tv Bloomberg Markets Middle East Bloomberg June 1, 2016 12:00am-1:01am EDT
>> open for business. iran calls for better relations with potential partners and says the u.s. must offer reassurance. run of declines since april. opec will discuss production on thursday. saudi arabia must sell as much as $15 billion of debt this year. it joins the rush into bonds. >> and stability on china's
factory floor. it is remaining positive for a third consecutive month. a.m. and 5:00 a.m. in london. i'm manus cranny. rishaad: welcome to "bloomberg markets: middle east." let's get straight to the headline across the bloomberg terminal. i lot was already flagged in the market. japan, you're part of the world, has decided to delay its sales halfike by two and a years. of course, no real reaction on the dollar-yen. it will be a question of whether abe goes for this fiscal stimulus. what do you think about this? rishaad: we had the finance minister go against the grain
and break away and say he was in support of this delay as well. you remember the damage it did when we had the sales tax hike last time. people are really lobbying abe, suggesting it would just not be right for the economy. but people will be closely looking at this perhaps negatively because it is not sure up what is going on with the balance sheets with japan inc. they have already had some consternation about the delay to the delay, and whether this changes their stance on the outlook for the japanese economy. it remains to be seen as well. hasby has been -- mumbai been trading for about 20 minutes now. japan is now in the next. hong kong isre in on its lunch break and we have been flirting with the gain line for most of the morning. the hang seng is not reacting to
that data coming out of china, showing stability from the chinese economy. for is the unofficial pmi gua e manufacturing. one showing a slight expansion and one showing a contraction there as well. let's take a look at the middle east, your neck of the woods, manus. hours away from the start of trading, manus. we saw the session on tuesday, we had declines for doha and abu dhabi. was really following what was going on elsewhere, to actually wear the gulf was. it is up 1.6%. let's have a snapshot of tel aviv as well. on the way down for the tel aviv market. ,he index shows change
breaking the most recent falls .4% higher. manus: the dollar-yen is inching ever slightly higher on the yen. so, we have got to see where this actually goes, how much of it really was in the price. in the meantime, let's check on the other stories that are making headlines around the world. >> following the closure of saudi arabia's u.s. treasury holdings, the u.s. government has revealed saudi arabia owns $52.4 billion of u.s. stocks as of june, 2015. this marks a decline of $70 billion earlier and was the first annual drop since 2009. inaddition to $109 billion treasuries, the kingdom also has long-term security. better relations with western companies, saying washington
must ensure they will not face retribution in the aftermath of sanctions. european banks are wary of returning to iran. the foreign minister called on washington to offer in courage meant. offer encouragement. >> in order to address those values that are residues of a long history. in thehat were imposed amount of billions of dollars against european banks. vienna ministers are in for the summer meeting and there is a claim that the prices are strengthening. says theinisters market has been gradually correcting itself sent the beginning of the year and that will continue as oil prices continue to rise.
