tv Bloomberg Markets Middle East Bloomberg January 9, 2017 11:00pm-12:01am EST
♪ >> the dollar slums as second day, continuing its slide, oil advances following monday's retreat. fromf: more diverting data china, factory gate prices rise the fastest in five years while consumer price growth slows again. investors test the government's resolve to defend the currency, rate speculation is growing. yousef: saudi arabia said to the process of
canceling billions of dollars in projects. it is 8:00 a.m. across the emirates. i am yousef gamal el-din. shery: i am sherry and in hong kong. reboundingcross asia following that risk off tone set by the u.s., the asian benchmark gaining .3%, but not helped by japan, which has returned from its holiday. ,e are seeing government debt tracking those gains in u.s. treasuries, and i understand you are taking a look at that as well. yousef: you understand correctly. that is what i am looking at. we have brexit, which spurred the demand for safe havens. into perspective when it comes to 10 year treasury yields, it tells a different story. this chart goes back to 1985, younger than i am, and we are in
a classic textbook a story of a bear market. quarterlyll below the resistance line, so we need to go over that to break through that, so you are looking at two point 38%, and you need 2.8% to break through that line, and that will be by the end of march, which analysts are saying something completely different. 2.4%, so stillay a long ways to go, and important to put some perspective in all of this. what are you looking at? u.s.: if you're looking at yields arise, then a stronger u.s. dollar, and that affecting markets across asia. india gaining .6 persons, rebounding from losses in the previous session. the hang seng gaining and 5%, china ppi data overshooting
estimates. topix down .8%, returning from a long weekend to her that is the market check in asia. yousef: thanks. it is two hours away from the opening of emirates markets. a positive picture in this part .8%.e world, dubai up gains for some financials, especially insurance stocks. downsidebia to the .8%, a lackluster start for , earningsks in 2017 missing estimates. down, look at egypt, .9% snapping a multisession winning strick.
let's check in on first word headlines from around the world. senior: donald trump's but unpaid adviser, jared kushner playing a lead role and will work with the chief of staff and chief strategist. he leaves the family's real estate company to comply with government ethics standards. yahoo! announcing sweeping management changes as it transitions into an investment company, marissa mayer and five others resigning from the board. resignationsheir are not due to any disagreement with the company. the newndt will be chairman. soaring on news
that alibaba and others want to take it private, part of alibaba's decision to integrate with traditional brick-and-mortar stores. the deal will happen at 10 hong kong dollars per share. ntime had been suspended before christmas. itmany warns britain that must adhere to rules on freedom of movement if it wants access to the single market. angela merkel laid out her position as theresa may prepares to launch brexit negotiations. merkel said anything other than compliance with eu rules would have consequences for the remaining states. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. basically we have the world covered. shery: thank you. has hadreflation story left with factory gate prices
climbing more than forecast. stephen engle's is here with the latest number, so only four new months and more than four years of factory deflation. what is going on? >> it is inflating now on the back of rising commodity prices, yes, industrial capacity has tightened, yes, the weakening hasr has raised --yuan raised the import bill. this is feeding into the factory gate prices in china, rising 5.5% year over year in december. we were expecting 4.6%, bigger than november, 3.3%, the fourth straight month of rising prices at the factory gates after four years of deflation. it is interesting to break it down because producer goods in mining, up 21% in december. raw materials up nine point 8%,
manufacturing 5.1%. these were all in deflation a few months ago, now showing close to and in some cases in mining, double-digit gains. purchasing in put prices, up 10% in december, ferrous metals up 14.9%, again,s up three months ago these were all in deflation. says,orman from hsbc don't worry too much about it. this is his explanation. >> keep in mind that a year ago, prices were down i/o must the same, so over two years, prices are unchanged, so what looks like a big reflation is not the beginning of hyperinflation, rising inflation, rising price pressures. look at the ppi in detail, the commodity part has been increasing, but the other
stuff not so much. think you have a question? yousef: i do have a question. prefer stronger ppi oversee pi, so how are consumer prices holding up? fairly benign? >> you are right. they watched cpi inflation like a hawk. they have had a loose monetary policy for some time, but it has not fed into consumer price inflation, still below the government target of 3.5% for the full year, coming in at 2.2% in december -- 2.1%. we were expecting 2.2%, so a benign environment. we can predict this accurately because of the bloomberg consumer price inflation food index, which showed food prices, even though we are in the middle
