Transcripts For BLOOMBERG Bloomberg Markets Middle East 20171114

A key conversation. David Central Banks prepared to talk about talking. Yousef it is 8 00 a. M. Across the emirates. This is Bloomberg Markets middle east. I am yousef gamal eldin in dubai. David some markets entering a lunch frank here. Lunch break here. Nothing really happened this morning. Nothing moving the markets. Changes,pacific, some but there we go. That tells this story. A very uneventful day for markets. Copper a pickup overnight. A lot of big contracts. A little more upside now, 1 . Have a look at my bloomberg chart. Yields nowyear bond crossing 4 for the first time in three years. Andmber of brokerages analyst saying because we have crossed this psychological line, prepare for the bond rout to deepen. ,nflation might be picking up and this deepening Deleveraging Campaign is making its way through the system in the form of what we showed you there, higher yields on the mainland. Yousef some other asset classes, hedge funds now working on rising crude. Take a look at what the trade is currently doing. Fairly range bound. Downside. 3 . Fairly steady as the greenback advanced earlier against most peers. The cable trade, fairly steady. Off newdown. 6 political concerns are Brown Theresa may concerns around theresa may. Bondre looking at a big auction today, an important gauge for investor appetite. We are two hours away from the opening of markets in the emirates. It was a day with a lot of conviction and falla him. 200 the threemonth average. Jump into the bloomberg with me. Of. 5 percent, strength in Consumer Discretionary and staples. Kingdom holding posting a major rebound up 5 . Qatari it of pressure on stocks. We have more on this later in the program. Lets take a look at first word headlines. Itthe uks chief negotiator is 5050 whether he gets a breakthrough by december. That is according to european at aess leaders briefed meeting yesterday. His spokesman said it was categorically untrue. The pound has fallen further amid the stalled brexit talks and internal political struggle theresa may is facing. The International Energy agency says the u. S. Shale search will become the biggest oil and gas boom in history. 2025,ency says that by the growth in American Oil Production will equal that of saudi arabia at the height of its expansion. Raised its estimate for Recoverable Shale Oil by 30 to 105 billion barrels, while cutting its price outlook to 83 a barrel. The head of opec and says production cuts are the only viable option to restore stability to the oil markets. That was a view shared by the minister, who says he hopes countries will agree to extend the output curbs. Commitment, without it, im not sure we would have done it. I hope it should continue. Chinas economic expansion dialed back in october as Factory Production and retail sales slowed here at industrial output rose six point 2 from a year earlier, fractionally below forecast and down from 6. 6 expansion the previous month. , belowsales rose 10 forecast, while fixed Asset Investment grew 7. 3 , matching estimates. States, the chief tax writer says he is confident the chamber has enough republican votes to pass tax legislation this week. Kevin brady does not anticipate any major changes. House says President Trump will speak about taxes at a conference of House Republicans on thursday morning. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. David president is wrapping up his trip in asia today. Statement,making a trade and security issues. Has beenngles following him around the asiapacific and joins us live now on the ground. He attended the summit before flying home. Tell us about the victories he might be having in his doggie bag as he steps off air force one. He has talked a lot about torica first, America First potential asian trading partners. , ist of people are saying he really reassuring asian countries, and in particular the asean countries, that United States is not pivoting away from asia. Donald trump is still keeping the United States out of the tpp, which donald trump was a leader of. He is not necessarily backing down on that. He wants freer, fairer, more reciprocal trade. Donald trump will be flying away in about three hours to the night it states with a stop in honolulu. Motorcade just arrived and coming into the door is the Prime Minister of canada Justin Trudeau. You will see Justin Trudeau walk on stage and give a closing conference, likely to talk about tpp and canadas involvement without the United States in the trading block. Perhaps he will also talk about the geopolitical issues since we are about to launch the east asia summit this afternoon, which concentrates on the geopolitical relations, South China Sea, and north korea has two of the biggest threats. Yousef an important point to pick up on, an column on bloomberg making the point that with the u. S. Administrations push for bilateral listen is that it has no other takers. The dynamic between the u. S. , china, and asean, how is that playing out there . Are puttingountries so much of their Political Capital into the multilateral tpp, or, whether china and india pushing rcep. That is the regional conference of economic partnership. Months leftnths and of negotiation still to go on both