this is suggesting optimism in the cartel. >> i was expecting that we will have a euro correction. the rules of the market, which are supply and demand, are working. i think we need to wait for the market to get to a price that is fair to the consumers and the producers. >> global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. manus? manus: thank you very much. oil is down for a fourth day and is running for the longest run of the kleins since april. -- longest run of declines since april. this is as leaders gather for the opec meeting. they are all arriving and
beginning to chat. what is the mood so far? >> so far, it is more of a curiosity rather than any kind of action out of opec. minister the new oil for saudi arabia coming to his first meeting. people are going to want to see is, how he engages with the other ministers. so far, he has not engaged with the media. he was the first one there monday, but went into the hotel through a side door and met with the outgoing opec secretary-general on tuesday. he is getting the lay of the land there. people are really trying to see how he settles in. there is not much expectation for any kind of decision this time around. manus: because it is not -- i mean, they freeze is not on the agenda. we also have the uae making comments as well. everybody seems to be saying
that the market is balancing. >> opec has been saying for a while now that the market will balance by the end of this year. some analyst notes that a balanced early because of the canadian wildfires and other averages. that has taken some of the heat out of the freeze talk. after that deal fell through in doha last month. so, there is really no talk of a freeze coming about and there is no expectation that opec is going to try to scale back production. manus: let's see where that takes us. you are going to be all over this story for the next couple days. anthony, our middle east energy correspondent. rishaad: sources say saudi arabia is considering selling $50 billion of debt this year. irst is the kingdo's f entrance into the market there. we are now joined from dubai and
abu dhabi. what is driving this bond frenzy? >> good morning. from a very windy abu dhabi. as you pointed out, the winds of change are sleeping across the gulf capital markets. we seem to have a bit of a self reinforcing cycle right now where one gulf entity decides to sell bonds to plug a budget gaps caused by low oil prices. the other see how well this goes and if so, they come rushing to the market as well. it was all picked off by abu dhabi back in april with a $5 million bond sale. since then, we had a $9 billion bond sale last week. we now see plans from dubai and saudi arabia, with what could potentially be a record sale worth $15 billion worth of debt. ad: is there a risk of
oversaturation with all of these people coming in at this point? tracy: the interesting thing is, the orders for these bonds have been very strong. we saw $23 billion worth of orders. they did have to pay a bit of a concession to get all of those orders in. so, oversaturation on the supply side is definitely a potential risk at some point. we are also seeing dubai and the abu dhabi energy company talking about issuing in june. there is a lot of headline risk coming up in june, including that brexit referendum in the u.k. and a potential rate hike from the federal reserve, which would have a knock on effect in the emerging markets. the other thing going on is the oil market. that will influence the gulf region. rishaad: thanks, tracy. manus: joining us now for a little bit more on the stories the middlee head of
east research act -- research at credit suisse. i am a little bit tempered by oil, but i much more drawn to these $15 million worth of bonds. who are they going to focus on? >> i don't think there will be an issue in getting this debt sured up by the market. there is ample appetite domestically still. i still think there will be appetite from international investments as well. if you look at the target they have set for themselves, the government is talking about to abouts debt to gdp 50% in the space of about five years. this is really the very first step in a larger plan. and we would expect from saudi arabia alone, if they do manage to reach the 50% target -- which is quite tough in five years --
but if they do, that is something to the tune of $350 billion. that is a lot. manus: it is a lot. we will bring up this chart here, which is the middle east borrowing rate in relation to the price of oil. they are inextricably linked. moody has cut twice. does anybody really care about ratings on the sovereign bond from saudi arabia? >> to an extent, you have a point. nobody expecting a default. from a price, it really does matter. yields have been coming down, but at some point, we will see them come back up again. if nothing else, there is a great deal of supply coming on stream. manus: what kind of expansion could you get if you look into the widening? >> not significant because there
is a huge amount of cash still available to the government. there's still a significant amount of government revenue coming in. as we have seen, there is a policy to rationalize spending as well. these changes, these moves, they are going to help keep yields out -- plus, there is a significant amount of appetite as well. manus: obviously, we want to see --abu dhabi came as well. let's talk about the oil prices. i caught up with one of our guests who said the oil prices inextricably linked to the dollar than anything else. do you agree with that, or do you think it has to do with the oversupply and the balance going on there? >> it is crucially linked to the dollar. we saw a nearly perfect inverse on the two from a short-term
the. on a longer-term perspective, we had to take into account the surplus the situation simply could not last because there are not enough producers to profitably extract oil at that price. we should see oil gravitate towards $60 on a medium-term view. have tohat do you see happen in the market for that to happen? >> we have to see that surplus dissipate. the way market moves the car, and you have seen this as much as i have, it is never a fast process. most likely, you are going to see an overshoot when it does happen. in the near term, we do think oil prices are somewhat capped at where they are now. we have hired a very strong, sharp run up.
there is quite a bit of a skew o -- skew to the long side. but our target is $52 and we do expect it to keep getting higher and higher. manus: as the going to this meeting, nymex trades at 46.59. stay with me. we have a lot more to get through. let's get straight to the markets. david inglis is standing by. give us a rundown. david: thanks, manus. let me just bring up my map. equities are mixed midday. japan, keep in mind, it is point back after the fourth day of gains. big news over the last few minutes. abe announcing a two and a half year delay to the sales tax hike. i want to pull out the offshore revenue.
