Transcripts For BLOOMBERG Bloomberg Markets Middle East 20170402

Rebuild relations. Marketshis is bloomberg middle east. We just saw the end of the First Quarter in the u. S. And europe. Lets take a look at how markets performed friday. Cautious tone. People usually dont want to begin building new positions. Stocks hiteuropean 600. About 0. 5 up. Take a look at what happened. 5. 7 over the full quarter. Best quarterly performance since 2015. Again, look at european stocks. Up almost 5 . Pretty amazing. Yousef it has been one of the quietest quarters in a long time. There has been plenty of action. Two hours away from the opening of the emirates market. Thegy weighing in on broader sentiment. Pretty much unchanged. Strong gains in consumer discretionary. Also, utilities. The weak spot, material stocks. Helping to push to buy forward to read first bank of abu dhabi dubai forward. Showing dividends in kuwait. Clouding the picture. Cross over gears and some of the key assets we are watching. What a magical number, up 0. 75. What a quarter. Who would have thought . The dollar index, pretty much unchanged. Tracy we are going to talk about some of those interesting abu dhabi stories. First, lets check on the first word headlines. President cici is set to met donald trump monday. This is the first state visit since being elected in 2014. Tionsle rela past. Trained in the to be changing its policy to syria. Speaking to reporters, sean spicer said the trump s there istion say a need to deescalated violence. This comment came after nikki haley said the priority is no longer to focus on removing president assad, which would mark a major policy shift. Bank raisedral Interest Rates for loans aimed at small and mediumsized institutions. They increased the rates by 20 basis points, to 3. 3 to read a stable economy and rising rises have given it scope to tighten policy in order to keep up with the fed. New finances minister says he will push for inclusive Economic Growth while sticking to the spending framework already in place. He took over last week after president jacob zuma dumped his predecessor. Gigaba looked to calm investors after the rand headed for the biggest weekly slide since 2015. Working as a collective, me in particular as the head of that collective, is to restore calm. People that we anlectively possess expert capability to perform on the tasks we have been assigned. Daylobal news, 24 hours a powered by 2600 journalists and analysts. This is bloomberg. Tracy thanks. Will we getwo, or three or four rate hikes from the fed . Are hearing is it will be data dependent. Speaking of data, a key measure of inflation made it past the amount. Rgeted the pc hit 2. 1 . We had a few fed officials on bloomberg to talk about that and other things. Here is what they said about the number of hikes in particular. To the extent that i have more confidence in the forecast, that would be a good indicator i could perhaps support three. A two might be the right number if there is a little bit more or any modest concerns about whether or not we are really going to get that. If things really take off, continued strong growth, inflation picks up, we could get for bank. Four. Hikes seemsmore reasonable. If the economy is stronger than we expect, we could go through more. We have not seen a lot of movement in the hard data in the last 18 months or so. It is ok to raise rates a little bit. I dont think we need a major adjustment to stay on track and in control. On yousef great to have you back. Lets talk about the voices we just heard. Context,of additional the plot tells the story of the tight clustering we have seen. Great function to keep handy. What is the view on how many more hikes there will be this year, and perhaps more importantly, when . For two moreking rate hikes. June and december. Isimately, what is important how Investor Expectations are handled. For two rate hikes. We saw the fed managing expectations very well when there were no real expectations of a rate hike and it was handled well. There was no disruption to market overall. We do have a concern if we get into the range of four rate hikes, that could be enough to tip more pressure. When we have a faster than putcted hike cycle, it does pressure on markets. Ultimately, it depends on how well the transition happens. This going to channel through in terms of 10 year bond yields . You made it clear, all this talk boost,axes and fiscal that is not going to have much of an impact. For example, reshuffling the competition of the fed. Absolutely. That would be a very big driver of where it would end up. In terms of what we are looking yieldsediately, how runup to the june meeting. We have seen markets reprice themselves aggressively. Now, it seems markets have been stabilizing. June meeting, the we are going to see that ramp up. About the hard data coming in. This divergence between the soft surveybased measures and the hard data. That is a potential upside signal for markets . Or a downside signal . Given we are coming off survey data being so strong, sentiment eating so solid, and ultimately, it goes back to the sayings we have come a talking about how any shortterm it is a popularity contest. You might well see soft data drive the near term. It is the hard data that matters the most. If that doesnt follow through, you have a bigger problem. Tracy we have payrolls coming out next week. We