reached only 271.4bn EGP, equal to 69% of the full-year estimate. This hints that the government will need to collect lagging tax payments and other due payments, or revenues will fall a long way short of the target. • On the other hand, spending estimates has increased from 587.5bn EGP to 616.4bn EGP, mainly resulting from additional allocations for subsidies (up to 163bn EGP from 147bn EGP), and interest payments (up to 151.3bn EGP from 138.6bn EGP). Revised estimates for food subsidies is 26.6bn EGP, however, actual spending on food subsidies in the first 11 months was higher, at 29.1bn EGP. • Al Borsa, an Egyptian financial paper, cited a government document stating that Egypt’s end of fiscal year deficit reached 13% of GDP. • 2013/14 budget projects a deficit of 9.1% of GDP, as expenditure will increase by 11.8% in nominal terms, and revenue rising by 28.4%, due to big increase in receipts from corporate tax and sales tax. Source: Egypt’s Ministry of Finance

32. GCC Economic Highlights:Kuwait: credit growth hits 6.4%, fastest pace since 2009 • Total bank credit rose by KWD 290 million in May to reach KWD 27.8 billion, with a year on year credit growth of 6.4%, the fastest pace since 2009. Monthly credit gains so far this year have average at KWD 200 million, doubling its average for the comparable period last year. • Credit gains was led by the non-financial business sectors, which maintained a streak of healthy monthly gains. • Credit lending is expected to register growth of 7% in 2013, the strongest reading since 2009. • Personal facilities rose by KD 104 million, reflecting a sustained healthy growth in this sector. Year-on-year growth accelerate to 18% boosted by strong demand and a healthy household sector. • Meanwhile, credit to non-bank financial institutions was up only by KWD 6 million in May compared to April. Compared to a year ago, credit lending in this sector has fallen by 17.3%. • Non-financial business activity witnessed a big jump in May of KWD 181 million, further supporting the recent accelerating growth trend. Year-on-year change registered a 4.9% growth in this sector. • Meanwhile, deposits at local Kuwaiti banks were up a total of KWD 584 million, exclusively in local currency, giving banks more room for credit expansion.

33. GCC Economic Highlights:Kuwait: inflation accelerate to 3% yoy in May • The Central Statistical Bureau (CSB) released the inflation rate for May, showing an increase of 3.0% from May of 2012, and up from 2.8% in the previous. However, in month-on-month terms price were unchanged. • The CSB has published a revised series for consumer price inflation, using 2007 as the new base year. Additionally, it has altered some of the items included in the consumer basket and assigned new weights. • Now, the impact of housing (mainly rent) is even higher, making up 28.9% of the index compared with 26.7% previously. • On the other hand, the relative importance of food to the basket is virtually unchanged, comprising 18.4% of the index. • Therefore, the overall trend in inflation will continue to be driven mainly by food and housing costs. Food inflation is expected to slow down in the second half of this year, reflecting a stronger dollar and subdued global food prices. Source: Trading Economics

34. GCC Economic Highlights:UAE: government cuts stimulus spending as economy improves • The UAE government is cutting back on the billions of dollars in stimulus it injected into the country to help ease the pressure of the global financial crisis as it looks to return to sustainable levels of spending, the IMF said. • Total government spending as a percentage of GDP dropped to 26.9% last year, from a peak of 40.2% in 2009, according to the IMF. The fund estimates that spending will fall moderately this year to 26.3%. • The fund has advised the country to reduce energy subsidies to help mitigate risks of fluctuating oil prices as a part of the drop in government spending. IMF estimates show that subsidies in the UAE accounted for 5.5% of GDP in 2012. • In Abu Dhabi, spending on large affordable house scheme will be offset by cuts in other capital expenditure including loans and equity. • On the other hand, spending Dubai will be scaled down this year after completing a series of infrastructure projects, except for a rise in wages. Source: Trading Economics

35. GCC interbank rates Source: Bloomberg

36. Comparative MENA Markets For the period 28/07 – 02/08

37. Locally

38. CBJ issues second USD denominated internal bond of the year • The Central Bank of Jordan (CBJ) auctioned today its second USD denominated internal bond of the year in the amount of $650 million, for tenure of 3 years, with an interest rate of 4.75%. • The issue is expected to be advantageous for the Jordanian government from the following perspectives: • The bond will reduce government’s borrowing costs by 2.00% or JD 9.21 million per year. • The bond will push JD excess liquidity in the market by JD 460 million • The bonds will push foreign reserves levels by $650 million. • Since the beginning of the year, FX reserves recovered from an almost critical point to $9.7 billion up to May. • This was due to the government receiving $2.4 billion in grants and loans, a drop in foreign currency deposits at bank by $500 million, USD/JOD swaps with banks in the amount of $1.6 billion, and the first auctioned USD denominated internal bond in the amount of $500 million. Additionally, Jordan’s oil bill decreased by $1 billion up until the end of May. • However, despite that drop in the oil bill, imports only fell by around JD100 million up to May, which shows excessive pressure on Jordan’s trade balance.

39. Amman Stock ExchangeFor the period 28/07 – 01/08 ASE free float shares’ price index ended the week at (1945.9)points, compared to (1979.6)points for the last week, posting an decrease of 1.70%. The total trading volume during the week reached JD(33.4) million compared to JD(30.5) million during the last week, trading a total of (40.1) million shares through (11,271)transactions The shares of (160) companies were traded, the shares prices of (39) companies rose, and the shares prices of (92) declined.

40. Local Debt MonitorLatest T-Bills As of August 4, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(2,559) million.

41. Local Debt MonitorLatest T-Bonds Issues

42. Prime Lending Rates

43. Disclaimer The materials of this report may contain inaccuracies and typographical errors. Cairo Amman Bank does not warrant the accuracy or completeness of the materials or the reliability of any advice, opinion, statement or other information displayed or distributed through this report. You acknowledge that any reliance on any such opinion, advice, statement, memorandum, or information shall be at your sole risk. Cairo Amman Bank reserves the right, in its sole discretion, to correct any error or omission in any portion of the report without notice. Cairo Amman Bank may make any other changes to the report, its materials described in the report at any time without notice. The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and are provided "As Is" without any representation or warranty and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy any securities or other investment and\or to be relied on for any act whatsoever. Information and opinions contained in the report are published for the assistance of recipients "As Is", but are not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient; they are subject to change without notice and not intended to provide the sole basis of any evaluation of the instruments discussed herein. Any reference to past performance should not be taken as an indication of future performance. Cairo Amman Bank does not accept any liability whatsoever for any direct, indirect, or consequential loss arising from any use of material contained in this report. All estimates, opinions, analysis and/or any content for whatsoever nature included in this report constitute Cairo Amman Bank’s sole judgments and opinions without any liability and/or representation as of the date of this report and it should not be relied upon as such. Cairo Amman Bank reserves the right to change any part of this report or this legal Disclaimer at any time without notice. Any changes to this legal Disclaimer shall take effect immediately. Notwithstanding the above, Cairo Amman Bank shall not be obliged to keep this report up to date. The Recipient agree to defend, indemnify and hold harmless Cairo Amman Bank and its subsidiaries & affiliate companies and their respective officers, directors, employees, agents and representatives from any and all claims arising directly or indirectly out of and in connection of the recipient activities conducted in connection with this report.