of those. Rcep has all kinds of landmines. They want to complete at least a Framework Agreement by the end of this year. That one not happen. They will push it further down the road because that is about lowering tariffs and you have 16 member nations in that grouping and they dont have existing commitments, so you want open Market Access to these countries and not have big countries like china take advantage. That is one of the concerns india has. They have a 49 billion trade deficit with china. If they lower tariffs and open the market further, that deficit could expand. We will be watching for that. Thank you so much. Great coverage there from Stephen Engles. Lets bring in our first guest this hour. Great to see you. You probably heard the conversation we had with Stephen Engles on the ground in manila. Was there anything from this asian trip by the u. S. President that made you change your forecaster projections are rethink some of these assumptions . The simple answer would be no. It is good news that nothing bad happened, and there is always the risk of geopolitical escalation. The trip on both sides would see china, u. S. , and local countries in asia as something they can be relatively happy about. So we dont see the outcome changing the macro outcome for global markets. David im guessing that points us at data that we are looking at . Inflation out of the u. K. , midweek out of the United States . Thisot sure if that because the data is just coming out, but that it doesnt matter what the data looks like for the fed and that they will hike no matter what. Is that what you think . Fed willlikely the hike in december, but three things really matter, first, the extent to which the Global Economy can continue to recover. The signs and generally look favorable. The economy has surprised people by performing better this year. U. S. And europe, generally a coordinated cove recovery across the world. Have risen up of most peoples expectations for what would be the trading range this year. Higher oil prices can be bad for asian currencies because most countries are importers. They can skew the risks towards an upper direction as well. And the long end of global Interest Rates as well. About i want to talk u. S. Dollar from a fiscal point of view in the United States. We are getting closer to a vote on the tax cut proposal. How much of that tax cut is currently priced into the u. S. Dollar . That is a very interesting question. Positioningas are netrs indicators short on the dollar and markets have not priced in the impact of u. S. Tax regulation changes. It is difficult to price that in. When will we get the Corporate Tax cut . Next year, 2019 . We simply dont know. The realm of possible outcomes, we think the market is short the u. S. Dollar given the downtrend all year. Many people have not changed their position. The u. S. Dollar will benefit from any positive news flow on tax reform implementation. Yousef you are sticking around. We still have plenty to talk about. In the meantime, lets check the business flash headlines. Ge slumped 7 after it slashed new ceodend and the John Flannery unveiled a turnaround plan. The company will focus on power, aviation, and health care equipment. Flannery said he recognized it is time for action rather than words. Franchises, 20 reset year, Capital Allocation critical, portfolio simplification critical. We know what we need to do, and it is showtime. We have to perform and execute, and thats what we oh all of you. Yousef the ceo of bp says they onld partner with abu dhabi an oil trading venture. Agreement signed the that will go through exchanging shares for interest. I think it has been great for bp and the value is up 30 , so both of us are happy about that. On ang is something we do very large scale around the world. If we can find a way that can consistentabi and be and economic, i would love to do that. Yousef tesla as well on the ask of the production floor a hotbed for racist behavior. A former employee is alleging suffer severe harassment. Tesla has declined to offer immediate comment. The ups ceo says technology will shape the next decade of banking as crossborder outflows pressure margins. The last 10m years were shaped by regulations. The next 10 will be automation and digitization. They could reduce staff by 30 in the decade. That is your Bloomberg Business flash. David thank you. We are looking ahead to Central Banks, janet yellen joining an ecb panel taking place in frankfurt today. She will be alongside mario draghi. You look at that line up and understand why there is a little bit of caution and range bound trade across currencies. Paths,verting policy policy communication is more important than ever. Lets bring back our first guest this hour. When i look across the horizon and you look at the treasury curve, which sums up everything right now, have a look at the chart, 5112. The yield curve, right, not a lot of yield in the long end. The short and you could argue is what the fed is doing. The long end is the fed an ecb. A points flatten to that it forces the fed to stop hiking . Well, i think the starting point is the argument about quantitative tightening that the fed is doing in addition to rate hikes. The conventional wisdom was the thee was to steepen