did have a bunch of ucb officials saying a lot of things. They were kind of contradicting each other about when the ecb might raise rates and wind down some of its liquidity support. How supportive do you think the ecb is going to be . That is up for debate. There is a rising expectation you will see rhetoric addressing this very issue. Will beery least there discussion in terms of liquidity. That is something which we have seen impacting the euro. Ask is note ecb going to be as important as the fact that when you look at the euro, the dollar is going to be growing regardless. That is going to be weighing on the euro significantly. Those inflation figures, the low numbers, are they going to stay . Oil was at the heart of this and driving momentum. What is the ecb going to do now . We dont think the ecb will be looking at oil prices in terms of what that means for inflation. Said, hastion, as you been stubbornly stable. We saw a lot of these pickup and the last few months. The economics price index coming in stronger for europe than for other markets. Lead to inflation finally getting an upward lift. That has been the one area lacking consistently in europe for quite some time. Stay with us. Later on in the show, we are going to talk more about central banks. Well also get a reality check on the dubai Real Estate Market. Details of thehe latest economic report on the kingdom. We will talk you through the implications. Yousef you are watching Bloomberg Markets middle east. Moodys says the stable outlook on saudi arabia is some ordered i a strong the scope position, but it warns its finances are weakening and volatile vulnerable to oil prices. Contractionild gdp due to laurel lower oil production. The credit worthiness by 1 . Bring in the head of middle east research for credit suisse. I know you have been covering saudi arabia closely off the back of this transformation story. The latest numbers, weaker than one would have thought. Tying into what has been a downbeat outlook for the kingdom, trying to get a new gauge. What is your read . Everyone has been waiting for growth willrabias depend more on and more on the nonoil side. The first concern is the reduction in expenditure. I think the growth story is going to remain week until we nonoil side take off. Agencies areredit pointing to the execution risk. You need to come to the table i have faitho say, in the government to execute on this. What is your check on where they are right now . I am not expecting any major improvements in the next couple of years. What i would be looking for in the meantime is to see they are laying the foundations for the nonoil economy to take off. It is not going to happen immediately. You want to see the groundwork being laid. For example, how they want to build on towards him. Which i think is a great idea. Of would need to see a lot investment outlay in airports to make sure people coming in can be processed more quickly. These are the kind of basic steps i would look out for to make sure that foundation is being laid. One of the things moody mentioned is a lower gdp. We do have a bulk of that agreement, hauling squarely on saudi arabia at a time when they need to be rebuilding fiscal buffers. How is it going to square those pressures . And is there the political will to extend that . The political will from the saudi side is strong. You are absolutely right. Risk. K that is the key you have oneto members not sticking to the agreement. I think for the time being, we are going to see saudi arabia draw down on its reserves. They are going to be drawn down. That is what they were built for. We have a rainy time ahead. For the next couple of years, that is going to be the trend we see. Youy sticking with opec, will know this. We do have a growing expectation we will get an extension of the production agreement. I think the market may have put too much weight on crude oil is down 6 . That would be the first thing i would point out. Look at where oil has come back from, the fact that they have held above this market, that is a good indicator we have seen oil Price Expectations manage quite well. I think it is important we have this extension stay in place. Ultimately, the supply and been a function of opecs production. Lets cross over the red sea to read we have the big isi. Ing between trump and s that is a classical yield curve i have put up. It is somewhat unique. What does that tell us about the egyptian economic recovery story . It is interesting. If you look at the ends, they are flat on either side. But with a pronounced dip in the middle. We suspect there are several things. Ae is the appetite for certain maturity of people. Especially foreign investors. It also has to do with the fact that we have a yield curve in transition. This is kind of the first step toward that. The next step would be to see the short end of the curve. Stable,xpect fx to be that is an attractive return on a shortterm business. It was a little above 21 . It has come off. We cant talk bonds without inflation. In egypt, it is a big deal. How big an issue is that . It is something that puts a lot of pressure on the consumer. It is something which cannot be avoided. All the reforms are going to have an upward pressure. That needs to be addressed over time. The one big risk egypt does face is not the political but the fact that inflation puts too much of a pressure on