Countries hit a new low. First, to the weeks top story. We spoke to our reporter in iran about the wave of protests and how the government is dealing with them. Reporter i think the reason why the head of the irgc regard came out yesterday and made that statement saying, declaring yesterday, today, the protests have formally come to an end is because they were actually dwindling down. By tuesday evening, there were ,ew people out on the streets by what we can see on social media, and there were no reported deaths. Maybe there was one other death that have added to the total, bringing it up to 21 people all told. I think right now, what the government is doing and what the authorities here are doing, they are consolidating. They are going to see what this means i diligently politically, both for the state rouhanisesident administration. I think there will also be a sense that, from now on, authorities playing down the protests. I dont think the protests were maybep or as dramatic as being suggested in some media. They have been scattered across different cities, which is unusual. They appear to be spontaneous after one organized protest kick started everything. But by all accounts, there was no more than 20,000 people involved altogether. Tracy golnar, as the unrest begins to wind down, we have any of which side is coming out of it in a worse position . Is it rouhani or is that they conservative hardliners . Golnar that is a very good question. At the moment, it is tricky to answer. I think this is going to be hugely challenging for rouhani, because the very beginning of the protests were about his opponents coming out and protesting against him. That gave the government the perception that they were doing deliberately, to try to destabilize and delegitimize rouhani. But when the protests started to catch on, a younger demographic or getting involved, possibly because of their grievances for unemployment. We dont know. Then it seemed to catch on to some kind of different fever, different kind of waves that was more broadly aimed at the entire system, which encompasses those hardliners, some would argue, more than the rouhani administration. They are both being challenged by this. They will both try to protect their legacies Going Forward. Tracy dr. Trita parsi joins us now from washington. Thank you so much. Lets start out with a general overview. What do you think the significance of these protests actually is . Dr. Parsi these are the biggest protests that have occurred since the 2009 uprising. When the population went out for spain objecting to the election back then. But these are much, much smaller protests compared to 2009. It is also a different segment of society that is out there protesting. Ive spoken to organizers of the green movement. They are largely on the sidelines, many taken on by surprise. But they are also being a calculated distance from what is happening right now. The larger significance of this is i do not think it will lead to a revolutionary situation. It does not seem to have the organization and leadership to really pose an existential threat to the regime. But it can really force change to the conversation and shake up the Political Landscape and force the government to Pay Attention to these segments that have been largely neglect did and to their broader Economic Situation in the country. Tracy a lot of people are drawing parallels with the 2009 green movement. One of the differences they are highlighting is that during that movement, you had some sort of clear, identified demand from the protesters. Those are not necessarily present in the current waves of unrest. What is it exactly that the protesters are asking for . Dr. Parsi it is quite unclear. In the beginning, it was a very much focused on the very dire Economic Situation, a lot of frustration that the economy has not moved in the right direction. At least not at the pace people expected it to. But then you have also seen their is a Stronger Political tone that has been taken in the last couple of days, in which there are stronger slogans targeting the regime as a whole, essentially calling for a revolution in the country. It is not at all as clear as it was in 2009, when there were clear objectives and demands. And again, a Clear Organization , and clear leadership. Tracy a lot of the ire of the recent protests does seem to be directed at the president. I am wondering, how does this fit into the current relationship with the conservatives or the hardliners . Do they become emboldened by this wave of discontent, or do they become frightened by it . Because, of course, they are also under scrutiny here as well dr. Parsi actually, the first protests were organized by hardliners. They were trying to embarrass the rouhani government. But they quickly lost control over it. Because what you ended up seeing was a lot of people started joining the protests that were not part of the conservatives and started to not only push for these economic changes, but then started targeting the regime as a whole, including the hardliners. You can see some hardliners going out there and, in a veiled way, express some disappointment and regret over what they initiated. At this stage, if the rouhani government manages to calm