tv Bloomberg Markets Middle East Bloomberg November 19, 2016 11:00pm-12:01am EST
look ating to take a the big steam to begin our hour -- the big theme in markets, ever since trump got elected in that surprise win in the u.s. presidential elections, this is a chart of the two-week local percentage change in global bond yield and you can the it down something like 2% over the past two weeks. that is the against change over the past 25 years, which is quite amazing. again, this is all about inflation coming back into the market. this is about big bets on trump boosting infrastructure, and it's about a rotation out of new orleans and into equities. we have seen amazing, amazing flows into equities. --have seen about 25 billion $25 billion flow into bonds, according to bank of
america-merrill lynch. that is the biggest disparity between bonds and stocks on record. a pretty amazing disparity there. the s&p downith about a quarter of a percent on friday. the egg story, of course, the dow jones, which closed at a november 15. it came off that high on friday. the nasdaq is also down .23%. we are the middle east, under two hours away from the markets, dubai and abu dhabi. dubai up 1.44%. playing catch up to abu dhabi dhabits -- operate -- abu markets. we also had the down a touch on friday. up a littleindex
over a 10th of 1%. overall, a pretty good week. we are going to check on the first word headlines from around the world. mitt romney is said to be on donald trump's shortlist to become secretary of state. an president-elect held hour-long talk with romney who has been a fierce critic of his for most of the 2016 election season. a candidate for treasury secretary. turkey says its central bank will do what is necessary to keep inflation under control with a record slide in the loera. the country's top policymakers said that they would watch the currency. the state run news agency reported that the economy
minister is not worried in the loera's weakness and seek is no need for intervention. the president of the confederation of british industry will say in a speech on they fear a cliffs and situation. prime minister theresa may wants to begin the process of leaving the eu by march of next year. at this monday.tory chinese president she champagne called -- the chinese president called on the u.s. to reject the protectionism, and for more we are joined on the front by john quigley. john, walk us through what has been discussed.
>> hello, tracy. major major history -- nations -- the trade is a clear area, and the fate of the transpacific partnership, which at limacally launched were rollingballs then and the fate of that agreement as we go beyond the u.s. election of donald trump and the question is whether the tbp is going to be replaced by another agreement. one that may not include the u.s. china john, how has responded to the possibility of
more protectionist u.s. trade policies? president wasese speaking today at a business summit prior to the meeting, and economicized that liberalization will remain part of the chinese government program and called on other nations to reject calls to slow integration. rolet seemed to be a reversal of sorts with the u.s. commitment to free trade leaving theh china call for more liberalization. tracy: and how have apec nations questiono the rhetoric
mark it seems interesting we are getting that message from mexico about possibly modernizing nafta in particular? yes, mexico was speaking up for free trade in north america. he took a more diplomatic speech, during his saying that the nafta agreement should be modernized and not renegotiated. scrapped asly not donald trump has suggested. it is a new phase, wherever that may lead. was aile, the summit host bit more outspoken, saying protectionism had to be defeated around the world. and looking at a pick to take the lead. definitely something to
watch. thank you so much, john quigley, and lima, peru for us. moving on to oil. first weeklythe gain since october after optimism over and opec production deal grows. they had renewed confidence over an agreement while it ron said that its talks had proved promising. .am, you were just in doha can you tell us if we are any closer to going to that opec deal? tracy, all of the ministers have said that they are optimistic. that is about all they said. not all of the members were there. not there.ster was perhaps these are considered sticking points. we have some way to go. the talks do seem to have been positive.
you cover oil markets day in and day out. i want to bring your attention to this chart to rid this is the correlation between the price of crude and the u.s. dollar. it's breaking down. ofit all about the arrival -- biggerhen there is a effect like the opec meeting, that tends to outweigh the dollar. and the dollar is very volatile with all of the political developments in the u.s. be what drivesl oil more than anything else at the moment. tracy: what you see in terms of positioning? that when we have the all jeers announcement, the announcement caught the market on the back foot. will we see the same thing again if there is a deal in november?
