Fund. A. M. In the 00 emirates. Salamat in hong kong. You have an interesting chart showing a correlation. Always an interesting chart, the dow short of 20,000. Liquidity getting thinner. This is where that chart comes in. I want to show you the effects this has had on inflation expectations. This is the 10 year break even. You can turn that look at the bloomberg to get additional content. You can see what happens in the blue box as the oil prices and blue go down. It takes down inflation expectations. Inflation on an annual basis. It has recovered a little bit, but still around the 1. 93 mark. What are you looking at as they gear up for the holidays . Rishaad we came tantalizingly close to that 20,000 level. Just seeing what is going on with the state of stocks and how peoples money is doing. Mumbai down. Hong kong equities leading in this part of the world. A rise in u. S. Stocks. Oil prices firming after that drop on wednesday. Thats a that is what we have at the moment. Yousef in this part of the world, just under two hours away from the opening of the emirates market. See how things worked out in the last trading day yesterday. You can see a big picture across the board. 2 5 of 1 . Saudi arabia, we are seeing volumes at a twomonth low. We did see saudi on the back of saturday, at from ronco, 3. 4 . That was the most gained. 1. 8 in yesterdays trade. 9. 3 . How much further does this market have to go . Remarkable. Downside pressure on the market. Byot of those gains driven other banks in egypt. Lets look at the first word headlines from around the world. President elect donald trump responded to the White House Trade Office with a comment to the china critic. Advisedmics professor Innovative Strategies in trade talks, and the fed. Billionaire investor led Regulatory Reform and the sec. Will oil behemoth aramco explore an ipo in japan. We are looking at markets from hong kong t new york for what could be a biggest sale in history. They have downplayed tensions with the u. S. , passing a law for victims of the september 11 attacks to sue the kingdom. Job cuts at home. The bank plans to eliminate about 900 positions, possibly enable it to achieve its target a year earlier than expected. Credit suisse says it has eliminated more than 6000 positions globally this year, but not broken down by region. Alibaba has been criticized for its attitude to fake goods. The returned to the socalled a tory is markets list, im unacceptably high level of reported counterfeiting and piracy. It is disappointed in doing all it can shares were down. 6 in new york. Rishaad saudi arabia may reveal steps to balance one of the highest budget deficits in the middle east. They will focus on boosting nonoil revenues. Our north african managing editor, what are we expecting to hear, and we get it today . Yes, we were told that the budget announcement will come today. It will probably be this afternoon. What we are expecting is come up are from the normal budget figures, a forecaster with the next five years, what the budget deficit will be like. They are expecting a gradual reduction. One of our sources said they expect that in 2020. It may even be in surplus. Other than that, we are expecting an announcement on a program to support low and middle income earners and saudi arabia. Theyre also going to announce further cuts in the subsidies on gasoline prices going forward. How is this year different than the previous budget announcement . The previous budget announcement before last year, was very barebones announcements. They said here is our extending, our revenue come other revenue was mainly oil driven, and that was it. Bring up moreo figures and broke them up more. Year, it is about this forwardlooking, fiveyear plan, where they show how they will reduce their reliance on oil, which is still 70 of government revenue. That nonoileduce revenue into government revenues. Yousef we brought up this function for our viewers to make a prediction. You can see a sense of where things are at in terms of economic activity, your account balance, your deficit, Interest Rates and so forth. That takes into consideration the bloomberg surveys and the feedback we get from it. How does the oil price factor into the plan that we are going to your today . Revenue is still over 73 of government revenue. In 2018, introduce theyre reducing subsidies. But at the same time to do that, this is a major change for the way saudi arabia functions. They need the funds for the period that crosses over from an oilbased economy to one where they have further streams from taxes in the private sector. Theyre trying to strengthen the private sector. They need the oil prices to make that change because they are asking a lot of the saudi population to make a change and make it very rapidly. A great insight, we love having you on the program. Now, to the head of Investment Strategy that joins us. Welcome back. It has been Interesting Times for the saudi economy. A last time we had a chat, there was a