down the situation, particularly if they manage to do so without calling out the security forces, in full force, start to repress people, then i think rouhani may be able to use it as a leverage against the hardliners and say that there is a need for much deeper and profound reform than what he has been able and permitted to pursue thus far, because of resistance from the hardliners. Tracy really fascinating dynamics at play. Before i let you go, one more question. I have to ask you, the response from donald trump. What does this mean for u. S. Iranian relations . And, in particular, the nuclear deal Going Forward . Dr. Parsi donald trump, i dont think, is not someone anyone in iran really listens to. I dont think the protesters are taking any cues from him. And it is not a plus to have him on your side right now. I think his impact on the ground is minimal. However, he is, once again, clearly expressed his desire for some form of a confrontation with the iranian government. This probably will give him an added excuse to get rid of the nuclear deal, which he is scheduled to renew the waivers for on january 12 or january 13. So it does increase the likelihood that he will not renew the waivers. If he doesnt, that means the sanctions come back into place. And the deal, most likely, will collapse. We are standing at a point which the likelihood of the deal collapsing is probably higher 12n it has been the last months. Tracy coming up, oils on the boil. Prices surging to a threeyear high. Is opecs gamble finally paying off . More on that next. This is bloomberg. Tracy welcome back to the best of Bloomberg Markets middle east. Oil pools oil bulls charged into the new year with unprecedented vigor. Analysts say the credit goes to opec and compelling signs that the cartel is winning its tugofwar with shale. Here is our middle is Energy Market reporter, Anthony Dipaola. Anthony this story has always been a supply story. The supply was too high, and that is what pushed the price down. Opec and friends cut back on that supply to bring the price back up. What we will see this year is that supply story continuing. It will depend on whether shale producers in the u. S. Take advantage of that optimism, lock in hedging and pump up the drilling. Any analysts we have spoken to the last few months has shown cheating by opec or nonopec members, as they see the price coming up, an incentive to produce more becomes even greater. So will more oil leak into the market and will that compliance level suffer a little bit . Site is again going to be a supply story Going Forward. Tracy on the shale point, if you are trying to watch the market and gauge whether or not shale is wrapping up its production, what indicators are you looking at . I know we have stockpile data that is coming out later today. But a lot of people have been pointing to the wtibrent discount. Anthony it is a big factor that will show what producers are doing on bringing oil back on. There is a lot of wells that have been discovered, somewhat prepared for drilling, but not yet drilled. Those will be faster to bring to markets. That gives shale, again, an advantage. But we also did see some signs from those companies that are active in the shale patch trying to focus more on generating cash rather than getting barrels through the door. So we will have to see this kind of dichotomy between those wells that might be faster to bring on, and this intention to generate cash and create shareholder return. We will have to watch that on the shale patch. Tracy quite a cultural change from those companies from investing their money into further exploration and production versus returning money to shareholders. You mentioned opec compliance. I have got to ask, is there a risk that complacency creeps back into opec as Oil Continues to rally . Is there a heightened prospect of cheating . Anthony i think that there is a question mark looming over the market, because there was this prospect that if the price comes back, it those stock piles go down, those u. S. Stockpiles you mentioned, that opec could exit that agreement early. Midyear in june, they might look at it at their meeting and say, lets scale this back, or lets at least announce the exit strategy. So there is that issue looming over the cuts. Are they going to last the whole 2018 . As has been mentioned . Will opec have to be clamping down on compliance if producers we might look at people like iraq, like libya, nigeria, trying to raise production. Tracy what about russia . Because there was a question mark over russias participation going into the last opec meeting. Anthony russia has been a key member of this cut. Them Standing Shoulder to shoulder with the saudis to get this done. The russians do want to increase production. We have seen high production numbers from them last year. They do want to bring production back. This is one we will have to watch closely. They could be a risk to the levels of compliance. Tracy all right. Bloombergs Anthony Dipaola bringing us all the latest on the fresh optimism in the oil market. Thanks so much. Lets get more perspective on exactly that when it comes to the gulf and middle east region. Still with us is the director of Economic Research at the Gulf Research