a deal -- john: a deal in november would be quite optimistic. the optimism has slipped since algiers. we are seeing it start to come on again. we have to look slightly longer-term year. the deal on the table is apparently six months. we have to look beyond that and say what is going to happen once that has expired? is that laid the ground for a deal or is that just delaying an increase in production? what are you going to be watching. i think it is 10 more days before we get to november 30? maybe a bit longer. what are you watching until the big meeting in vienna? john: iraq and iran. we know the opec
secretary-general this weekend -- she was in iraq last month, all of the diplomacy going on and, as i said, these are the two countries that might not be in line with the rest of opec. iran said it is not going to cut production. it may freeze production, but only at its own reported levels, which are higher than those opec acknowledges. iraq is the country to watch at the moment. arabia and the group and torpedoed the deal last april when iran had an exemption. lot movingnitely a parts. symbol can, our jet setting energy reporter. still to come on the show -- i will donald trump affect middle east markets? we will ask a chief economist of this hour, but next, robin mills
tracy: welcome back. you are watching bloomberg markets middle east. life from dubai, i am tracy alloway. iran's oilmen's is optimistic about iran's proposed production bert kendall.with bloomberg reporter goal narmada following then story. it sounds like we have been talking about this for so long. what is your take away from this round of talks? >> hello? tracy: can you hear me?
your take away from this particular round of talks? golnar: ok. tracy: golnar? all right, we have clearly lost golnar. she is too busy pondering the future of opec and its talks. we will go straight to qamar robin mills. there is plenty to talk about, robin. let's start with a question i was going to ask golnar. oft about the latest round talks and the noise we have gotten from the iranian energy minister? >> that is positively it. ron has been coming and going and enthusiasm for this deal, but the deficit is more
indication that iran is prepared to sign onto on -- to some kind of deal. iran is coming in at about 3.6 barrels. >> robin, these numbers, the numbers that iran is reporting for itself and opec are giving are a bit different. could that be an obstacle to a deal if iran insists on its own numbers being used to? several countries are playing this game. iraq has been reporting numbers well above third-party estimates. i think it ultimately depends, really, on whether there is a chance of significant further output gains by ron. the past two months, it has pretty much been leveling out. that production will not change much, they can give
the many target they like. if the iranians want to say they are producing 3.9, i don't think it matters too much. they are not going to get there. on the iranian production point, they have increased. opec is sticking with its plan production to something like 32.5 million barrels a day. will that be enough to bring prices up to $50 or $60 a barrel like a ron mentioned just this ink, given the increase production? robin: this is the challenge for iran. barrels ismillion quite achievable for the winter. production is going down and you add other cuts from kuwait and other countries, they would reach 33. to get to 32.5 million requires
a larger cuts. if they come back after december, let's say, fields in angola, for example, then opec will have immediately exceeded its cap. nigeria, libya productions come back. it's very volatile. they can be off-line in any given month. these are all quite difficult. >> robin, the nigerian minister told me be deal being discussed is just six months in duration. iraq aret iran and still injuring projects, still developing resources. looking beyond the scope of the scope of this deal, what happens after six months? think there is a difference between a six-month deal and a one-month deal. to may nextets us year when the saudi production will be going up again to meet
summer demand, so ask months, a lot of it is achieved just by natural changes in the market. a one-year deal includes all of these cycles and has more bite. of course, iran and iraq are looking to increase production. longer-term, as they start tendering deals, then the iranian production could, of course, go up, and what ever cap they are assigned in the longer term, they would no longer be exceeding that an iraqi as well. i think even a one-year deal would be white and achievement. tracy: robin, i am wondering, are there any teeth to an opec deal? what happens if you agree to a quota and they do not agree to it? is it naming and shaming, public ostriches a nation? not a lot the on that.
has been of opec deals that if they did not comply to seriously, they would publish the deals and bring everyone else in line. as you look at opec deals, compliance is very good. currencies does countries get comfortable and stocks begin pushing the boundaries. we may see if the same is true with this deal. tracy: all right, we have more to come with robin williams --robin mills off qamar energy. this is bloomberg. ♪
u.s., of course. the total number of oil and gas at riggs -- oil and gas rigs rose to 588. if you look at just crude rigs, jumps.he biggest thatuch more difficult as make it for oil prices and the efficacy of its production deal. robin: we have seen reduction is rebounding with this higher rig count. how much stronger could u.s. production of oil get?