where are we now? there we go. we are very close to 660. afreshets the onshore at five year rate. watch this closely, especially as this relates to perhaps, the trigger for capital outflows. yes, we had gains on manufacturing and services as well. but this has more potential to be globally disruptive. keep that in mind. very quickly before i go, have a look at the equity markets in sydney, down by 1%. the aussi dollar had its biggest two day jump in over six weeks. we are going to be speaking to the chief executive about the implications of lower prices on the company's profitability. right after this, a lot more on the bonds. ♪
manus: welcome back. you are watching "bloomberg markets: middle east." middle easthead of research at credit suisse. when i look at abu dhabi, dubai, and qatar, with the longest winning streak in dubai just a couple of days ago, does this momentum continue on for you? it is -- is at all dependent on oil hovering around $50? where is the value in the region? >> in the short term, there is a risk. there has been a bit of profit. there is a risk that it goes a little bit more. for some of the markets, most notably the ue, idle think there is that much further to go.
for me, the underlying fundamentals are still a lot stronger in the ue. for other countries like saudi arabia, there is a risk that we see another further material deterioration as well. for those markets i would be quite wary and would not be seeking to increase exposure there. but for markets like the ue, i would be quite happy to watch and wait and try to pick moments to gradually pick up some exposure. manus: to pick the moments. i mean, the ratios -- the loan to deposit ratios have worsened . i am just wondering, are we stirring up trouble? that is something you don't want to have a major exposure to. do i stay away from those banks for now? >> certainly, because as you said the liquidity is getting tighter. on top of that, we have yet to see signs of stress, which we have seen feet into the inking
sector itself. the qe numbers were surprisingly good. we has a lot of delays in payments from the government over the last six months. so, you saw a momentary, or a temporary boost to lending. i think there is going to be some deterioration, which we will see over the course of this year. i expect to see nonperforming loans pick up in the second half of the year. i would be wary of the banks in particular. the consumer story is quite favorable. in saudi arabia, uncertainty has weighed have -- has weighed heavily on them. rishaad: you mentioned something that is quite interesting, how these invoice payment times have been lengthening. manus and i spoke about i.o.u.'
s. how much does that were you that you are having -- how much does that worry ou, that you are having government agencies issue these? rishaad: not terribly. we have seen this happen in the past before and it is a very useful tool for bringing liquidity back into the market and economy. if you have essentially a bond that gives you payments, which, the more distressed contract of can cash out, obviously, the discount on the face value rings some liquidity back into the market. a credit not have voucher or a bond, whatever you want to call it, you have much more severe tightening in liquidity, which weighs a lot more on economic outlook. ofhaad: fahd is head research at credit suisse. signs that we have promising data from china, from the
manus: you are with bloomberg markets middle east. guages manufacturing are remaining fairly steady. we looked at this earlier. >> absolutely. there is very little change from the expectations and from the previous month. the is a good thing for policymakers, like at the pboc, or others who want a fine of stability after all of that turmoil we had the last quarter of last year. let's get into the numbers. we can see the official manufacturing pmi. this is not a stellar number, but it is steady. 50.1, that is the exact same rating as in april. that is now three consecutive marks of 50, which means
conditions are improving. while it is not a fantastic number, three straight month is a growing trend. especially with manufacturing. let's also bring up the private sector. this number is still below 50 for a 15 consecutive month. -- below 50 for a 15th consecutive month. to 47.2 that we saw. i was going to use that year, how did you know? are stabilizing. doesn't mean that the pboc has room to ease? because there really is still some concern there. rishaad: what about the prognosis? summer is always seen as a time
where it all flows down. ontoanks often hold their deposits because there is regulatory scrutiny. cash is constrained. the big concern now is because the fed is more likely, according to more people predicting this, to hike rates, that will be a double whammy in the financial system. manus: stimulus is coming through as well. let's not forget. >> yes, but we have the cash crunch and most people are predicting a somewhat slowing of the chinese economy again this summer. rishaad: thank you very much indeed. this is stephen looking at these pmi guages out of china. these are the official and unofficial figures out of china.
