Transcripts For BLOOMBERG Bloomberg Markets Middle East 20161229

It is 8 00 a. M. Across across the emirates. I am in dubai. And i am in hong kong. Welcome to Bloomberg Markets iddle east. A lot of activity in asia. 80 of volumes moving back to the markets. What are you looking at . Yousef that may be the case in asia but in the u. S. It remains. The dow did get close to the 20,000 mark but did not cross it. I am looking at the u. S. Dollars strength going up. I can pull up the chart for you, you can pull it up on your bloomberg, as well. This is the story of the dollar index. 23 of 36 over the last trading day. If you look at a three month basis, 7. 5 in gains. 17. 70 6 that is the year of u. S. Independents, of course. How much will the u. S. Dollar have to run from here, given a lot of this is still dependent on whether or not trump will actually fulfill his pledges, in terms of fiscal policy . What you looking at, angie . Angie it is a good question and i want to follow up on it. Dive into my bloomberg right now. As we see, perhaps the markets predicting the dollars rally against the yen may stall. Whether donald trump the u. S. Ble to boost economy. That white line, the s p 500. The blue is the treasury 10 year yield. Against thee u. S. Japanese yen. We are seeing some drops today. In fact, that is what is weighing on tokyo. Lets do a quick check of asian markets. Trading has been going on for 20 minutes. Lets look at how things are faring for india. They are in positive territory. Yen,said, with a stronger that is weighing on the topic, along with other equity moves, including toshiba, another down day for that stock. Yousef . Yousef in this part of the world we are under two hours away from the opening of the emirates market, dubai and abu dhabi. Lets run you through these markets trading days, dubai down. Just above the flat line. Cuts are in the green, as well. Saudi arabia in focus and all of this. You have the petrochemical stocks gaining off the back of strengthening oil price. The oil price is resilient does opec looks at these cuts for january. A comeains, holding helping drive momentum, up. 6 . Israel, up. 25 . Lets look at first word headlines. Relations between israel and the u. S. Are increasingly sour as president obamas time in office comes to an end. A secretary of state john kerry says the chance of peace in the middle east is under threat as israel continues to build settlements in the occupied west bank. Prime minister Benjamin Netanyahu hit back, calling his comments unbalanced and saying the focus on settlements is misguided. The two state solution is the only way to achieve a just and lasting peace between israelis and palestinians. It is the only way to ensure jewish andture as a Democratic State living in peace and security with its neighbors. Israelis do not need to be lectured about the importance of peace by foreign leaders. Hand has been extended in peace to its neighbors from day one, from his very first day. We pray for peace. We work for it every day, since then. President elect donald trump has accused the Obama Administration of putting obstacles in the way of his transition. He tweeted that the runup to his and not duration is being hobbled by unspecified quirks, inflammatory statements, and whiplash. There is tension between his team in the white house, culminating in the u. S. Security council vote Un Security Council vote against israel. Government expects expansion of 2. 6 down from 3 and says it loose fiscal policy. A staterun companies will be pressure to spend more for consumer and business sentiments. They are struggling with record high unemployment and debt. The bank of japan has released comments and opinions from its most recent policy meeting. Ofrelates to the discussions one unidentified member admitting the 2 inflation target was a long way off. Another opinion backs that up, saying japan is at a critical juncture. Member is more optimistic, saying a rise in price consumption is selfevident. Local news 24 hours a day, powered by 2600 journalists and analysts in 120 countries. Sprint says it is committed to taking jobs back to america. President elect donald trump mention the plan and comments at his maralago report resort in florida. We have a combination of sprints, 5000 jobs. That is coming from all over the world and they are coming back into the United States, which is a nice change. Jobs form a new company. We appreciate it. Angie lets bring in bloomberg tech editor. Donald trump congratulating his friend. What is behind this announcement . If you recall, trump and the ceo of softbank met on december 6 in many big, bold announcement. In the states, and 50 billion of investment. If the 5000 jobs from sprinter part of that or not. But in a way, that is almost beside the point. It is an opportunity for donald trump to say that he is continuing to work to bring jobs back to the u. S. By twois a typical move master showman. They like to go out and announce big deals and get a lot of headlines. That is in order to further his this interest. Yousef i was looking at the performance of the stock, it is been on eight tale. What can we expect in terms of investment and job announcements . Reed of the total 50 billion that softbank has