healthy dose of skepticism about saudi arabias ambitions. With the budget announcement expected late today, they will shift things and a high gear a little bit . I think the idea of bringing down revenues and at the same time provide cash to the lower income families is already something very good because youre basically isolating a problem, a problem of economic sustainability. They need to participate in the economy, there is a big population compared to other countries. They are isolating that problem. It will allow them when they have to do the 2018 budget, to really have a hard look at the subsidies and at the same time, that willo 2018 investors to look at lower income families. There are clearly indications that they are organizing the budget, they are looking at how to better the revenues. Is there a risk of saudi ambitions being too ambitious . Will it kick back in terms of slowing down the economy . Extray they are adding measures. In that could take them back, especially with the Federal Reserve adding rates. The rate hikes are a problem. Onre could be pressure Interest Rates that could spill into the economy. That if the oil price stays stable, they are now assuming an average oil price around 50 a barrel. I was suggest that this plan, coming out to be with cutting budgets but providing cash to the lower income families, should not be real, aggregate domestic demand. 2018 will be another story. But right now, if Interest Rates do not go up too much, it is likely that Interest Rates have already overshot over the last month. Seems stillt, this a trajectory for the situation to remain quite good. Interest rates aside, if the oil price creeps up to barrel, that dilutes it, doesnt it, and that is a problem . You have that always. The politicalp economy. Situation improves, and there is always a business incentive to reform. You see it in the eurozone, and when theng markets, dollar kohls down and Interest Rates cool down. It is very difficult to predict. That the saudi government is quite aware of the problems longterm, and has no , they are not expecting a major increase. It could go to 60 a barrel. You look at every thing that is happening in the world, Technology Changes included, i do not think it will make that kind of assumption. Stick around with us. More from him later in the show. Research from Wood Mackenzie says it needs to be around 55 a barrel for the oil and gas industry to be profitable again. We will discuss that later on. Usef Global Markets are taking a breather. We will have the very latest on all of the Market Action next. Yousef welcome back to Bloomberg Markets middle east come go live on bloomberg tv and radio. I am yousef gamal eldin in dubai. Rishaad i am Rishaad Salamat in hong kong. Barred from board meetings. An abrupt dismissal as a german. Tata returned to take control. Ally has been voted off the board. President elect donald his aseems to have won battle with the new air force one. Boeing ceo says he told the ceo the replacement job can be done for less than 4 billion, reported in recent days. Trump met with boeing and Lockheed Martin at his maralago resort in florida. Will get it done for less than that, and we are committed to working together to make sure that happens. Was able to give the president elect personal commitment on behalf of the boeing company. This is business that is important to us. Googles Autonomous Vehicle unit is talking about self driving autonomy into the automakers cars. Just behind chrysler. General motors and ford tried to reach a deal with google last year. They have plans to sell Autonomous Cars sometime around 2020. Lets see what is going on right now. More than of trading, that, 36 minutes in japan. Lets get to david. A lot is happening right now. A quiet start to the day. For the most part, the first for five hours of asian trading, not a lot. It is clearly more red now, 70 of stocks. That came to fruition when japan rose. 8 . The latest market opening up. It india, seventh straight day of declines,. 33 . Philippines, 1. 7 . The worst weekend of selloffs back in january. We are now pushing toward 6500 on that index. Singapore,. 6 . We are looking at declines. Day left. Pushing toward christmas, the volumes are quite light. Equal,s like all things a weekly loss for asia. Gone over. Has we can forecast as we go into 2017, a oneday chart. Let me extend that to two years to give you a sense of where we are in the greater scheme of things. Highest level going all the way back to august of last year. Pushing 3 tobe 8 , which would take as easily to 6000 if we do get 8 on the back of commodities and financials. That is it. Goldman upgrading their target for nikkei to 21,000 and four that other index one of the key stories coming out of europe to read a theyes have told bloomberg could probably fail a 5 billion capital raise, making a state rescue likely. No anchor investor has shown interest in recapitalization and liquidity is drying up, a slump by 12 . Going to 87 . Lets