consumers. We are putting you in a precarious situation. Lets get ready to rumble. Coming up, the battle. See who comes out on top. This is bloomberg. Tracy this is Bloomberg Markets middle east. Research note that shale productivity is increasing at 35 per annum. It means the break even price gets lower and lower. Yousef i am still waiting for your chart. Tracy we had a bunch of speakers including bill dudley. He actually invented the financial conditions index. U. S. Financial conditions are staying loose. Even though we have the fed tightening rates. Those are eurodollar features. All of this reminds me of a classic greenspan conundrum. Rates but raising financial conditions are still loose. That allows breathing room when it comes to raising Interest Rates. Yousef we saw the same thing with the bond yields. Tracy bond yields feet into the financial conditions index. Charts are you going to pick us the winner with . Make a decision. Make the call. I would say the financial conditions indexes globally more important. East focus, the oil prices always going to be more important. Im going to have to go with yousef. Yousef that is victory. If you want to make sure you you will get of course the line feed. You can watch everything back. You can see the charts, easily accessible. Beautiful bond yields. That is the only one to look out for. You can also message us. Coming up, the Scottish First minister gives an exclusive interview coming up. This is bloomberg. Checking in on the first word headlines from around the world. Egyptian Real Estate Developer is seeking to raise about 1. 5 from anejection pounds ipo in may. They plan to south. 5 of its shares according to the ceo. The Egyptian Stock Exchange expects the biggest number of since 1998. Is reeling from a tax evasion and minor line ring Money Laundering investigation. Two people were arrested by dutch authorities still probing those expected suspected of concealing millions. The probe and its timing has come as a surprise, not just of the bank but also to swiss authorities. Group is among those who placed preliminary bids for germanys state owned bank. Sources tell us the owners and regulators will review potential buyers and their offers over the next few weeks, feeling hopes it can be wound down. To eu ordered the owners sell the bank by february, 2018. Global news powered by journalists and analysts. This is bloomberg. The South African rand tumbled as investors reacted to the financing of the finance minister. President zuma is facing backlash over his decision to fire the popular minister. Lets get more on this. Huge market reaction. Affairs minister in the finance position who is relatively untested. Clearly this is a big deal. Deal becausebig not a lot is known about the new man. He is obvious the zumas man and s going to be of concern. It is now a question of what his actions rather than his words are. At the moment, we have seen some comments by the new finance minister that he will try to stick to the countrys fiscal path, but it will be about policies and actions rather than words. That is what the market will be watching. Tracy we have people speculate about whether we will get a downgrading to read how is this going to unfold . The rating agencies are not officially do until july, the first of the three big rating decisions. That is not to Say Something wont come sooner but it will be very unlikely. Settles,e dust kind of to see where south africa is going fiscally and so on. This is on a total return basis. It tells a story of what has been happening with the South African rand. Again outstory coming of latin america. It comes at a time of bond payments. We have been hearing that for a very long time. This is unfortunate timing. The state oil company has a bond payment of 2. 5 billion coming due. What is interesting is venezuela , at least the government, was going down a certain path by stripping the National Assembly of its rights. Top prosecutor has turned that around. They have stepped back from the brink. The suggestion venezuela is taking very seriously, the image abroad in terms of trying to meet these debt payments. We will leave it right there. Justin kerrigan. Lets talk about the brexit story. Fromfically, not far away the u. K. Borders. Scotlands first minister says her timetable is the right one and bowed to keep pushing for a vote. She spoke to bloomberg to drum up investment in scotland. Scotland has got so much to offer. Modern infrastructure. A highly skilled and educated population. This is a good place to do business and we are determined to make it even more so in the future. It is also about companies that want to extend their reach. One of the centerpieces is to boost exports. Establishingtly new investment hubs. Berlin, for example, this is an outward looking Scottish Government representing an outward looking country. That is the message, that it is it more important to get across. We want to welcome people all over the world. That is a message i will take to the u. S. Next week. You want to welcome people from all over the world. You want to welcome donald trump scotland . You said at the time, the conversations around immigration, perhaps the state visit should be locked. Will President Trump be welcome in scotland . President ish sure trump will visit scotland at some point. Of course i, like others, will have political differences. I