committed to, International Global technology over 50 billion will go into the u. S. You will see startups getting that money, and possibly, some larger deals involving the companies. And we will probably see a trickle of those coming out. Note, sprintng to is a key element in this. Sprint is part of softbank. The Japanese Company bought control of the u. S. Wireless carrier in 2013. They have been struggling to get it up to scale and compete. A Trump Administration would at least remove barriers to that. That is part of the calculation. Angie we will leave it there, thank you for that. The latest from the markets. For that, lets go to david. Not much happening, as you would expect. Volumes are light with the exception of what is happening in japan. Maybe it comes down to what has been happening with the japanese yen. We are looking at the dollaryen, down. 5 . We do not have to get into this correlation at the moment. Into the last day of the trading year, tomorrow, there is a convergence in asia. You look at the yeartodate returns, it will be quite a volatile year. Jeff and japan started very volatile. You look at emerging markets, started well, did not do good. Then we are coming back a little bit. Divergence, as far as a worst performer and the best performing indices. The other thing to mention, there is quite a sharp drop in the value of the u. S. Dollar given the rally that we have seen. I talked about the yen. The other currency i want to focus on is the renminbi. It is very much about dollar weakness. The offshore renminbi is at a record low. The other big market story, if i can flip this around quickly. We will talk more about this in a few moments. To sheba, this is the track the market cap. It started out as a 9 billion company, it peaked at about 7. 5 billion, and since then it has wiped out half its value because of what we will talk about next. Angie thank you for that. We have another Japanese Company in the spotlight, as david mentioned. It is toshiba. Shares plunging for another day, wiping out all the gains they experienced in 2016 in just three days. More bad news for toshiba here. Pretty much. Down 26 at one point today, which is really a low, the record low for toshiba. They all weighed in, s p saying toshiba shareholders will suffer. There are deepening concerns over the sustainability of toshibas nearterm liquidity. Going on to say it could lead to a breach of toshibas confidence. And they could impact the ability to increase capital. All of these factors coming in. Since he third day electric had been one of the best three supporting companies this year. Anxiety we are seeing in the share price, it really comes off the back of about one oftement its units. What do we know about that right down . They do not have a finalize number. But it will be more than they had additionally said it would is 87 million. They said it is more likely to be in the billions. It will affect its earnings. Back to you. Yousef thank you. Lets get you a preview about what is coming up. We talk about the 2017 outlook for saudi arabia. But what a rise 2016 has been. And we talk to someone at from the Gulf Research center. Angie the Dollar Strength. Yousef welcome back to Bloomberg Markets middle east , live on bloomberg tv and radio. I am yousef gamal eldin in dubai. Angie and i am angie lau in hong kong. Well donald trump will be about the economy . One says the tycoon will be good for the stock market. Of the Trump Administration has signaled that they will stimulus spend, and cut taxes on the corporate side. I think the markets will react to that very well. You have to worry about increased debt but i doubt that a republican congress, with a debt feeling coming up in march, would support a new republican president. The stimulus measures and tax cuts trump has been talking about will happen. I think that will be very stimulative for the u. S. Economy. Higher u. S. Interest rates resulting from trumps plan may pose a big threat to emerging markets elsewhere. We think that a merging asia will hold up in growth relative to peers. But there are a number of risks on the horizon stemming from political risks, both outside and within the region. As well as higher u. S. Interest rates that are tightening finance conditions, putting upward pressure on the u. S. Dollar and downward pressure on asian currencies. Cioef joining us now, the at emirates. Great to have you back on the show. Before we get into that, i put together this chart. This is the u. S. Economic surprise index. This is policyrelated uncertainty. You can see the weakness ended and uncertainty climbed to the since 2013. L ironic given the movement and sentiment we have seen around the world. Where is the u. S. Dollar going to go from here . I think we are probably moving higher. There is a dollar index where 100 was the unit, limit, but now we are at 103. Yousef you think it will go further . It could easily do. It is not a great economic story around the world. But in the u. S. You have a powerful president coming in, very progrowth. And there is a further expectation of increased Interest Rates. How does a president that is progrowth, where is the proof . We do not know anything about whether he is going to deliver. Gary i agree