i'm reminded of the news of a like 20y -- something billion barrels of oil underground. it seems like there could be even more coming online, particularly if capital markets feel comfortable with financing this? yeah, sure. that was the u.s. geological survey. we have seen other reports recently financing bigger discoveries in the basin. whereas a fewhat, years ago, she'll was $80 a barrel and a lot of them were profitable, and a lot of them feel they can make money at $50 a barrel or even less. tracy: and the final wild-card production has to be donald trump, in particular his america first policies, revving up production of not just gas,
oil, because, that's one of thing. what does that do for the global market? robin: obviously, donald trump is not present yet and once he is inaugurated, it will take some time for whatever policies he has to take effect. i do not think oil and gas production today is particularly constrained by regulation. some extra pipelines would help, and those pipelines, it looks like, will get built now, but i think it's a secondary thing. u.s. oil production today in the past couple of years, the issue has been about price. it's kind of self-limiting. what about trump's a purge to iran? he has been very, very critical of the u.s. deal with iran? -- with a run. could donald trump going after iran be a boon to oil prices by taking production of the market? robin: yeah, this is the real big wild card as far as
production goes. he talks about tearing up the iran deal. if he does, we would be back to the situation at year or two ago where a million barrels is taken off the market by sanctions. of course, that will push up prices a lot, it will make opec told job easier and it will help u.s. drillers. there's quite a lot of hurdles. not least, the other partners on the iran deal, russia and china, with a iran so far has been complying with the deal, so therefore why would they rip it up? here's an existential question on on early sunday morning, given what has happened with shale, given the rise of people like donald trump, geopolitical populism, nationalist parties, how does relevanceain its among oil-producing nations? opec will continue to
exist. shale is not an existential crisis for opec, but it is a crisis unlike any they have seen before in a very serious challenge. i think you hand, have a world of, say, more geopolitics and trade barriers, more economic nationalism, opec and its mission actually fits very well into such a world. tracy: the original cartel, right? robin: exactly. tracy: all right, robin mills, energy.amar coming up, turkey and inflation. this is bloomberg. ♪ wow, x1 has netflix?
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tracy: the top stories on bloomberg markets middle east -- just as the u.s. and europe turned their backs on free trade, china is promising to open up further and give greater access to foreign investors. eceaking at the ap meeting, chinese president xi jinping stoma -- stood up for free trade. >> it is regarded by the
business community -- we should firmly pursue the free trade area of the asia-pacific as a mechanism for ensuring an open economy in the asia septic. mexican president and ricky bennion so says he is wil ling to hold talks with donald trump over nafta. the deal saying it should be modernized, not renegotiated. trump has frequently complained about nafta, describing it as "the worst deal ever." zealand earthquake could cost insurers as much as $3.7 billion. a catastrophe model or says much of the damage will be covered by the earthquake commission. ae country was hit by earthquake that caused over 2000
aftershocks and landslides. for economistsn around the world is what effect donald trump's plans will have her u.s. growth. matt miller put that question to st. louis fed president james bullard. james: the things people are talking about have some potential to affect u.s. productivity, and i think it should be focused on u.s. productivity. i think the rollback of some regulation, to the extent you think some of the regulation might have been overdone, i think the republicans are betting they can roll that back and increase u.s. productivity. i think the infrastructure program, done properly, could infrastructure and medium-term growth. some tax reform that would repatriate profits from overseas .