go to the investment of Investment Strategy. Have talked about the italian story. With the latest news coming out, how will this play out . What happened at the beginning of this month, we had a referendum in italy. What i said at that time, the referendum had been taken out of context. The Political Risk of the referendum had been overdone. When the referendum was overstated, and the banks rally tremendously in november. That is now behind us. Either there would be a Market Solution or a state bailout. That isolates the problem. That is the most important thing because what is going to happen now, banks had a tremendous month in november. It is difficult to say in the short term. It is important to bear in mind that the italian banking story is not going to have a Ripple Effect in Global Markets. It will not trigger a risk mode of any sort. The idea that the state bailout is not possible or would be political politically italy, and would be violating the european bailout, bailin rules is not correct. The government is entitled to indemnify after the bailin for these investors for whom debts were improperly sold. What i think is key to understand, were going to have a bailout. This means the debt over gdp ratio will go up again. Little compared to the overall debt and gdp in italy. But the problems longterm are not solved. Rishaad it is not just at this problem likely to affect other banks as well . There are a lot of banks in italy that are currently under threat. Argument, fear for contagion into other banks is slightly overstated. 50 billion,es of and the package is only 20 billion. That is to make sure that for banks specifically, among them, monte dei paschi. Thefor the other ones, likelihood that they can still recapitalize of the other markets, is still considerable. Thathould bear in mind in italy,ast years there has been a lot of consolidation and cost cutting. The yield curve is a bit steeper and helping banks. Growth in italy will remain fragile. If there is a really market shot, then the banks are in trouble. If this situation goes on, i suspect the other banks can get out of this. It is important to bear it in mind because the banks in italy were never the problem. The problem was always the economy of the country. Italian banks do not have problems until 2008. That indicates a continuing fragility. Yousef hold that thought. He is staying with us. We will look at emerging markets and get key called as we wrap up 2016, a very volatile one. We will look at 2017. Yousef welcome back to Bloomberg Markets middle east come go live on bloomberg tv and radio. I am yousef gamal eldin in dubai. Rishaad i am Rishaad Salamat and hong kong. Lets continue with our guest in this rally we have seen since Donald Trumps victory. Luciano jannelli still with us, from adcb. There is an old adage, bull markets are born on skepticism, mature and optimism, and i on euphoria. Where are we with that . I think were going to see some stability, is probably pausinlar is causing g. The chinese are stilling the progression of the renminbi. And interestrate are stabilizing. I think we will have some tranquility. But for emerging markets going this pressure on higher yields and fiscal spending will keep the investment story for them fragile for the for seeable future, 2017. Yousef lets pick up on the rebound of oil prices and how that is affecting the correlation. This chart really tells the story. Currencyee that correlation with oil, at a 22 month low. How are they going to handle that higher treasury in the u. S. And that reflation trading . Luciano this is the good news for the emerging markets. The yield of gone up some of the dollar has strengthened. Commodities and oil have not suffered that much. This is where the risk lies. With oil, there is a reasonable chance for it to remain relatively stable. The oil is more affected by dynamics in advanced economies. Is bigger for the Industrial Metals complex. I do not think it is sustainable. Rishaad always great to get your view. Still to come, bit of a preview. Potentialg plans with on the table. Yousef we assess all of that next. It is 1230 in hong kong, a 30 in dubai. Here are the first word headlines from around the world. Saudi arabia aims to balance the hype of the deficit in the middle east. Government officials told bloomberg the plan will focus on boosting revenue. They may shield low and middle income earners from the measures. Its biggesting economic shakeup in history to reduce its reliance on oil. After 20 land to japan years of negotiations. The official ceremony will be held in okinawa where the military will hand over the most land a since in 1972. It is home to more than two thirds of u. S. Troops stationed there. For have been criticized giving the goahead for another military base. Japan spends nearly 2 billion next year to increase Maritime Security in the east china sea. The money will increase coast guard personnel by around 200 and at five surveillance ships. Aircrafts from both countries