center foundation. We were just talking about the risk of noncompliance from opec members. Im wondering, is there a risk that gulf countries take their foot off the pedal when it comes to Economic Reforms as some of the pressure eases, thanks to those Higher Oil Prices . John i believe not. I dont think, especially saudi arabia, is going to slow down its reforms. In fact, i think that they should be an additional effort to accelerate some of them. I think they should not. Definitely, oil will be trading around 60 to 65. That is brent. Right now, we are a bit exuberant on the spot price. I think that some of the forward curves are predicting that oil should correct. And i think the issue here is not so much compliance, but if they decide to increase output, that is, opec, you still have 1. 8 Million Barrels out there that need to be reduced. How they reduce it and the pace of reducing, that 1. 8 million, is an issue. That is the key to maintaining the oil price at 60, while, as you indicated before, the challenges, how do they maintain the oil prices high enough to entice investors for the saudi aramco in 2018. Tracy when it comes to the higher oil price, some people are talking about the return of the long missing geopolitical risk premium, thanks to the drama we have seen in iran, which is, of course, the third biggest opec producer. Lets take a listen to what ian bremmer, the founder of the eurasia group, had to say over iran yesterday. Ian it is very clear that trump wants to burnish his antiiran bona fides. He has done that with a stronger relationship with the saudis. He has done it by going after the iranians, going after what going after the nuclear deal going after what they have done , with support for hezbollah, terrorist organizations. And most recently, given the demonstrations in iran, coming out and saying, we oppose the oppression. Tracy john, im curious if you see any potential that that heightened political unrest in iran and heightened political tensions across the gcc and middle east are going to begin feeding into the oil price . John i think that, in many ways, this has been priced in over the last few days. We should see today and tomorrow how oil trades. I do not see any significant upside. Because the rest of the opec member countries can easily cover, if there is an iranian shortage, due to the geopolitical concern. So maybe a little bit of an upside. But nothing substantial. Tracy up next on best of Bloomberg Markets middle east, the word according to the fed. The latest minutes on the continuation of gradual tightening. More on what that might mean for global markets. This is bloomberg. Tracy welcome to the best of Bloomberg Markets middle east. Markets had to digest a hawkish tilt to the december fed minutes, which showed most fomc members backing continued gradual rate increases, despite concerns about low inflation. Our chief Asia Economic s correspondent enda curran explains. Enda it is quite remarkable. On the one hand, the fed signals they are going to continue raising Interest Rates this year. I think we knew that. That was expected. There is still no unified narrative on the pace in which you are going to raise those Interest Rates. It seems they are still divided among themselves as to whether they should accelerate or keep on the data watching process. When you consider the backdrop of what is happening in the u. S. Economy, manufacturing data this week showing factories going gangbusters. We know the labor market is doing well, some tentative signs that wages are picking up. Of course, now, in the middle of all that, we have this big tax reform coming down the pipe. You thought the fed might be moving towards a more hawkish angle that they delivered. Maybe it reflects the transition between the chairman right now. I think it is what these minutes tell us. Tracy Something Else coming down the pipeline. A new chair for the fed. Jerome powell going to take the helm in february. Do the fomc minutes from yesterday tell us anything about that transition period and what he might be like as head of the fed . Enda i think it is going to be a fascinating time. On the one hand, the minutes did not tell us very much new. That would put a lot of focus and emphasis on watching mr. Powells remarks over coming weeks and coming months as he digests the impact of what the tax policy would mean for the u. S. Economy and, indeed the , world economy. Of course, how inflation is playing out, how the dollars doing. In one respect, we are kind of in an as you are transition phase. From here, the narrative will be reset, to some extent. It is not that mr. Powell is expected to be drastically different to miss yellen, but given the backdrop of what is happening on tax policies and the strength of the economy, it will be interesting to see if he turns out to be more hawkish than anticipated. We will get other indications over the coming weeks as he starts speaking more publicly. Tracy enda curran, thank you so much for joining us. Lets bring in ray ferriss, head of asiapacific fixed Income Research and economics at credit suisse. He joins us from singapore. Good morning to you. Im curious, maybe to begin, give us your highlevel take on the Federal Reserve, the fomc minutes from