with that comment. Yes, there is no proof as yet. It will be a hard task for donald trump to get much of his policies through, in terms of the scale of spending to send gdp growth through the roof. But i do believe a lot of people will believe in a, especially for the first part of the year. And that is why i see it going higher. Yousef if the dollar will strengthen, can the fed afford to hike . Are you experts part of the group . Gary no, we are not. I think three is too aggressive. I do not believe the administration will push on with the scale of spending many have talked about. In washington, the back end of last year, lots of comments that there will be challenges to get that kind of scale of spending through. Mitt which means you do not get the gdp hike people are suggesting. And the hikes will not have to go as high as three moves. Angie what does that mean for a merging asia . But gcc and commodities . Irans closest ally is looking to make amends with saudi arabia. More on that in a moment. Yousef one of irans closest allies in the middle east may be ready to improve ties with its regional rival, saudi arabia. A man has had strange relations with the riyadh oman has had strange relations with riyadh. But now they are joining alliance against terrorism. Again, Shifting Sands in this part of the world, once again. Haveudi arabia and oman had a tense relationship for a while now. Part of this, there are two elements. Are usuallyis gobetweens for iran and the u. S. A process that started off they Iranian Nuclear negotiations. And there is a war in yemen, that oman did not join saudi arabia and coalition and the faction in yemen. There is been a gap between oman and the friends on some of these issues. Rapprochements a with iran help its economy . Saudi arabia is by far the biggest economy. They are twice the size of the you eat ue. Is one of the smallest economies. They do not have a good relation with saudi arabia, it will not be good for oman. Especially at a time when oil prices will be lower. Does need the support of its gulf allies when it comes to keeping the economy afloat. Leave it there. Always great getting your insight on some of those key stories. Lets widen out the conversation. Coupleme of the last weeks have been quite fascinating in terms of the amount of geopolitical movement and is part of the world. And it is the same case in the United States and europe . Is geopoliticsor as you craft a portfolio strategy for 2017 . I think it is very important. If you look at surveys done, 70 of Fund Managers have this at the top of the list of things they are worried about. Particularly here in the gulf, we can be encouraged that the High Oil Prices at eight as a result of these countries coming together and finding compromises. It is a positive. There are challenges in europe next year. Oil price, but how sustainable is that, number one . And what about the russian commodities . The importance of Commodity Markets is stabilization at a higher level than we have seen before. I am comfortable if we have an oil price against 50. If it stays in the region of 50 of 60 or most of for much 2017, it is good for the gulf and elsewhere. Yousef viewers can pull this up on their bloomberg. Added threei have key indices. You have dubai in white, saudi arabia and yellow, and egypt in purple. This is normalized. Egypt coming in at 175 today. How are you positioning yourself for 2017 in terms of equity . Is egypt over done, is saudi better . Gary they have a spectacular run of 30 in three months. Isever, that budget incrementally helpful to growth. That comes on top of an oil price that is helping the budget at present. May be saudi equities push on for the moment. But in the near term there are profits to be taken. Angie lets bring it back to emerging markets. What do you think the Ripple Effect will be in 2017 . We are still quite cautious on emerging markets into the new year. I think the Dollar Strength we are seeing, there is a realization Interest Rates will push higher in the doppler block dollar bloc. We are seeing good numbers out of the u. S. And indeed, europe. That asia is still struggling. In recent days, we have seen it just from japan. Yousef what is your top pick in the em space . Gary russia, at the moment. India is in the back burner. 10 e could be another 5 to for the start of the year. Angie finally, what do you think is going to happen in the fixed income space . Guests have been commenting, we have seen it behave like equity space. What do you think volatility will bring to that area . Gary i think the volatility will still be great. As they go into the new year to things pull on her mind. In,tly, donald trump comes pro, maybe more inflation. The 10 year yield could go to the 3 level. Seen in thewe have previous years, the First Quarter is biased to lower. It will be the balance between a lot of hope on Donald Trumps policies versus weaker data. Yousef always great to get your insight. The chief investment officer. We will discuss july 2015 and the impact on the saudi economy. Stay tuned for that conversation. With the xfinity tv app, anything with a screen is a tv. Stream 130 live channels. Plus 40,000 on demand tv shows and movies, all on the go. You can even download