regularly patrolled area. A pilot declared formally responsible for the crash in colombia that killed 71 people. The carrier is based in bolivia and they said they are principally to blame for the disaster. He died in the crash which came when many of those who died were on the brazilian football team. Global news 24 hours a day, powered by 120 countries. This is bloomberg. Japan is approved a record budget of 820 billion for the next fiscal year. Marchards companies that to the drum of economics. But critics say the economics are based on things that are too optimistic. First of all, where is the government going to spend all this money . That was a big question. We heard about the size of the budget, but where were they going to spend the money . Now we know they will spend it on companies that further their policy objectives. We are talking about raising wages, supporting child and elder care here in japan. These companies that can increase wages based on performance instead of seniority, as is common in japan, are being incentivized. Those companies that turn nonregular workers to permanent ones, they are also being encouraged. These measures are the latest efforts i that Shinzo Abe Administration to change private sector behavior. It could be a catalyst for that muchneeded structural reform. Some people are pretty skeptical on the economic forecast. The government what are they saying . The fact is that for this budget the government has current bond issuance of a nineyear low. This depends heavily on a weaker yen providing more income from foreign reserves and higher Corporate Tax income. Some people think this could be challenging. Take a listen. For a couple years the japanese government was very lucky. Greater than expected earnings. They could always get higher, which could be allocated to a supplementary budget. But it is getting difficult to do that. The governments income estimate is based on nominal growth of 2. 5 , real growth of 1 . And she does not think that will happen. She thinkser yen could spark criticism from the u. S. Government and that could lead to volatility. I found interesting is what japan has done in terms of the allocation to the defense budget. Talk us through the numbers here. The defense budget, huge. A record budget of more than 42. 5 billion. This will be spent on a new jets. Ine, s35 fighter we are seeing regional tensions with china and the east china sea, and a more aggressive north korea. I spending package approved for the current fiscal year of about 1. 5 million that was going to focus more on Ballistic Missile defense. Defense costs and Social Security costs, we are seeing japan facing more challenges when it comes to balancing their budget. Yousef thank you for that update. Back over to this part of the world, saudi arabia pressing forward with plans to lift aramco, and all competing exchanges remain on the table. We are bringing an energy reporter. Is it a usual place for Foreign Companies to list . Why is aramco looking at japan . Saudis,e heard from they are keeping all the options on the table and open. They are just weighing out the pros and cons. Hostedt that japan has foreign ipos is a concern in the foreign minister said that in his many words. That could be because there is an unusual amount of risk in the more usual places where Companies Might lift. In the u. S. , a lot has recently allows citizens to sue the country of saudi arabia for its alleged involvement in 9 11. And we have brexit. With donald trump coming into the white house next year, notlar medic norms may apply. It is hard to know what the u. S. Relationship with the world will be. The saudis are keeping everything on the table and assessing their options. Are they flying a kite . Day, they arethe trying to get the best deal they can. Will be huge, how big we do not know. Tell me what people are saying about that and the expected time frame. It will be an absolutely huge ipo. The Biggest Company in the world. We do not know exactly how big it is or how much of valuation it will have because it has been quite opaque in terms of the reserves the controls, the actual production levels, its cash flow. All that will need to be audited and published before and ipo takes place. It will be fascinating watching this unfold. We think the company is worth more than 2 trillion, and the plans to list 5 , 100 billion, that is huge by any standards. How long it will take to come together . Is a hard to say, there lot that needs to be done. Possibly next year, possibly 2018. Certainly there are looking to move ahead with this pace. Rishaad sam, thank you for that from the by. Third formera employer, convicted in singapore for a Money Laundering case linked to malaysia is the one mdb fund. Regulators crackdown on bankers. What is emerging, what more do we know . Sure, 34tails for years old, worked at dsi for five years. For five years. He encourage witnesses to like to belize, destroyed evidence, tried to hide his illgotten money. There