of winter, food prices had been trending lower, so that is the biggest determinant of cpi. when food is low, cpi comes in low. of industrialwer companies in china continues, and that will factor into those prices at the retail level. yousef: thanks. that is stephen engle's on the latest data from china. let's get more market action. what is it looking like? >> i want to start with the oil contracts, the wti u.s. contracts, coming back after that drop in monday's session, up by .3%, ahead of u.s. government inventory coming through on wednesday, likely to show we saw u.s. inventories rise by 2 million barrels last week. unfortunately, the oil gas sector trading off the back of that big slump we saw in crude
yesterday, so the sector off by .5%, santos in australia down by 2%. a number of the producers in off byng as well, cnook 1.2%. tracking towards the highest level we have seen since the beginning of november. you have flat movement on the shanghai composite on its lunch break. hong kong holding up well despite the weakness in energy players. the hang seng higher by .5%. elsewhere, some good movement from the southeast asian markets. india tracking well, higher by .7%. ont yen fluctuation weighing the nikkei today, down by .9%, its first trading day after being close yesterday for a public holiday. you are seeing weakness in the
oil price way on the australian share market. ofs is its first loss so far 2017. remember, the index holding at 18 month highs. a lot of support from the gold players, so that's where we are seeing the buying today, in gold, and that movement in the yen, so safe haven action in play today. yousef: very much so. let's get you a preview of what is still too calm, easing the tensions, can jack ma's investment in prove donald trump's relationship with china? titans, but saudi when will cost measures make an impact? we will discuss that. this is bloomberg. ♪
i am yousef gamal el-din. i am shery and in hong kong. president obama rejected israel's criticism about the recent security council resolution condemning settlements in the occupied territories. he told channel two that remarks from prime minister benjamin deflect attention from the problem and added they played well to the prime minister's political base and the republican party and washington, but don't match the facts. telecoma new ceo, the theator said he replaces previous ceo, who has resigned. it came as a result of the company's transition from a stabilizing phase two growth and expansion. he has been a board member at the national telecom regulatory authority and was ceo of global telecom holding. rolls-royce enjoyed its
second-best sales record last year, delivering 4011 cars in 2016 thanks to record demand in the u.s., the u.k., germany, and asia. japan performed the best with sales rising 51%. china saw a 23% rise. says middle eastern demand for luxury goods has been dampened by uncertainty. >> a little of april back in the middle east. manyiddle east was due to circumstances, oil price, economic development in that area, also political unrest or to a certain extent, but oil was not beneficial to the business, but the rest of the world was fantastic for us. yousef: let's talk about that the implications for this part of the world off the back of donald trump. of equities for franklin
templeton investment, great to have you back. in terms of general sentiment to donaldlook trump's cabinet, what are the implications for this part of the world? >> first of all, it remains difficult to discern whether or not trump's campaign rhetoric will translate to policy action. u.s. record highs in indices are based on the expectation that he will deliver on his domestic agenda, loser fiscal policy, deregulation, and job creation. at the same time, emerging markets remain fearful of his trade protectionism, and you have seen sharp selloffs and emerging-market currencies. whilst we believe risks are significant, we also think it could be a bumpy ride for global financial markets. the region looks attractive in that context. in reality, there are only two
transmission in a can is some this region. yousef: one is a stronger dollar, and that would translate into some of your views. these are the one day moves in the ejection stock market. it ejection stocks for 2017 are one of your top picks. what is the story around egypt and 2017. , removey now unlocked the biggest hurdle to putting money back to work in the market? >> absolutely. we remain constructive on egypt because of the economic trajectory and because the currency is undervalued. devaluationited which is a precondition for the loan from the imf is addressing a serious imbalance in the economy. egypt has one of the most attractive growth profiles in the region as the result of years of underinvestment and an
ever-expanding population, so we believe this is an area where we will see inflows and foreign investment. a fallas experienced from grace because it has been plagued by social unrest, dollar shortages, and currency issues. we think if you look at the devaluation in 2003, in the years following that, we saw five golden years of economic year,, 5.5 percent per and we don't see any reason why it should not achieve those growth rates going forward. shery: i want to zoom out. you are talking about egypt, but for an investor considering going into the middle eastern markets, when it comes to the valuation of the markets there, take a look at my bloomberg. you can see the msci in index and its valuation standing with a pe of 15 times earnings. the dividend yield stands at 2.5%.