yesterday. A couple of your competitors, it including barclays, interpreting those minutes as more of a hawkish tilt for u. S. Monetary policy. Ray i think they are more of the same. There was not really a lot of tremendously new information. But, as was mentioned, it is very clear that the majority think that at least three hikes for next year. The fed seems to be on autopilot. They are hiking fairly consistently albeit gradually. , they are hiking closer to the dots than not. Markets are better priced for that now than they were at the beginning of last year, which is part of the reason why the markets, the bond markets in particular, did not really react to the minutes. We think the fed will continue grinding rates higher through the course of 2018. Tracy i want to press you on that market pricing. Because we have seen a bit of a breakeven rates. If you take a look at the chart next to me, that shows some breakeven rates across a couple of 10 years. I think 10year and 30 year there. Ticking above 2 for the First Time Since march. We have seen some Economic Data from around the world showing a little bit of an uptick in inflation. For instance, we had some of the pmis coming out this week suggesting that maybe pricing increases will be gaining over the next year or so. What is your take on the markets positioning for inflation . Is that the wildcard for 2018 . Ray certainly any really big upward surprise in inflation would be a shock to markets. But i do not think the rise we have seen so far in breakevens is altogether that large or surprising. It makes sense with the growth data, the new tax plan in the u. S. , all of that, to imagine that the continuing strength of the u. S. Economy would add some degree of inflationary pressure. We have inflation forecast to rise between now and the end of the year. I think the other factor here is oil prices have gone up a lot. Does breakevens are about headline cpi, not core pce. They have to incorporate some degree of the fact that oil, as a shock to the system, has gone up and does not have any signs of coming down anytime soon. Tracy with your fixed income hat on, walk us through the action we saw in the bond market yesterday. Kind of muted, i thought. Earlier, i do not think the fed really gave us anything that was particularly surprising. They are grinding their way toward what is now pretty well priced in the markets. There was not a whole lot for markets to react to. Tracy coming up on the best of Bloomberg Markets middle east, the feds tightening stance could take the shine off gold. Our next guest remains bullish. Find out why just ahead. 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. Tracy welcome back to the best of Bloomberg Markets middle east. Im tracy alloway. It started the year on a high, but the latest fed minutes have taken the shine off gold. With a firmer dollar setting expectations for further u. S. Rate hikes. However, jeff rhodes tells us hes remaining bullish. It is overdone. Certainly, a 7 rally Straight Line over the last month is a bit much, but the key thing is it was in december. In december, a lot of people had stepped away from the trading floor. Tracy walk me through the rally in gold we saw in 2017. I have to confess, i dont get it. We didnt have a lot of risk that materialized, volatility was really low, the Federal Reserve was hiking rates. Explain to me what was going on with gold. Jeff it was a very solid year. As you get equity markets posting record after record, you are creating more money, and that has to go somewhere. When youve got equity markets record after record, as you get money in your pocket, you are looking, what could go wrong . I think that really was it. The flows of money into gold really was from the profits from equity markets. Tracy the other big winner last year in the commodities complex, aside from precious metals, was Industrial Metals, including palladium, which we have been bullish on dutch which you have been bullish on for over a year. What accounts for that rise, and how much further can it go now . Jeff it is demanded supply. Simply put, more palladium is consumed every year then is produced. That is a chronic problem weve had for about 10 years. The feeding of that deficit has really come from stockpiles in russia, but of course russia has its own problems. Therefore the flows of palladium from russia and the west is a bit of an issue. Therefore, the lifeline for the shorts, palladium coming from those russian stockpiles, doesnt happen anymore. That really is the driver. If you short palladium, it is going to cost you 5 to 7 per annum interest. Tracy when you look at Industrial Metals, what is the readthrough on the Global Economy . If i look at the rally we have seen, it is really positive, but if i contrast that with the yield curve, it is saying Something Else from a bond market. Jeff at the moment, Industrial Metals are benefiting from the optimism surrounding the global economies. Everyone is talking about growth in 2018, that must be good for industrial demand, and that must therefore be good for palladium. The only thing about palladium, i did call the rally. It certainly had an alltime high. I thought we would get to 1100. Pretty much we are there. It is a bit