were secret profits linked to 1mdb. He also downplayed his ties. A key person in the investigations, a malaysian financer. Expect sentencing to be given away. Iawei is considered under and unreliable, and will deny the charges. He is expected to have prison time and a fine, as well. Doesnt he face other charges, apart from obstruction of justice . Yes, seven separate charges, including Money Laundering. The trial will take place in april, and he could face more charges. Muscles, flexing its they have closed down bsi operations here in singapore. Former Goldman Sachs banker also faces a potential band, which would be among the most highprofile individual bands imposed by a singapore regulator. Siis is the conviction ofexb bankers in singapore. One banker misappropriated billions of dollars. It is the biggest Money Laundering case to hit the country. Investigations have been most complex, the scandal sophisticated. Of moneyall it a web trail. Yousef a bit of a preview of what is to come on Bloomberg Markets middle east. Year of stability and opportunity for global oil and gas companies. We discuss more on that subject with the Companys Research director. Oil prices trading to the upside. Rishaad welcome back to Bloomberg Markets middle east , i am rishaad salama in hong kong. Yousef and i am yousef gamal eldin in dubai. Lets get a check of the business headlines. Approval to won build a 10 billion natural gas export plant in texas. Two companies happen given the goahead for a pipeline project 2. 5 cubic feet of gas to the facility. It has been nearly three years since they filed the application. Rishaad saudi arabia may compensate when it cuts fuel subsidies and raises prices next year. Prices will diesel be announced before the end of this year. Prince is overhauling the kingdoms economy to lower reliance on oil. Malaysias estate owned Energy Company has agreed to a fields inudy two iran. They signed a memorandum to assess the potential of the two fields to share deposits. The agreement marks a return to before petronas sanctions were imposed. Stocks rose for the first time in five weeks. An unexpected increase that you could argue worsened. Hissked michael for outlook. We think prices are likely to average 57. We think prices are likely to be on average higher in the first half and in the second half. I think what we are going to see is in the first half of the year, you will see refinery runs increase. The demand for crude will increase. And at the same time, crude supply will remain pretty level. You will have a big bump up and demand and level supply will result in a decline in inventory. Arguably, there will be places around the world, whether in asia which we are already seeing, or u. S. , where those inventory draws are quite severe and will lead to inventory pockets of tightness. Then there is a opec deal. What is the guide for 2017 if you do not have access to the bloomberg and cannot monitor ships coming in out of ports, or the pipeline in russia . What is the guide to understand if they are being compliant . User,you are a lady drinking a bottle of water out of a plastic cup, you will not see much of a change for your bottle of water. Gasoline,l user of you drop your tank at the pump, you are going to see a retail price bump, not only because of what is going on for gasoline, going to be are facing a colder winter than normal, compared to last year. Heating oil, fuel oil, is also going to show up. The increases we are talking about, the tightening, will show up in disposable income. Where that disposable income ends up. The prices will be higher. Fromad Michael Cohen barclays capital. An opportunity for the International Oil and gas industry. Analyst. N energy think you for joining us. Where do we go . I want to pick up on that last answer. Prices where they are and the supply positioned where it is, that increases the incentives for cheating. An interesting point. I think that when the Oil Price Goes up, and we have seen that already, and we forecast increases through 2017, we think about who will react fast us. Actthe markets that can fast us in first will be independent. You have to see what is , they areand see already going back. Through 2017,is as oil price is around 57. That is a massive incentive for them to get back to work. Even more importantly, if Oil Prices Stay above 65 65 throughout 2017, they will have to work on another basis in the u. S. Willis where the volumes come back first in the u. S. That will be where you see the market react fast us. Is,aad what youre saying the saudi arabia and grand plan to drive them out of business has failed because they are backtracking when it comes to quotas that opec. On one side of it. Now, the oil price has a ceiling. Yes, that is an interesting point to make. It will take time for those to get back to work. 2017 will be a year of transition. Barrelsseen 700,000 fall out of the u. S. We forecast about 300,000 of those barrels being back in the marketplace by the end of 