because reduction of Central Bank Balance sheet expansion or the reduction of purchases would reduce the demand for treasuries and yields would go higher. Now the curve is actually flattening with the long end well anchored and the front end moving higher. What is this telling us . The market is saying that by the time the fed is done reducing its Balance Sheet that it will be time to start cutting rates as well, so essentially the market is making a judgment and the yield curve is telling us that we are very late in the cycle recovery and while shortterm rates might go higher, the path of longterm rates from here are lower. Yousef has we look ahead to this event where we will hear central bankers speak, apart from the yield curve, i have a theoretical question. Can we hear something new on communication and collaboration as they try to unwind their Balance Sheets . Ideally Monetary Policy adjustments should be collaborated upon and coordinated across banks, but what we have learned is that national prid priorities can be different. Is differentg across different countries. The ecb has just eased by expanding the window through which they have been doing qe. For japan, it is not clear any changes are likely next year. The fed on the other hand has announced preplanned Balance Sheet reduction, so Central Banks at least on paper or in large conferences want to give the appearance of global comesnation, but when it down to setting policies, National Priorities still take precedent. Yousef lets dig into some of your recommendations. G10 currencies, top calls and why . The dollar is going up for tax reforms not priced in while the fed is priced in come up but there is policy divergence between the fed and other Central Banks, especially the ecb and boj. Massive think this is a dollar rally, but from the point we are at, there is room for the dollar to rise over the next few months. Yousef what about the cable trade . Do i stay bearish . Too much central bank changes in politics going on. The boe has done a one and done rate hike. On paper that is bearish for the pound, but even the worst of the news flow around brexit, cable 1. 20, so cable should go higher because the pound is undervalued. In the near term, we dont have a strong view at the moment. Yousef good speaking to you this morning. Calm, doubt go away. We will talk about what is happening in abu dhabi. Firm plansnnounced for an ipo of its stateowned oil company. Catch our interview with the ceo of Abu Dhabi National oil company next. This is bloomberg. Adnoc announcing an ipo of its retail feel station. More than 40 could be sold off with plans to pay shareholders. Tracy alloway spoke to the ceo yesterday and joins us now. Talk us through some of their plans. It is important to emphasize the amount of excitement about this deal. It is expected to kick off this way for of rival decision of middle eastern oil and gas which is, not least of the highly anticipated saudi aramco listing. It is also interesting from on abu dhabi perspective. It is a centerpiece of oil and total oil, 6 of reserves, and under its new ceo, he has been trying to transform the company into what he says will be a new type of national oil company. Down with him after the announcement for an exclusive interview. Take a listen. Announcement said at least 10 of shares we plan to float on the market. Higher. Go that will depend on how do we focus on the markets. Is there a particular valuation . Not really. We want to demonstrate the ability of this first of its kind ipo in the region. What we are trying to achieve a numbers that will show an fromcedented commitment the international and local markets to work alongside adnoc. There are rumors you might float other businesses . We are working to maximize value to our shareholders while keeping adnoc fully owned by abu dhabi, but we will be exploring across the value chain with the main focus on services companies. Listingeep ruling out a at the Holding Company level. Why is that . You have a neighbor just across the border that is listing as a Holding Company. We have had some incidents in the past where people thought we wouldnsinuating adnoc flood the market, which is incorrect. We are exploring subsidiaries. Could you get some Strategic Investors in has cornerstones for the listing of the distribution business . Absolutely. We always look for Strategic Partners who bring us by you and access to markets. The other thing i want to ask about is the partnership process. How are those discussions with potential partners going and who would be your ideal partner . A rich and sound track record to attract Strategic Partners. Here we will apply the same, partners that share values and vision and are looking at this market in a positive manner and that will bring value and access to technology and markets and help us grow in a smarter way, as well as provide a platform to upscale. Thing worth emphasizing here is of course that this is not a listing at the Holding Company level, and it is not even a listing of the most prized oil and gas assets. It is the distribution business. While this is a step to this long awaited opening of nationalized oil and gas assets in the middle east, it is potentially the beginning of more to come. , onight have been coy there the valuation, the company is seeking 14 billion. Some other analysts say that told be closer to 4 billion 5 billion. Aside from adnoc, we have seen a lot of talk from oil ministers. We had the secretary general of opec standing up and saying an extension of the production cuts was the only viable option to rebalance the market. They are in a precarious position and expectations are high, so expect to see more jawboning from ministers later today. Yousef plenty more to come. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. , 90ef 8 30 a. M. In dubai minutes away from the market open in the emirates. We had earnings from emaar helping boost sentiment across the board. Traits,get into the key but now lets get first word headlines. The uks chief brexit negotiator said it is 5050 whether he gets a breakthrough by december. That is according to david davis reefed that a meeting yesterday. Said it wasn categorically untrue that davis said that. The pound has been falling has the stalled brexit talks continue and the internal political struggle theresa may is facing. Iea says the shale search will become the biggest gas and oil boom in history. The growth in American Oil Production will keep a saudi arabia at the height of its expansion. Estimatess raised its for Recoverable Shale Oil by 30 and cut its 2025 price outlook i17 percent to 83 a barrel. The iaea executive director joins us at 1 30 p. M. Dubai time. Chinas economic expansion dialed back in october as Factory Production and retail sales slowed. ,ndustrial output rose 6. 2 fractionally below forecasts and down from 6. 6 the previous month. 10 , whiles rose fixed Asset Investment for the first 10 months of the year grew 7. 3 percent, matching estimates. Chief house tax writer is confident the chamber has enough republican votes to pass tax legislation this week. Kevin brady says he does not anticipate any major changes. House saysthe white President Trump will discuss taxes had a full conference of House Republicans thursday morning. S and. S. House way means chair will join us tonight. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Lets get the latest from the markets now. Sophie we had the iea trimming its price forecast for oil, brent on the back foot, losing. 3 with that bearish mood dragging on players across the region. Woodside leading to drop among oil firms in sydney. The asx 200 is the biggest points hard to sustain amid a broadbased selloff. The kiwi dollar is feeling the pain and cannot catch a break despite hawkish guidance last week. Chinese stocks sliding in shanghai, snapping a sixday rally, but the drop preceded the chinese release of data that pointed to a continued moderate slowdown in october. The bigger concern is the slowing credit growth. Thathas reignited a selloff, tenure bond yields above 4 for the First Time Since 2014 after deleveraging continues. India bonds sliding, the 10year higheren to 7 , inflation feeding into that sentiment. Aussie bonds falling after Business Confidence has helped it snap the two day drop, gaining almost. 2 today. In japan, stocks fluctuate, the. 4 , i. T. Adding stocks leading gains on that benchmark. Check out some of those performers. One bank is to be removed after falling the most since 2013. Xteer has risen to a record high, while qantas is falling on its removal from the australian index. Toshiba climbing on reports it is in settlement talks with western digital. Yousef thank you. I want to take it to oil prices. The collapse could happen if producers failed to extend supply cuts. There is a classic rapprochement between saudi arabia and russia and the breakup would collapse oil prices. Storylook at where the goes next, our guest joins us now. Thank you for coming on the program. Come whatory constitutes a decisive step . An extension of six months, nine months, when year . Has priced in a ninemonth extension. Anything short of that and there could be a sharp retracement in oil prices. Just taking a step back and putting it into context, andnger market fundamentals sentiment have been driving markets and prices in the last few weeks. ,f course increasing optimism but nine months seems firmly priced in. Yousef we just had a note from the iea saying the longterm forecast for crude oil has been thered by 18 , saying will be a boom in the u. S. Shale story. Would you agree with this bullish outlook . We are very bullish on the shale story. Lower pricedl find means of extracting oil. The mantra from opec is that if you cant beat them, you have to learn to live with them. That willstory is one be increasingly important over time. David im looking at the oil price. This is david in hong kong. Is the oil price priced for perfection . I think from our view and 65,between 40 there is a range where oil prices are playing. Certainlyeiling, shale producers will become more operationally efficient and that could lead to oversupply, bringing the price down to 50 or below. Models look at our between 40 and 65. Yousef the bullishness from hedge funds had record levels, also from the geopolitics and the tensions and nervousness in this part of the world, especially around the Iransaudi Arabia rivalry. Some of the credit default swaps, this is 5114 on the bloomberg. This was crafted hours ago, abu