think it is important we are able to are those differences. Between scotland and america are deep and longstanding. Deeper than any political disagreements between any administration or leader at any one time. America,se links with based on longheld mutual values, i will be looking to talk about and underline in the u. S. When i am there next week. First the scottish minister speaking to anna edwards. Lets get you up to speed with some of the more recent developments. The worlds tallest building, we understand from the dubai media a 360 story is tower complex expected to be open by april, 2018. There has been an ongoing issue. You think back to the fire that hit not far from this address. New years eve, 2016. Brainy celebrations to a grinding halt. Fire wouldve thought have been resolved, but clearly there is work to be done. We dont know of there are casualties or injuries. Constructione at a site quite recently as well. Speaking of properties, we are going to be discussing property, coming up later in the show. Yousef we will continue the conversation. We will look at expo 2020 and some of the real estate plays around. We will be speaking to the regional ceo. We will stay close to this story, the fire in downtown dubai. This is bloomberg. Yousef you are watching Bloomberg Markets middle east. Tracy i am tracy alloway. Yousef lets get a reality check on the Real Estate Market for dubai. The strengthening u. S. Dollar and Global Political tensions. All of those are waiting on the market that there are bright spots. You have the investment expo. By someone who has come out with a 2017 market outlook. This latest fire in the downtown area, another set act in terms of the emirates efforts. They are trying to this behind them. Every time the start recovering, there is another i are, another setback. Another fire, another setback. The topic of conversation was the fact that new regulations came in in 2012. A lot of the fires that have been on historic buildings, we help hope we get that in the bud. The heat is starting to rise in terms of the natural temperature. I dont know whether that has anything to do with it but it will be interesting to see how things play out. Yousef getting into some of the hard data, the First Quarter 27 team, prices have moderated. What is it telling us . It has been a challenging three years. In 2017, there is positivity. We are getting close of the famous expo in 2020. Generally, the market is recovering. 2016 was a tough time for a number of factors. I think we are seeing a positive time. Whether it is going to be a fantastic story, we will wait and see. It is the start of a more positive run. Tracy one of the numbers that struck me was that 8. 8 percent fall in residential prices. That has actually been quite resilient. How do we square those two . Does it mean investors are optimistic . Ofare figures state 53 sales were off plan. If more than half of sales are still off plan and not to be moved into at present, it is interesting. When prices of completed property are struggling, people see the opportunity to invest. Ideally see that premium come in. It is an interesting thing to look at. You have an eight. 8 drop in terms of prices. Rents coming down also. Overall, i think people have seen the value in investing in the future and getting into the market. Investing in the new supply of off plan property. I think we will see that coming continuing incoming years. Tracy a big story is the value added tax. It will have an impact on people who buy homes. How do you expect that to play out . We are learning new fax. Residentiald property will be exempt. At a time when the market is , recover,o recovery people are concerned it will add an extra 5 or whatever the final figure is. Whether via tenant or landlord. I think people are definitely coming to us for advice on how to deal with that. Tenets that have to cover the extra cost . Either way, it is going to be tricky. We spent some quality time with the numbers and put them up here. Property,f highend your yellowrtments, line is the prime Office Commercial leasing. They tell a similar story. The question for me is, where does the chart go from here . It shows quite well the last three years i was referring to. We had some fantastic growth. In, the mortgage cap came transfer fees were doubled. Been tough. You have seen corrections. Both for apartments and villas. Things started to tail off. I think that is probably a correction. We will see growth in the coming year or two. Much improvement in terms of infrastructure across to buy and the local economy that is starting to bounce back. In terms of solidity in the oil price. Was the best year for hotels and tourism. I think we are seeing signs of return and we will see that graph pick up. Somef devise facing headwinds. Risks to free trade. The Dollar Strength that will of course put pressure. Key would be your recommendation in terms of steps they can take . Perhaps make it more attractive for investors who might not be there, ir me to go out need more return on my investment . My one piece of advice would ain flexible. Even at this point in time, it is very interesting to see how the market plays out. Supply coming of on. Global conditions changing. The cost of borrowing is more expensive. I would say keep a close eye on what is happening. Flexible. Whether that means adjusting transfer rates. That would be