to be sticking with the saudi strategy of squeezing out rivals. arabia could have a sale as soon as the end of ramadan. th $15s a bond sale wor billion. rishaad: sudan' prime ministers april'srming that next anticipated hike will be put off. this complements the government efforts to tame the world's largest burden. little has changed for the time being. it is 12:30 in hong kong. manus: it is 8:30 in dubai.
anna: i'm anna edwards. we are counting you down to the start of the european trading day. i wanted to tell you a few things on the program. manus, we will be talking about the brexit this morning. june 27 is the date in the calendar. polls yesterday really moved the pound. inn from 1.47 at one point the trading day. so, clearly the market is very sensitive to the latest polling. the culprit yesterday was a poll by icm. we have a gauge of one-month volatility at its highest since 2009 on the pound. manus, we will be speaking with the former conservative governor, and a key leader in the brexit campaign. that is during "countdown." manus: and we also have caroline
in paris at the moment. the great debate is whether shinzo abe is right. are we facing a crisis like 2008 ? it looks like the u.s. could pull us all by our bootstraps, doesn't it? anna: yes, that was a big topic of debate in paris. caroline hyde is there for us, as you said. she will be speaking with the general secretary of the oec. she will also be speaking with the luxenberg finance ministers. inclusive societies are very topical in europe with the rise of various parties. there is ongoing talk about structural reform, that being needed. paris, aaking place in part of europe that has seen some strike activity. so yes, taking us back to the debate whether governments need to do more. manus: we are in dublin.
there has been a lot of talk about the airlines recently. there has been a lot of competition there. anna: it was supposed to be a good sign for airlines in the oil prices alone. this is supposed to be making it easier to make profits in the airline sector. the key question hanging over this meeting is whether we are seeing a capacity glut, which is in danger of wiping out pricing power -- or reducing and weighing on profits. particularly in europe where yes, there is competition, but there are so many carriers. we have seen this way the capacity across european aviation. -- this wave of capacity across european aviation. that has made it more difficult to make profits. all of the managements for those big airlines will be on air.
anna: -- manus: anna, looking forward to seeing you in 25 minutes with "countdown." was just days before and middle east summit in paris. bureaurg's tel aviv chief is here with su. this has been around for a considerable time. so why is the back in the agenda and in the headlines now? >> i think it is back in the agenda now because of the peace conference coming up in paris this weekend. israel was not invited to this. i think the sentiment in the administration is this is perhaps, something of a diplomatic ambush where the world powers would get to better and try to impose a peace plan on israel and the palestinians. so, i think to head that off he -- resurrected this plan of
backed by the arab league, which envisions a broader peace between israel and the entire muslim world. so, if israel withdraws from the bank, in exchange, they would have relations with a range of arab and muslim countries. manus: that is the whole point, isn't it? an enforced peace is not a peace that lasts. this is all about having the right people, as it were. we have the defense minister. what did his appointment mean for israel? and more importantly, what does that mean for the region? >> that is a really good question. bed noire of the israeli politics. the left revivals say he is a blunt spoken, former bouncer,
guy.ly intimidating he comes with a lot of baggage. his supporters will say that he is actually quite pragmatic. when he was foreign minister before, he did not blow up relations with the allies. he himself was a settler. he has volunteered to leave his home during the peace agreements. so, he could be somebody who might end up surprising people when he is in power. though,g i would note yuahuelations with netsan have been very rocky. general with his office, but then they split. up until last week, he was very critical of him. this is not necessarily a stable partnership here. the israeli coalition could will blow up again in the near future. manus: michael, maybe sometimes
it does take a bruiser and a bouncer to move politics here in the middle east. thanks for joining us. that is the middle east bureau chief speaking to us. now to japan. rishaad: japan's prime minister confirmed he is delaying this sales tax hike. told lawmakers a hike will be pushed back until late 2019. this might helped to boost consumer spending, but it might not hel reducing -- but it might not help reducing the world's largest debt. anna: as soon as abe said the crisis, we knew this was what he was doing. he was laying the groundwork for an announcement like this. he said a couple days ago he was not going to announce this until the summer elections. >> he said before it would take a lehman-type shock.