dhabi credit default swaps. We added a saudi one as well. Key points here, november, major spike for both credit default swaps, almost to the levels with the gulf standoff. How worried are you that this will go to a level where we are looking at military options . Current military options between saudi and iran are low. There will be proxy wars in yemen and so on. Investors are building in a risk premium, and i think given the large level of uncertainty about arabiat steps by saudi you heard from the attorney general that this is stage one of the operation. Can we expect more guidance and predictability about the next steps . I think investors will take more comfort in terms of their level of risk premium they built into the market. Yousef you are sticking around. We still have a lot to talk about. Still to come on Bloomberg Markets middle east, the uae as it plansairline for regional expansion. They are also doing big things at the air show. Dont go away. This is bloomberg. Lets carve out what is going on in saudi arabia. Retail investors have then the biggest seller stocks amid rising geopolitical risks and amid a crackdown in the kingdom that has spooked traders. You put that in contrast to saudi institutions, who have been net buyers. I will show you the chart. Is 7747. Sellers right there. Bottom panel our institutions. This is a deeply entrenched trend. This goes back to mid2016. Lets get back to our guest. We talked about saudi minutes ago. I want to get your thoughts on what will happen now in terms of investor confidence. Right now it is extremely fragile and they are looking for more direction. Yes, indeed. Investors are in a wait and see mode looking for more guidance and predictability and more th n understanding of next steps following this first phase. Of such sizese was and magnitude that investors took a step back. Is there going to be more . We mentioned the attorney general said this will be the first wave, meaning more to come. Until we get more guidance about where they want to take this forward, i think investors will take comfort afterwards. Yousef this anticorruption drive, is there a scenario where this could widen out and become oman . E in the uae, qatar, this could be the blueprint for other gcc countries to follow suit, maybe similar regulations for their own respective countries. This is the first of many potentially to come. Wider in terms of Investment Strategy and recommendations, what are you telling clients at the moment when they are looking at this part of the world . It is a hard sales pitch. That haveertain risks come about in the last few weeks, investors are more cautious about where they are parking their money. Large moment given the size of the risks, we are in a wait and see mode until we get more guidance. Yousef thank you for coming on the program. Lets stay with the uae and the region. Air arabia is the only listed airline and the regions first lowcost carrier and actively traded on the dubai index. Orderave a new airbus coming out of the dubai air show. I asked the ceo about air arabias growth strategy. We have a couple of announcements to make. Heywe are signing for six a321 longhaul airplanes. Yousef will they help you tap new destinations . Absolutely. In our business, you want to fly more, a little longer, and airplanes with a few more seats. That will the continuous process. Such a deal, particular the longhaul which will come into service in 2019 will give us the opportunity to reach other places that the airbus 320 does not reach, from here in the uae, from morocco and egypt, it would take us further to places we need to go. Theef the issue of geopolitics of the region, rhetoric quite sharp over the last few months. How worried are you that this will be disruptive to your growth ambitions . There are two sides of such things when they happen. Despiteortunate that all the geopolitical issues taking place for the last 56 years in the region, the business has been growing. Percentage ofof passenger numbers, aircraft, and profitability. That places like egypt for example, we are putting more resources into egypt this year, particularly 2018, because the currency has been stable for about 12 months. We see tourists are getting back and more egyptians are traveling out. Here again, we continue. We are getting the six airplanes which will fly longer. A roundinghave seen in oil prices. At what price level would you become worried given the fact you are a lowcost carrier . Oil price generally whenever it is too low, airlines dont do well. Upthe moment, it has gone reasonably well, which will help me economy, and that makes feel more optimistic for 20182019. We always say oil prices between 60 and 80 are fine. Once they go beyond those numbers, then it becomes a cause of concern for anybody in the transportation business. Yousef you are coming off strong thirdquarter numbers, higher revenues. 