from your x1 dvr and watch it offline. Only xfinity gives you more to stream to any screen. Download the xfinity tv app today. It is 12 30 in hong kong. These are your first word headlines from around the world. Exxon mobil has made a new natural gas discovery in papua, new guinea. There is been a legal flight to expand its reserves. They found gas in the north highlands. Although the size of the deposits has not been determined. Earlier this year, they offered to buy it. But it has been put on hold. Beijing is urging the u. S. To be more transparent about the way it assesses chinese companies. The ministry of commerce as it is concerned about alibaba being put on a notorious markets a list. List. Alibaba says it is doing what it can. Cutting the outlook for 2017, blaming consumption and wheat exports. Government expansion of 2. 6 down from 3 , says it will be paying loose fiscal policy. They will be forced to pay more. With is a struggling unemployment and debts. More than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Now, whichrn to oil is retreating from an 18 month high. Lets bring in our energy reporter. What is going on . U. S. Stockpiles. Is officialhere government data. We could see it under pressure. U. S. Stockpiles are one of the problems, at least of the last couple years. They are at an elevated level, the highest in three decades. It presents a problem to the market. That is part of the reason why opec has the need to cut supply and try to reduce the surplus, somewhat. Guess wepec come i know they will go in there and take out 1. 8 Million Barrels per day in terms of production. U. S. Field will be in focus. Be the oneerhaps surprising factor in this equation that could catch the market off guard that you are looking at, but maybe nobody elses . The market is looking out for is compliance. Of this other Members Group that will cut production are saying they will cut. But the proof will be in the pudding. What that means for other producers, whether that will provide an opening to other supplies, like the u. S. And brazil. Others in the market could produce increase production. It is a balancing act at the moment. There will be time before we know if it plays out. It is around 55. If it moves further than that, it provides an opening. Be an interesting next few months to see how the market plays out. Yousef thanks, ben. Lets stick to saudi arabia. Armed with a budget aimed at reducing an ongoing story we have been covering. Lets get economic output for the kingdom in the coming year in more detail with the director of Economic Research at the Gulf Research center. This is a topic driving sentiment in this part of the world, driving the market. John, has the saudi government done enough to really offer something credible that would be sustainable in the long term in terms of keeping the market momentum . I believe so. If we were to look at last years discussions, i was saying that we need more confidence, we need to have progrowth initiatives, we need to maintain fiscal discipline. We need to reduce current expenditures and increase capital expenditures. In thise done it all budget and a very transparent way. As a result, the market has been very positive. Analysts have been very positive. I think this is the beginning of a new saudi arabia, which is building on progress initiatives going forward, instead of having a recession, they have turned it around. And now the economy in 2017 and onwards will be picking up growth gradually, given that oil prices are still in a recovery phase. Where specifically are those sectors where we will see fiscal stimulus . Onn i think we will see it the consumption and. We will see more jobs being created. Of course, the private sector has to pick up the slack. They have to participate. As a result, we have seen 200 billion riyals in initiatives, that is about 50 billion. Including foreign direct investment. Companies that go into saudi arabia, we will see it on the space, Consumer Banking all of these areas where it is positive for saudi citizens who have to be entering the private sector as a result of nationalization of workforce policies. Positive compared to last year. Last year meaning 2016, was a challenging year. The nonoil private sector was close to zero. 2017 toward 2018, we will see the new plans of the national transformation, the investment side. Privatization is a key component of that. A saudiirant deal. We see the market picking up quite well over the last two to two and a half months. Spoke weast time we were analyzing data around the Credit Conditions in the kingdom. The latest data we have in terms of loan to deposit ratio, shows it is improving. With the fed about the hike rates further in 2017, what is the saudi to do for central bank, how will they navigate the waters . It is an excellent question. Liquidity has improved. As they issue more international bonds, that will flow into the system. The loan to deposit ratio will improve, but they will have to increase a little bit. Private sector is paid from the government. Riyals to 30 riyals will improve. 