difficult to give a blanket statement for the region as a whole, but given what investors may be considering on this front, where do you think the middle eastern market stands in relation to the benchmark? >> look, i think this is a year investors will be discerning and highly selective about where they invest in emerging markets. we believe it will be a year of differentiation and diversions, and as a result, stronger and economies get stronger, and weaker economies may show their from ability so from a valuation perspective, the middle east is trading in line with global emerging markets, offers a higher dividend yield of 4% to protect some of the downside and potential volatility, so what we are advocating is not a one-size-fits-all approach, but a highly selective approach, even when it comes to investment within the region. in the emerging-market con text,
saudi arabia said to have recruited price waterhouse coopers to help it canceled $20 billion of projects. our economy reporter joins us now for the latest on the kingdoms of tightening. what projects are likely to be cut here? thee are expecting government to look at criteria for which projects they will cut.
the first is whether the project has strategic interests essential for saudi arabia's economy, the second thing is probably how far along the projects are in terms of execution, and the third thing is what return they are expected to generate once completed. as one advisor said, it will be eigh, a metrow an economiccca, or city and the south of the country that generates profits from day one versus something that may work or may not. ofsef: this has been part this ongoing process of reforms, revisiting the contracts, the spending. why are they choosing now to move ahead with what looks like a major significant step forward? >> it is something they have been working on all along. last year, they did a project management office that was
tasked with carrying out the projects. this year, they are looking at making sure that they carry out the projects that they have to. whatever they can do away with -- because the main thing for them is to try to control the spending, which ran amok for many years. overranar, saudi arabia its budget by 20%. in 2016, they tried hard to make sure they stayed within what they put ahead first. yousef: great to have you on the show for the additional inside and let's widen out this conversation. the saudi arabia story, i put up a chart that gives us context. you can pull it up on your bloomberg. we are looking at the correlation between saudi stocks and global stocks, and for the
first time since 2008, that positive correlation has been broken, emphasizing the uniqueness of the saudi story. >> this is not a global story. this is a domestic agenda story. some important transitions in these economies, and saudi is amongst those. saudi has made some important strides over the last 12 months, and this re-strengthen's its investment appeal. we are more reassured than ever before about fiscal consolidation and cutting expenditure, and that has more bearing than what is happening at the global level. shery: and also, we are seeing this conversation on msci inclusion for saudi arabia. how significant is this move for the country? be seismicis would for the entire region. today, representation in the msc
inemerging markets -- msci emerging markets stands at 2%, so with the inclusion of saudi arabia, that may add 3% to its current weight, and that 5%, it becomes difficult for global investors to ignore the region, so it brings a region from the periphery right into the mainstream, and the additional thing to think about is the potential ipo of saudi aramco. that might add another 3% to the index and bring its weight closer to 8%, much closer to its of gdp contribution, so this is an important catalyst. is a lot ofe excitement around the saudi story, but also big risks, especially when cutting its oil output. last 24 hours, bloomberg intelligence is saying that kind of output could reduce gdp growth by two percentage points,
and you are also looking at the additional pressure from the budget consolidation we are talking about. how will this look in terms of economic growth for saudi arabia? >> that is a great question. saudi is struggling between what we see as short-term headwinds on corporate earnings compared with longer-term structural upgrades to its growth, so in the short term, we do believe there is going to be some earnings downgrades as company profitability gets dented by the government's movements, subsidies an additional 1 let these. -- additional levies. yousef: they are now looking deeper into the cycle changes, currently discussed in terms of stocks as part of that msci emerging markets inclusion. always great having you on "bloomberg markets: middle east" . here is what is coming up, the