20, what will be the defining theme and the next catalyst for bottom lines for air arabia . We have done extremely well this year. That is because air arabia in the uae has done well. How are hubs which we worked hard, particularly the moroccan one, has contributed to our bottom line profitability. And all our subsidiaries have improved. I see no reason why 2018 should be any different. Yousef also some breaking lines hitting the bloomberg. Very interesting comments. ,im clark speaking in dubai saying they are worried airbus a380 be able to honor the deal. My conversation just 24 hours out he had did point concerns the board would not back the future of this airplane in order to commit to a new order of this size and scale expected by many in the market. This will be a close one to watch. David absolutely. A new chapter to that story. The middle east is trying to move away from its reliance on oil. This its port. We speak to the company about its electrification plans. That is next. Stay with us. This is bloomberg. Yousef gas guzzling vehicles, they have long been a common sight in the middle east. Now ford is declaring collector vacation plans for the region, rolling out four new hybrid models in the next four years. To steve armstrong, ford Vice President of europe and the middle east and africa. Good to have you. When i speak to Car Dealerships here, they are having a tough time. What is demand like . It has been slow. Have seen our share crow welcome so we are happy with the performance in the region generally. Yousef how can this new strategy help you accelerate that . Perhaps you can give us some numbers, market share, vehicle sales, so we can get a sense of where you would like to go . Bywe dont rake out share market in the region, but across the region, 6. 5 share, so a reasonable part of the business. This region is important for fords global business. We are launching new products at the show. We wille four hybrids announce over the next four years. Moving into electric occasion electrification as we see a shift in consumer demand. David this is david in hong kong. The feel for electric and hybrid cars in the region where fuel is dirt cheap anyway . Think our hybrid vehicles, and forward is the second largest producer of hybrid vehicles in north america, so we have a lot of experience providing a great product is customers product to customers. They want more performance and a way of getting utility out of their vehicles, so we see a great space for hybrid technology in this region and across the world. Story, saudi saudi announced plans to lift the ban on women drivers. Given the newse time to simmer, what is the incremental growth you are seeing from the lifting of that band . It is probably early to put numbers on growth, but we are excited that we have a whole new group of customers we can focus on in saudi next year. We are working with distributors, dealers, and customers we look forward to welcoming to make sure we have the products and services they will be looking for as they get the opportunity to drive next year, including driving skills and Life Training programs so they are wellequipped to drive the new fords from 2018 and beyond. Yousef i want to get some insight from where you are seeing the most impressive pockets of demand, the markets you are excited about for 2018. Saudi is a big opportunity for us. It is the biggest market by size and sales in the region. Set ofs gives us a new customers we can trace. Launching new products this week. A big market for us so were hoping to get traction with the new expedition. We are seeing a lot of opportunity, and it is one of the growth highlights for ford at the moment. David thank you for coming on the program. Steve armstrong, ford group Vice President for europe, middle east, and africa. We want to make sure investors are ready for the trading day. A london judge has declined the companya case over the 700 million in islamic bonds. He said the court will hand down a ruling later this week. The shares in the Current Company are up 40 . Egypta revised outlook on to positive, facing lower external vulnerability than previously expected on the back of higher foreignexchange reserves. S ps expecting higher growth for 2018. They have highlighted three of thanks as beneficiaries of those conditions. The outlook all shifts from stable to positive. Iraq political headwinds have gains in industrial and metals prices, but the selloff may be short has the meeting is awaited in december. That is all we have for this edition of Bloomberg Markets middle east. David before we say goodbye, just a quick look at manila. The Prime Minister of Canada Holding his press conference. Obviously this issue of human up durings it brought his conversations with the philippine president. He said he did bring it up with Rodrigo Duterte, the human rights situation in the philippines, and he said Rodrigo Duterte was receptive. He is now talking about a low carbon economy, and Climate Change when it comes to cold, so coal. The latest lines out of the emirates, they are looking at a guarantee for the a380. That is it for Bloomberg Markets middle east. We will see you all tomorrow. The top stories are coming up next. This is bloomberg. It is 1 00 p. M. Here in hong kong. Im getting less. I am david ingles. Retail sales slowing but industrial output rising, 6. 2 . It is below forecast. Retail sales more important rising 10 . President trump and his philippine counterpart have called on the South China Sea nations not to escalate tensions in the disputed waterways. They repeated their commitment to hold up freedom of navigation but the result. The chif