there is some potential there. there is a long way to go to see if any of that get implemented. and these issues that were mainly more concerning during the campaign, which are immigration and trade, to me, they do affect the macro economy, but it takes a long time to unfold. you have to negotiate over a long time with other countries and, so, i would see that as a five to 10 year horizon, which is outside the box for day-to-day monetary policy, and immigration as well. if you've got immigration reform , you change how you did it, that would be fine. i see it as something slow moving because it would change you is coming into the country. , i seecro economist
those as low issues. : in the near term, a tax , you think that would add to growth, add to inflation. we have seen inflation expectation take off. does this constitute a regime change for the st. louis fed? a new normalt regime. can we go back to the reagan years? james: it's way too early to say that, but it has a little potential to go that direction. the things that are driving the low real interest rate regime are low productivity which has been very slow, only half a percent a year for many years and the high liquidity premium, government debt. investors love government debt and they are willing to hold negativets paper at
returns. that has been declining for decades. as far as monetary policy is concerned, they are saying we should expect that we are in policy rateetary .egime it's possible we will have a high interest rate regime later and we will have to watch for that. if that happens, we will have to change monetary policy at that time. fox,: joining us now, tim the head of research. we were listening to bullard and he was talking about how a lot of trump's policies are long-term things, renegotiating trade deals, building infrastructure which would not necessarily have an immediate impact on the u.s. economy. yet, if you look at the action in the bond market, we have this
chart, it has reacted very, very sharply. our bond markets getting ahead of themselves? tim: i think markets are thinking the trump approach will increase spending. the timetable is unclear. what we have seen recently, even before we get to the trump policies, we see a gradual push-up in u.s. inflation. exerting pressure on prices and if you add into the mix pro growth policies related to taxation and spending, you can see the case for the push up in yields. how quickly will those policies get enacted? the markets don't know. once theption is inauguration is over, the first
policies -- the first priorities of a trump presidency will be to enact some of these policies. he will look to do things in the first two years and get elected in the last two years. i think that is the path most presidents taken a first term. the instinct of the markets, a lot of these measures may take effect over a longer time, but the actual policies will start pretty quickly. pick up on what you said about inflation in particular. we saw signs of inflation coming trump's surprise when. how will be trump react? there was some talk that they might look beyond the 2% target and be willing to tolerate higher inflation for the sake of economic growth. right, but that was before the trump presidency in the victory he had early this
month. i think the fed is thinking about where we go with monetary policy. tolerance is all well and good when you're looking at subdued growth and modest rises in inflation, maybe a little bit of a performance. if you're looking at infrastructure spending, then the inflation risk is much greater. we saw that message from janet decemberat implied the hike is pretty much baked in. in december.omes the question for markets is next year and what we see in terms of interest rates. analysts rethinking -- probably not much by way of the fed in 2017, but now you are looking at expectations of 1, 2 interest rate hikes over and above what we are going to see. tracy: all right, stick around.
tim fox, we will have more from you and a few minutes. but first, we are going to head to turkey, where turkish officials say be central bank will take any measures necessary to keep inflation under control. ae current he has plunged to record low against the u.s. dollar. fromng us on the line anchor -- what are policymakers doing to stem the run on the lira? >> good morning, tracy. as you pointed out, the turkish lira has been in a freefall since the u.s. presidential elections and with that depreciation in the currency, one of the top agenda items that turkish policymakers saw on friday in a surprise meeting that lasted more than four hours. monitoringosely developments in the financial markets that would shield the
economy from impacts. turkishy said the central bank would do whatever is necessary to keep inflation under control in the circumstances. what ever is necessary -- would that include an interest rate hike? we have seen investors betting against that happening. >> quite a few analysts at we said the turkish central bank would use all of the tools at its disposal, including the interest rate to bolster the currency. , quite a few seem to think that the general global environment had a reasonable
heads -- as a a hit there could be residential straight not yet. tracy: so, they meet next week. what do we expect to happen then? >> according to bloomberg's survey of analysts and investors, they are expected to maintain all three of its interest rates. there is unusually high number of analysts who think your is the possibility the central bank might increase one of its and also there is an expectation that the central banks might continue to use its other tools to basically boost dollar liquidity, which is