steep. If you look at the last 12 months, it looks like i would be a bit careful. I see a pullback. Tracy coming up on the best of Bloomberg Markets middle east, gold issuers are now more reliant on the bond market to raise cash. This is bloomberg. Tracy welcome back to best of Bloomberg Markets middle east. Gulf issuers are now more reliant on the bond market to raise cash. It is a Significant Development for borrowers. I spoke with bloombergs emerging markets team leader about why 2018 looks so promising for Corporate Bond sales in the gcc. Dana back when it was happening in 2016 and 2017, there was that expectation. People were hoping the big Family Businesses were going to come back to the market and sell, but what actually happened in the gcc was that growth slowed and projects were canceled. People held off for funding. They were waiting for a better time. People think that that time is 2018, mostly because of these expansionary budgets we have seen in saudi arabia and qatar. Tracy speaking of expansionary budgets, what does that mean for sovereign bond issuance . 2017 is going to be a hard year to beat. Dana absolutely. That is something we will be looking out for as well. People still see that sovereigns will be selling, but not as much, because oil prices have risen. They are in a more comfortable place than they were two years ago, and people are more confident that the governments have more cash in order to deal with the budget gaps they were trying to fund with these bond sales. Tracy im looking at a table right now for gcc bonds and sukuk issuance for 2017. I see 85 billion issued last year across corporates and sovereigns. What does the total issuance outlook look like for 2018 . Dana most of the analysts we have spoken to say that it will at least match that number. People are quite optimistic that it will be about 80 billion to 90 billion this year. This all depends on whether or not the sovereigns come in, because they really are the massive issuers here. Tracy thank you so much for joining us today. Lets bring in the director of Economic Research at Gulf Research center foundation. We are talking about soverign bond issuance. Are sovereigns in the gulf region going to have to plug budget deficits again this year, or in some of the pressure taking off a bit because of that rally in the oil price . John i think people still issue some debt, definitely, because of the oil price, where it will be between 60 and 65, they will not be forced or compelled to go out and issue as much as they did in 2017. I think that it leaves a lot of room for the corporates to come in and issue more debt. Given that expansionary side of the budget in the region will be there to support that. Corporates will be more willing to issue debt, and that is a building story for 2018. Tracy from an economic perspective, does it matter how corporates are securing their financing . Is there a difference between going to a bank and getting a loan or going to the Public Market and issuing debt . John i think there is a huge difference. If you go to the Public Market and use your debt, that gives a lot of security and support. It basically recognizes the Global Presence of these corporates. These are rated corporates. If you go to your regional local bank, it is fine, but it is not the same. It creates a new clientlender relationship, and that is very important, because you want to create a proper debt Capital Market where corporates are rated and viewed globally by different players, not just by the region or local banks. Tracy does it help the region when it comes to tapping Foreign Investors as well . Of course, this is something they continuously say they want and we are still waiting for the saudi aramco ipo, for instance, when it comes to tapping foreign this big moment for gulf markets and companies, potentially. John definitely, because this is part of the program. Even if you look at saudi arabia, you would see that the 23rd revision for fdi, it is upwards of 63 billion by 2030 in an economy in todays terms of 700 billion. There is a lot of anticipation for foreign money to come into the region, because you only have two sources of investments, private and government. When it comes to private, it really comes from the foreign and the local. If the foreign doesnt match, it has to be recouped by the local. That is not often the case and is not often available. Tracy coming up, the turkish lira took a hit this week. We will assess what role a banker in new york played in the decline. This is bloomberg. Tracy the lira took a hit this week, as a turkish banker was convicted in new york of helping iran evade u. S. Sanctions. It is likely to further strain relations between ankara and washington. Reporter a guilty verdict for him. He was accused of helping iran evade u. S. Sanctions. Ever since this case came into focus, theres been protests in turkey, president erdogan accusing the u. S. Of trying to harm turkeys economic interests, labeling it a coup attempt. This is a long list of souring relations between the two nato allies. We have turkey upset with the u. S. Over its support for kurdish rebels fighting the Islamic State in syria. Washington is concerned about turkeys growing closeness to russia and