my advice because it is difficult to make set decisions. How much our property prices correlated with the price of oil . Lookingook footing for a sign the economy is diversifying, that would be one way to figure it out. A that is determined between the balance of International Investors and local. The expense of dollar and the puts off international buyers. We have seen a shift, when the market has struggled. Oil, when wehat had the massive drop in oil, that provided a tough situation. Now that it is leveling out, people are coming to terms with it. I think that is why we are seeing a return to strength in the market. Somef lets tie down details in terms of what areas are experiencing interesting growth standing out from the rest of the city. Definitely be areas not struggling from oversupply. Read some of the other zones. We have seen good levels of demand, whether from the financial sector, or the technology, media, telecom market. The actual sectors have continued very well. We have seen recent announcements such as amazon, and these sides of the market are motoring very well. These actual areas with real estate, they are limited in terms of supply. We have seen them book the general trend and seeing growth in terms of rent and capital values. Similarly with residential, we have seen downtown pricing has done well because there has not been the same level as other regions. There are parts of the market for sure where has been huge levels of supply and inevitably, we have seen prices and rents come down. Yousef tracy great to see you. Tracy coming up, Abu Dhabi National energy post c 5 billion loss on oil related write offs. We will get more on the company next. As taca this is Bloomberg Markets middle east live from dubai. Tracy here in the region, we have a tale of contrast for two biggesthabis companies. They saw profit almost tripled, while other debbie energy posted more than 5 billion in losses. Abu dhabi energy posted more than 5 billion in losses. We should see some market reaction. It is 5 billion, a lot of money. A noncash charge. Still, investors tend to look at the number and it is not easy to swallow. 20 billion all at once. The stocks down 13. 2 so far this year. The is a lot worse than index in abu dhabi itself. We know the company is going through a Transformation Program the layoffsulted in of around 1000 people, 25 of the companys headcount. We know there is more to come. Is ae other hand, there different trend. The investment Sovereign Wealth Fund has presented pretty good numbers. They are actually showing very good performance from some of the areas such as semi conductors, and, health and care health care. Now thattting bigger it is merging. The marketk to taqa, value compared to the size of the writedown is smaller. Is that right . How do you see investors responding . Didnt trade on thursday which was a day when they were spent. We had the news coming out. Bearish righty now. It is a sector going through many things. There is the debate about where oil prices are going to go. It should be a name that should trade on higher volumes. And with a downward trend. Sterlinge have had results. How do the numbers shape up . The numbers are pretty impressive. We should see as much of a reaction in the markets because they are still diversified. There are so many different segments and Companies Traded here that are actually, that have money invested. Some of the areas they mentioned are the ones that could twoputted considerably. Considerably. Health care is a sector we have been talking about recently that has been a very good bet for stock investors. That is Something Interesting to highlight. Yousef thanks a lot. Always fun having you on the problem program. Just under an hour from the start of trading in the uae. Some of the key plays we are inaccurate the company that had a tie up with donald trump, building the hotel. News from the company, they are starting a roadshow april 4. So far this year, the stock has been up 2. 5 . Ee quite low. 4. 8 . Out it has been raised to over eight. The first day it trades at a combined entity. I want to point you toward kuwait, they reported a 2016 profit. The board is proposing to do list the stock from the kuwaiti stock market. 4 on a twoyear historical average. Finally, talk about emaar properties. That is going to be one of the Major Companies to watch, a bill weather for the dubai a bellwether for the dubai stock exchange. Investors will be keen to find out what the damage is and what that means for the business. How the business is going to react to developments as they come through. Tracy i am sure we will be talking about that. The end of an era. Are you going to miss it . I am embracing the start of the new. Some of the the you wish challenges and synergies in terms of trying to make the Business Model work, they will give us plenty to talk about. Tracy you are into the consolidation. I get it. Yousef that is it. Tracy we will be live from the region at the same time tomorrow. Chalene the following is a paid presentation brought to you by beach body but filmed by me on my iphone and directly from my heart. Hold up. I want to ask you a question. How do you feel when you look at yourself in the mirror . Not so good . Like, gross . Who is this person . You know you have to do something, but it is so confusing. 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