60 days overdue, that will be completed within the timeframe. It is very positive for the private sector. It is going to be enhanced. As the fed increases rate, they have to do the same. Will increase the cost. But overall if you have a growing economy versus the cost of capital, you would take the first one over the latter one. Angie i want to pick up on aramco ipo. Not just in hong kong where it is an option. But what else could be in the ,ipeline by the end of the year in terms of the other ipos we can expect . There is a lot going on in terms of family offices. Momentnt to capture the because of inclusion in 2018. We will see a lot of Family Businesses going into the ipo market in 2018. , capture theempt moment, or a bit after that. A lot of private Sector Movement in thencluded positiveness we will see coming out as a result of the inclusion. Of course, we will see other companies that have already traded in the market. They will have more privatization of companies by investing away from the state. That will be increasing. Includedve companies as a new, fresh ipo element in the public market. We will see a lot of activity going forward. I can tell you i have at least 15 ipos i have been hearing from the market. Very positive for the stock market in saudi going forward. Yousef you will have to tell us. Bout those, ho john point ve, eight eight barrels a day. There is a lot of supply out there. If this oil experiments, in terms of controlling the market does not work for saudi arabia, and prices go lower or stay where they are, what kind of impact could that have . Definitely, the budget is predicated on the low oil price, around 54 dollars a barrel. Going to year present to 30 or if it goes 40, sentiment is ruined. The good thing about the 2017 budget, they are not pressuring revenues to increase a lot. That is why we have seen a low number. But this is perfect. Helping private sector growth. But if it goes down from here, another 15 or 20, that is not good. We still need oil at 55 to 60 for growth to exist in saudi. I think we will stay at that level because saudi will be proactive to keep it at this 55, 60 mark. It is key to growth and the saudi economy. Angie i want to follow up that ,ine of questioning from yousef pulling up a chart on the bloomberg. Lets deep dive as we look at shale. Asing that longterm slump it expanded. How can we be given teed that as opec cuts back, it does not influence and welcome competitors and rivals, which would cap any kind of price gains that opec might have been hoping for . John it is an excellent question. Just waiting to come on the interview i was looking at the bloomberg magazine. You had an excellent chart on shale prices. A 60 million question. If oil goes to 65 a barrel, with will we have more shale . We are in new territory, trying to discover the new, breakeven price of the shale producers and the conventional oil producers. And 60 ately at 55 barrel, we will see more shale coming in. And we have to see how opec reacts. Arabia being a leader, could reduce output. That is where we will see real gdp falling and 2017 for saudi. Up from thepick private sector. But this is something to watch for. Yousef thank you for joining us. Program, in the centralbank expected to keep rates steady. But can it hold for long . We discussed. Angie welcome back, you are watching bloomberg. I am angie lau in hong kong. Yousef and i am yousef gamal eldin in dubai. The company has a great enjoyed strong growth in 2016 but a number of their rivals are downsizing. Carrier says they will have new rights, including services to dublin and rio de janeiro. Qatar says it made record profits in 2016. The owner of kfc, pizza, and taco shell gains continue to sell for growth. In turkey, hoping to refranchise it. Yum plans to increase fine in the year 2018. Oil prices in istanbul fell for the first time in five years. 4 last month. The most on record can muster edging back to 2010, the average monthly increase in home prices in turkeys largest city is 1. 3 . S has topped for the last five quarters. Angie Central Banks in japan and europe maintain their programs. The new year prediction includes chinese gdp growth in the target range of 6 to 6. 5 . 2. 75 . Xpanding and the u. S. Expanding to 2. 5 . All the movement we have seen in the last six weeks or so during the election of donald trump as u. S. President , yields have been rising. And up. One from 1. 75 the feeling is that it will keep rising. End, markets have built a bridge to somewhere. Markets have been hoping that the Central Banks would boost to the economy, and that the fiscal authorities would take over. That is the feeling generated now by Donald Trumps election. Dominate over, i mean the commotion of growth going forward, rather than Central Banks. And this worries the bond market. If the central bank pulls back to allow fiscal authorities to do their thing take me through the yield curve. The short end, there are rising rates. How much are you concerned about inflation . It is a culmination. Neutral there is a policy rate that has fallen. Neutral rates where the central bank is not pressing on the gas or the brakes. That rate has gone up because the gross projector he has improved. Rate, a in the neutral quarter point. And then an expectation of about a quarter point. And then there is the fed in the neutral rate. Would not expect there to be a big change. The bond market has moved a good deal and the last six weeks or so. But it has not changed its view on rates for the fed. Think about where the markets are priced. Rateederal funds rate, the the fed controls and 2020, it is still only around 2 . Historically, it is a neutral rate. 4. 