iran. The three nations are working closely together, trying to solve the situation in syria. Turkey wants extradition of the u. S. Based cleric. Washington hasnt done it yet, so this is frustrating turkey. And just a few months ago, we had the diplomatic crisis over the visas, both countries canceling visas for each other. This latest verdict could harm relations even further. Tracy right now, we did see the turkish lira weakening a bit on this news. What more can we expect in terms of the Market Reaction following this ruling . Reporter ever since the one month ruling, we have seen turkish financial markets, the lira, and bank shares react to development in the case. The lira fell. 5 against the dollar after the verdict, but what we really need to watch is bank shares as they open a few hours. Turkish banks could react. Going forward, we need to see if there is a u. S. Probe into other turkish banks for allegedly helping iran is a u. S. Sanctions, and fines could follow. What could also move the market is reaction from the turkish government and what president erdogan has to say regarding the latest verdict. Tracy all right, thank you so much. We have been discussing the release of those fomc minutes all throughout the show. Of course, they are of vital importance for the rest of the world, the emerging markets space, as well as the gulf region with its many pegged currencies. Joining us to discuss it is the chief economist at oman investment fund. I want to start up with a chart which really shows the action we have seen in emerging markets over the past year. It shows the em rally across equities, currencies, and finally bonds. How long is this going to continue with the fed hiking rates . Guest there are a few forces here. Clearly one is the Interest Rate set by the fed, but on the other side you have a very strong Global Economy. For most of these emerging markets, brazil, south africa, Commodity Prices are key to their growth. With the Global Economy gaining momentum, this effect will prevail on the gradual increase in Interest Rates by the fed. Tracy oman, your employer, announced its 2018 budget this week. It looks like the company will be the First Sovereign issuer of the year, potentially. Is now the right time to issue, given that we have seen a flood of supply over the past year . Fabio there is never a right time. You have to have a program of issuance, and actually as you become quite important element in the emerging market index bonds, you have to stabilize year program of bond issuance. The 3 million omani riyal deficit is all due to capital expenditures. In other words, the omani government is trying to borrow to finance infrastructure. That is a project with a net positive return, and therefore that is how it will build room for maneuver to repay and to service its debt. Tracy oman i believe did say this was a budget with an emphasis on diversifying the economy. How important is that for oman in particular and the rest of the wider gulf region . Fabio diversification has been the overriding objective of Economic Policy for a long time in the gcc. So far the success has been mixed. In general, as the population grows, the chunk of nonoil private sector needs to rise. In order to do that, you need to build infrastructure. You need to provide skills for the workforce. You need to increase the level of education. You need to invest in research, and so on and so forth. That is what this budget essentially does, even in other countries from saudi arabia to qatar, the emphasis on Human Capital and infrastructure is increasing. We will see this over the next five to 10 years. It is not a shortterm objective. Tracy right. Just going back to the bond issuance we were discussing, i am a bit of a benchmark index geek. You were pointing out that omani debt is actually an increasing proportion of the em debt benchmark. What does that mean for investors . Fabio it means they have to pay a lot of attention to oman. I receive dozens of fund managers, and they want to know how the omani economy works. They want to know what is the longterm stance of fiscal policy. Obviously, this require more Detailed Analysis of the omani economy, which is a little bit different from a well diversified small economy in, say, europe. The fact it is heavily reliant on oil implies that the escalation in the nominal gdp are quite substantial, so one has to see through this in order to make the right choice when investing in omani bonds. Tracy that is it for this best of Bloomberg Markets middle east. We will be right here for the start of the trading week in the gulf sunday morning at 8 00 a. M. In the uae. I am tracy alloway. Do join us then. This is bloomberg. Shery coming up on bloomberg best, the stories that shaped the week in business around the world. A new year brings a new assessment of global risks from eurasia group. Distinguished guests delve into the details. The number one risk ceos see out there is geopolitical. This transition from the u. S. Is not going to china. China is creating an alternative. The unpredictable of key leaders, the lack of a north star with the United States stepping back in so many ways. Shery mifid ii rules go into effect, and the u. S. Releases the old years file jobs re