attacks. they were supposed to cease fighting and allow humanitarian forces into besieged cities. it is claimed that rebel forces carried on showing, while the say that all parties are engaged in fighting. syrian forces in aleppo killed at least 20 more people in a fifth day of renewed assault on the besieged cities. all hospitals in the eastern neighborhoods are out of service because of the bombardment. the white house described recent attacks from the regime and its ally russia as "heinous." and the united emirates says it is unhappy with the performance --roles royce engine rolls-royce engines. it suggest there are issues that need to be resolved before the first plane is to be delivered next month. engines lastto 17
year -- 217 engines last year. let's continue with our conversation with tim fox, chief research and head of for emirates nbd. bondre talking about the selloff -- that has fed into u.s. financial conditions. take a look at the goldman sachs financial conditions index a year. that is the line in red versus indexci emerging markets in blue. what tends to happen when we see a tightening of financial conditions, emerging markets sell off. and we have seen that for the few days or weeks after donald trump the u.s. election. tim: it is really about, obviously, expectation of stronger growth leading
inflation in the united states knocking to interest rates, and which will tend to take money away from emerging markets. that is one aspect of it. presidencye trump introduces other variables which are very unclear, one of which is about trade, which obviously has garnered a lot of attention, whether there will be tariffs introduced on kunduz, prominent emerging markets countries and the impact they can have on more economies, -- and generally, uncertainty about drum from policies globally in relation to foreign policy, a whole range of issues, not just specifically about trade, but in terms of the interaction of the united states and around the world. all of those factors together make for an uncomfortable time we willging markets and
see necessarily much reassurance and so we have certainty about those key policies, i'll quickly will those policies get implemented in relation to growth and what priority he gives to issues in relation to protectionism and also knocking the against pro-globalization policies. i think those kinds of areas, the markets are waiting to hear more detail about and contributing to more uncertainty across the debt markets. tracy: i think we also have to look at europe because we have a slew of potential flashpoints on the calendar. we have austrian elections, italian elections. tim: we know from the u.s. election and the brexit decision
you cannot take anything for granted in politics right now. there is a way for populism that has the potential to disrupt elections that would ordinarily be seen as relatively straightforward. also the referendum in italy, we have a supreme court judgment in the united kingdom on the article 50 issue, and next year we have big elections in the big capitals in europe, frankfurt, paris. given the memory of what has happened in the united states, it all as bearing and the risks in terms of global politics interaction between the united states and other parts of the world will get elevated. very quickly, one thing that interests me, even though we have all of this political uncertainty, we have not the normal risk appetite reaction you would
expect except in u.s. markets. fromve seen them shy away safe haven bonds. is that going to change? where investors going for safe assets now? tim: i think the dollar looks the safety valve for the time being. that thethe perception nine states is at least one power in the world that is likely to be growing. you haverly when rising interest raise it does take away from the emerging markets side. i do not think we are in an acute phase. clearly volatility is low. we are not in an acute phase of risk aversion. but i think if any of these events kicks off in 2017, then you will have to look for other expresspotentially to that risk aversion trade. the right now, i don't think we are in that situation. we are still waiting for the inauguration in the u.s. and we are waiting for elections in other parts of the world. we're not at that point of
tracy: welcome back. you are watching bloomberg markets middle east. live from dubai, i am tracy alloway. dubai real estate values can do to moderate. the decline takes the annual rate of change to -7.4 percent. where is the market suffering the most and are there any bright spots on to buy's property horizon? joining me now, a head of research -- the
numbers here are pretty amazing when you look at how far property values have fallen 2008.the peak in late down 20% and still sliding. how much further do we have to go? interesting the market continues to suffer across the board. i think that this masks the performance of the market. ,n the periphery of the city they have seen very little movement over the past nine months or so. we are seeing further declines and that is linked to the performance of the economy. that is linked to the creation of more positions. what we have seen is the decline of across the board.
the decline -- tracy: the decline of the top tier how much of that is losing interest in the market rather than fewer ceo's positions being created and that's her than? >> it's a bit of both, i would say. we are a diverse economy. but you are right. aen you have issues with stronger dollar, that does dampen appetite from overseas buyers. what we areine with seeing as people become a little more nervous about a wobbly government value. tracy: is there a mid range? areaving a stable quarter two is notuarter or
enough, but seeing the least movement, yes, that is correct. a reputation of building constantly. are we seeing people scale back at all or taylor new supply in terms of the appetite that is out there? you askedteresting that question. supply level and projects remain uninterrupted. we have seen about 34,000 units announced, 30,000 came last month. the issue we have is a lot of the supply -- it's unclear at this stage, julie delivered and in what time frames. thank you so much. that is it for this edition of bloomberg markets middle east. we will be live from the region again, the same time tomorrow. lots more still to talk about. we have oil, we have the u.s.