2 4. 25 . Dow andot look at the think all is rosy. They should look at the projections going forward, the growth story for the rest of the decade. A subdued picture on the growth story in the u. S. And globally. Have aounds like you conviction that in the shortterm things could rise as we get a cyclical boost from trump. But you do not see the end of market. D bull it is difficult to see yields rising significantly. Wide . Why . Normal,ft from the new a growth rating of around 2 , to the old normal, closer to 3 . We cannot yet suppose that growth has picked up because we do not know productivity has picked up. And the picture is very subdued. Markets are price for the bank of japan to keep their policy rates negative three 2020. The same for the ecb. Also near zero in 2020. With a lots of capital to be invested globally, it flows into the United States, containing the rise in Interest Rates. There is productivity, plus the global rate picture. Those will keep Interest Rates subdued and low for the rest of the decade. Pimco executive speaking to bloomberg. Lets cross over to our other story from emerging markets space with senior economist joining us ahead of the key Interest Rate decision in egypt. Great to have you on the program. What can Central Banks do given the fact they have inflationary pressures . I think the best decision would be for Central Banks to maintain rates it currently high levels. Hike was necessary. On to higher yields for treasuries. Therefore, they have recorded around 1 billion. Banksprivate and public launching cds, 20 for one year. And another threeyear, 15 . Those have absorbed excess liquiditys. It is too early to cut rates or increase rates. I have pulled up on the bloomberg a visualization of where the Egypt Foreign currency reserves stands. This has been quite a story. You can see how recently a lot afterhas been unlocked the pound devaluation. How much further can these reserves go on how positive are you that the foreign currency is done with now, and that the Credit Conditions with access to u. S. Dollars will improve . I believe we have passed the hard point. What remains for a to see is the ability of that to be successfully implemented in the next few months. The current rate, around 19 pounds, might not continue 2017, we might see a got further as local banks in public banks have demand for the greenback. In another three months we might see the egyptian pound appreciate if liquiditys improve as expected. 2016, almosterves, set by thetarget governor, it would mean a central bank has not intervened to influence. Arrangements,g whether from imf loans or another region or institution, will continue recovery. And they should sustain that nationally at high levels. Terms of bets on egyptian economic growth, what is your outlook for 2017 . Will they be able to revive that . The numbers we saw were not very encouraging. I believe 2017 will be divided into two parts. The end of the fiscal year ending in june. The first part will enjoy a much less growth than the government initially targeted. Although we believe the recent funds are positive, over the longerterm, they will take us towards sustained row. But it will be negative on consumption spending, which resents prevents at 95 of egypts gdp. We expect 18. 5 this year, but it will have a negative impact on growth. Once prices readjust and private investments recover, this will be able to push our growth higher. Especially it will accompany gas budget. Rom the angie were going to leave it there. Senior economist, stay with us. Angie china may be dropping its trade growth target for a second year. What is behind this move . Shery we see the ministry of commerce finishing this key, annual conference without setting a 2017 trade growth target. Media istate run interpreting this, policy makers are backing away from these growth targets. Not surprising given the uncertainty we have seen in Global Growth outlooks. Take a look at this chart on the bloomberg. Trade has been declining. If you look at exports and imports, those lines the year on year are very volatile. Abandoning targets, and moving toward not setting specific goals. Yua shouldn be supportive of exports, but where are they now . Shery the chinese yuan unchanged, slightly on the downside. Lowestt after a weak, level since may. Currently holding it around that level. The pboc said a report of onshore yuan breaking levels was inaccurate. Angie thank you for that. Yousef that is it for this edition of Bloomberg Markets middle east. It is 1 00 p. M. In hong kong. An update of the top stories. Donald trump has accused the Obama Administration of putting obstacles in his away. He says his inauguration is being hobbled by socalled inflammatory statements and roadblocks. To cut a rose the most in a year kata rose the ta most in the year on word that they will be accepting a fine of 1 billion. The settlement could be announced at the beginning of the new year. They say nothing has been six