>> leaders did not buy it. this had to be something that played into the domestic story for japan. now he is eating his words a bit here, now that he has mentioned he will delay this for two and a half years. he did say he will pursue structural reforms and stimulus. he will announce an economic stimulus package up to $90 billion to give the economy that shot in the arm. he has also vowed to win the upper house election. expected to speak tokyo and later in in explain his decision. we did hear from the finance minister, who did a bit of a 180 in terms of his views on this sales tax hike. now the biggest problem in japan is private biggest problem in japan is private consumption.
this will be the second postponement that they have decided upon. tax mightelaying the improve his electoral prospects, but i think some of the ratings agencies are looking at the debt here. >> can japan actually finance this one? debt level rising. still are opposed to this tax hike. there are so many people who are against postponing it, though. on the other hand, many people aberealizing that has changed his mind quite a bit. he did maintain there is no change in terms of the government's achievement of achieving that budget surplus by 2020. rishaad: surprising by being so unsurprising. thank you very much.
manus: the world economic forum has kicked off today. growth and inclusion are top of the agenda, as well as leaders and corporate big wigs gathering. our asian correspondent is there for us. linda, a very good day to you. linda: hey, manus. in reality, these conversations need to be held, given the changing regional climate. has becomenstance, very intertwined with that of the southeast asian nation. we have had an increase of 42% each year over the last 10 years. some asian nations are pretty much slowing.
recently dumped it's zero appreciation policy, something it has not done outside of a recession. it is not looking so great at this point in time. they will have to look for alternative growth. they will have to compensate for the slowdown in china. especially, the issues of the commodities valued is weighing on southeast asian nations. oil is now hovering just below $30. all companies in this part of the world are being forced to reassess how they do business. oil and gaslargest company in malaysia speaking. >> we have been looking at the way that we have organized ourselves in the way we manage and actually work.
we have been able to optimize and as you have seen from the news, we have been able to get it working. >> things have been done differently. this is not usual. there is always a great deal of conversation about the fourth revolution. it is, like secular stagnation. where are we in this debate between stagnation and the debate about evolution? is really difficult for the southeast asian nations. as you know, growth has come. there has been unequal growth in this part of the world. given how business is very indifferently done nowadays. b, alibaba, at airbn and grab. some asian nations will have to embrace the technology that has
become very much preferred in the world. southeast asian nations seem to be slow and the production. but if you take a look at the middle eastern nations, they are pumping an excess of $200 nsure they keep up with the the industrial revolution. southeast asia will have to adjust the technological evolution. manus: thank you very much within the very latest. coming up, opec's much-anticipated meeting gets underway tomorrow. can we expect any substantial agreement or a freeze? that is just one of the questions we are going to get to. this is live on "bloomberg markets: middle east." ♪
manus: it is "bloomberg markets: middle east." you are very welcome back to the show. oil has returned to something of a losing streak. aat does all of this mean for variety of sectors and naturally, natural gas? joining the is the ceo of dana gas. in theve headquarters middle east, egypt, and iraq. is a real pleasure to get somebody here who has a real company in the local region doing business. you have kurdish, iraq, iran, egypt, and uae. but getting your money out of some of these avenues has been a challenge. if i look at egypt, there have been some receivables here. i know you are producing concentrate. my question is, this lower for longer energy period, can he
spoke at your receivables backed by 2018? -- can you still get your receivables back by 2018? >> the short answer is yes. 2019er it will be 2018 or will depend entirely on the oil price going forward. but it is not going to be dramatically different from the 2014 manus:k in when i look through your report, market prices, and this is where i have written down lower for longer. your average was $30 and the first quarter, down 41% from a year ago. you are the man at the front of the pump. there is nobody better to tell me, does $50 hold at this? what is your real feeling about this whole rebalancing story that is being peddled by everybody that i meet? >> you will find i am peddling the same story as well.