rishaad: it is 12:30 p.m. in hong kong. the dollar slumping for a second day. bloomberg dollar spot index slumping for the fourth time in five days, yen and gold edge higher. anxiety over political developments creeping into the market, increased volatility with oil gaining on tuesday after its biggest fall in five weeks. china producer price index rose at the fastest rate in five years, up 5.5% from a year ago, four months after the end of a multiyear deflation. now poised to become a global
inflationary force. chinese consumer prices jumping 2.1% in december, just below economists thinking. u.s. prosecutors planning to charge high level volkswagen figures over the emissions scandal following the arrest of an american manager. the debbie's compliance charged with conspiracy to defraud the united states. compliance executive is charged with conspiracy to defraud the united states. a filing from lawyers for tata sons says that cyrus mistry reduce the number of directors and accused him of never raising concerns about problems with the groups operation and of things slow to react to losses.
global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. shery: thank you. founder as the latest big business figure two roll up to trump tower in manhattan. jack ma and the president u.s.-chinacussed ties and plans to create one million jobs over the next five years in the u.s.. . one million new jobs, how? >> if you look at what hourly bob has been saying since 2015 that they want to expand into the u.s., and they want more than 50% of the revenue to come from outside china, so negotiating new jobs in the u.s. is not new for allie obama. -- u.s. iseam can not new for alibaba. the trump team can claim this as a win. it,erms of how they will do
the assumption is that if he manages to attract more than one million smes onto his platform and each creates one new job, they will create one million jobs. shery: this comes after trump has called for higher tariffs on trade with china, so how important is this meeting? >> for them, quite essential, not a great year for alibaba in terms of facing u.s. regulators. sec probesnder earlier because of accounting issues, then also later put on notorious markets list for counterfeits, so they have a lot of issues to go through with the u.s. regulators. not being caught and this trade war between china and the u.s. is essential for them if they want to keep expanding in the u.s. alibaba now soaring in hong kong, up 30%. alibaba the details on
taking this department store operator private? are paying 19.8 billion hong kong dollars for billion, about $27 premium they are paying here, up to 43% compared with the closing s'last tradinge price. they have been talking about how they want to upgrade traditional retail centers, working with , having more control them the leeway and space to experiment with new technology and platforms, so we will see more going forward. shery: lulu chen with the latest on alibaba, thank you. yousef: let's cross back to one of our top stories. donald trump's indonesian
business partner is betting on the trump brand by expanding on its luxury resorts project. let's get more on this. so what else do we know at this point? well, for a start, trump man in indonesia is a billionaire and the media mogul. he is thinking big. he is developing two luxury projects with trump at a cost of $1 billion. one project is in bali, the other outside jakarta. he is also in talks to build a moto gp track, which may be upgraded to an f1 track down the line. end goal is to have the real estate business match his meaty unit. trumpbanking on the grande. those luxury resorts will bear the trump name. in an interview with bloomberg, he says he is focused on delivering on time. with the situation that i
face now, mr. trump thing the president of the u.s., it makes me to be more obligated to make the goodpreserve reputation of the corporation, so that's why i group,l my people in my property division, make sure everything is carried out professionally and properly. haslinda: the pressure to deliver. park also planning a theme like a disneyland and keen for more partnerships with trump, though he says it is too early for that. yousef: so is it true that he has been inspired by trump? haslinda: well, that seems to be the case. he says he has been inspired by trump to run for the presidency in 2019, but only if he sees no