2017. In 2018, it was still above 55. Even more valuable come back. Forecasted that in 2018, the oil price could go back down again. To answer that question, yes. If the saudi strategy worked in the shortterm, we have seen a bump in oil prices. In the longterm, it does incentivize is others to get back to work. They can bring about the market the fastest. They get upset in the longerterm term. It will have consequences. Yousef lets talk about oil prices. I brought this chart to give context on the gains that oil prices have made. I put this against the bloomberg commodities index. You are looking at the biggest 2009. In contrast since is it not sustainable given the fact that you have shale, the shale industry in the u. S. They could make a comeback with High Oil Prices . Yes, but the other thing to bear in mind, what do investors in these Companies Want . There is still overwhelming caution in the marketplace. Very cautious thing. These Companies Need to see oil above 55 month on month. Then the capital gets back to work. At the moment, the investors in these companies are highly leveraged. There saying, because us. But you want to see profits allocated to get the right kind of returns. Important is the oil prices, stability in the price. That allows companies to make decisions and bring normal activity back to the market. Is a key point, what the Oil Ministers are saying, we need stability in the price of crude. What is the current environment going to do to mergers and acquisitions going into 2017 . What are you expecting . Believe it will be a very interesting time. You see a lot of deals come to fruition that have been in the making for the last six months. Year in a very unusual that it was very lopsided. Billion spent120 globally, about 75 of that was spent in north america. 25 was in one basin. Ighting toward the u. S. Is unusual by historical standards. The rest of the world is very, very cold. We have seen some companies do some big deals. Really quiet. In 2017 that will change. That havehe majors assets out there in the marketplace, those deals will happen in 2017. There is a lot to look at. Rishaad thank you, great to talk to you. Will be finding out why Franklin Templeton says egypt and the United Arab Emirates will outperform other middle east stock markets. Rishaad welcome back to Bloomberg Markets middle east come go live on Bloomberg Television and radio. Imf shot salamat in hong kong. Yousef and i am yousef gamal eldin in dubai. The middle east stock market poised to perform the best in 2017. Lets get more on the story. Tell us what investors are seeing here. It is quite interesting. They are trying to figure out what they are working on next year. We have beenhing hearing for many investors located here. It is an interesting story because we see the prices, valuation is interesting. They are trading in line with emerging markets. At the same time, that perspectives for the country is better than what we saw this year. We see banks trading at much better levels and are seen as much more healthy than they were last year. You also have the expo 2020 getting closer. All the projects involved are happening right now. Overall, it is a good picture. Rishaad let me pick up that point. I am showing the performance. This is year to date. Stocks are leading the regional gains. Yousef then you have saudi arabia in there and divide. 176 , year to date. What is the currency situation . We heard commentary improving outlook. Filipe egypt is related to a currency story. We saw a surge in egypt when the currency started to fluctuate. Investors we talked to did not see many changes happening next year. That is a point that is brought up as positive for the uae. When you look at the emerging inkets universe, the uae was most of the index is that it that are globally important. As stocks will not evaluate much as another part of the globe. It is a safe investment in terms of currency exposure. Rishaad what are the expectations . It comes to saudi, most people want to implement the changes when it comes to Capital Markets into investment. Especially from foreign investors. A starts want to see within two days for saudi stocks. Want to see growth for shortselling in the global market. The saudi market is pretty much a local investment story. Are saudi, investors in saudi. People just want to see it moving forward. Rishaad thank you for joining us in dubai. That is it for this thursdays edition of Bloomberg Markets middle east. Yousef we will have all the top stories from around the world. Bloomberg tech is next. Here is an update on the top stories. Critic will head Donald Trumps trade council. Peter navarro will serve as director of trade and industrial policy. Carl icahn will advise the president on reforms. Saudi aramco will continue to explore an ipo in japan. Riyadh is looking at markets from hong kong to new york or what could be one of the largest offerings in history. They have downplayed tensions with washington. Alibaba back on the