i'm afraid i won't be able to inject anything new into the conversation. itarly, as you have heard, appears to be coming into balance right now. they were forecasts that it would be in quarter four of this year. it looks like it has come to a balance earlier than that because of the wildfires in canada and the production stop in nigeria. my guess is prices will continue to firm up in the second half of the year, but it will all depend if these additional sources of q, and in iran, ira whether how quickly the production comes back in canada and nigeria. it will be a little bit of a bumpy ride going forward. manus: that seems to be the consensus. let's circle back again. many people have said, let's talk to dana gas about your bonds.
you bought back $30 million in may of this year. you restructured once. do you plan to repay? what is the prudent thing for you to do? >> the prudent thing to do for dana gas would be to de-lever. we are paying $50 million a quarter in profit payments. take really makes sense to take out that cost element from the balance sheet. vereging is the direction we want to go in. we were fortunate to get a significant amount of money with our settlement from last year, which has given us some cash. we are looking therefore, to see how we can best use that money going forward to balance our financing requirements into the future. rishaad: you are undertaking this risk in hong kong, the wide cu -- of the widespread cost-cutting program. what more needs to be done with that? >> we had been on a program for
quite a while of cost reductions that actually predated 2015. we started on that journey back in 2014. this has been a multi year program of squeezing the costs out of the system. we are trying to take out unnecessary costs. and this year with the prize coming down so dramatically in the first quarter, we have had another round of looking at cost reductions. in this case, it is more related to engaging with our service providers and is seeing if they can help us share some of the pain in terms of renegotiating rates. rishaad: what about this fall off in output? i know you were just telling manus about where else you are looking. how else do you address this? whilst we, in egypt,
had a fall in production during the course of 2015, in the first half of this year up to may, we have had 10,000 put back into production. we have certainly bottomed out and we are now back on a growth trajectory as far as egypt is concerned. as far as the kurdistan region of iraq is concerned, we have continued to produce at capacity. the only difference is since quarter four of last year we have reduced our equity interest from 40% to 35%. that is the reason for the decrease in production from the kurdistan region. that has been balanced by production from zurich, which we brought on stream from the uae at the beginning of this year. manus: patrick, thank you for joining us. that is patrick allman-ward, the ceo of dana gas.
rishaad: welcome back to "bloomberg markets: middle east ." we are taking a look at what has been going on in india. it was a tuesday afternoon here in hong kong when we got the first reading of the first quarter. indeed, growth there is increasing. that story gather strength, gdp surges to 7.9%. we can assess the implications of that as soon as we can. just looking at these strong growth figures, we spoke with the finance minister just the other day. he said this is set to continue. to rely on too much structure
reform to take place at once. the pace is pretty slow. everybody seemingly wants india to reform straightaway. these things do take time. the boss of the reserve bank of ere wasi asked him if th a chance he would be reinstated or have his term three extended -- his term extended when the day comes up on september 3. he talked at the end the day about them having a strong relationship with the body that is the reserve bank. that is the situation in india. we've a couple technical gremlins out there, manus. manus: i think we possibly might. i am taking a look at pimco this morning. they say india's growth should lure investors.
yesterday, we were talking about the funds coming out of india over the past couple of weeks. the pimco is saying is that growth trajectory would support bonds. what do you think, rishaad? i am going to pull up a ggr. i think india bonds are somewhere around 7.5% to 7.8%. these are some of the best performing bonds we have seen within the emerging market, but it does depend on where you are with the currency. rishaad: it does indeed. one of the other things we were talking about how it has been the worst performing asian currency over the last year. the trouble is, when you buy those bonds, you have to factor in the currency risk. don't you, manus? manus: that absolutely is the problem. rishaad, let's do this again
anna: holding fire, the japanese prime minister says he has decided to delay an unpopular sales tax hike until 2019. china's factory gauge signals the world's second-biggest economy is stabilizing, as manufacturers got been made. oil slips, heading for the longest losing streak in six weeks. we are live in vienna, as opec meetings say that patience is a virtue when it comes to c rude. >> the market will correct itself, as we saw from the big inning of the year