strong leaders nominated. to note, he has had a taste of politics. he tried to get nominated for vice president in 2014 and failed. then, he has started his own political party called united indonesia, so he has political ambitions. happens, there will be discussions of potential conflicts of interest obviously. thanks. our southeast asia correspondent there. let's give you a preview of what else is coming up on the program. countering the cut, why traders are concerned that opec's landmark deal may not curb supplies as brent holds above $55 a barrel. stay tuned for that. this is bloomberg. ♪
shery: welcome back. you are watching "bloomberg markets: middle east". i'm shery and in hong kong. yousef: hashemi rafsanjani let's --i am yousef gamal el-din. . about crude oil prices, largest single day loss in five months. things playing into this oil equation, right? >> that's right. partly the market declined a lot since the opec deal in november and when non-opec joined in, prices have gone up and up, so perhaps time to take stock in the new year and have a look at the fundamentals and see what is going on with a rising u.s. and canadian rig count. equally, we saw some headlines out of iraq yesterday suggesting that exports had reached a new record in december, and people are looking at will iraq really
comply. a wild iraq was a bit of card. it had initially disagreed over how barrels were being counted. how much of a potential do they have to derail this opec deal? iraq is the second biggest producer in opec, and it makes the third largest number of cuts after saudi arabia and russia. if they don't comply, that is serious indeed to this deal and will put a huge burden on other countries to continue on with it. the question of whether they will comply is a difficult one. the oil minister said yesterday clearly that iraq is still going to comply with the deal, however many analysts say that iraq is not likely to comply. there is a big gray area in the middle of that, with how they count barrels, certain accounting measures, so it could mean iraq is seeming to comply,
but may be is not taking off as many barrels as it says it is. it is something that we need to watch closely over the next couple of months. shery: implementation, compliance, five weeks, six weeks in since the opec deal, so what is next? a lot of opec ministers will be meeting on thursday and friday in abu dhabi. it is not in opec meeting, but there are lots of events and meetings where trade bodies and organizations whose membership ,s similar to opec's membership so ministers are meeting each other all the time in informal settings, talking to each other, keeping and i on things. kuwait is responsible for overseeing compliance of this opec deal, and kuwait's oil minister said the implementation is going ahead, the gulf countries and russia are going , so wek with the cuts
have to watch every time they get together. we will be with them watching what they say and checking on the progress. shery: right. thank you so much for your insight. let's continue our conversation of -- with the founder thank you for joining us. we were talking about compliance, implementation issues when it comes to the opec deal. prices, is itto more about the commitment of opec suppliers to the deal, or is it also about u.s. producers just boosting output? which one is dictating prices? it is definitely a supply-driven story for 2017. the two factors you mentioned, i would argue are equally in portend, though not at the same time. for right now, the market will be opec and non-opec cuts just
took affect, barely over a week, the market will a close attention in the coming weeks to the compliance you have been discussing with your previous guest. i am not that pessimistic as some of the skeptics in the market regarding compliance. it is still early days, and it is misleading to look iraq's december export figures. what the higher prices due to shale and oil production in the u.s. is also going to be a major factor this year. shiftr, there will be a as wti has been comfortably around the mid-50's, inching up towards 60. if sustained at those levels, the market will start paying attention to what is happening with u.s. production. , could a business
friendly trump administration give a shot in the arm to u.s. shale producers, and what would that mean for opec's efforts? >> there are a couple of factors to watch when it comes to what happens in the shale patch in the u.s. you'd one is higher prices, and that is a more logical connecting of the dots , a high ofescended 9.6 main barrels, wti was close barrel, so the argument is logical that if it goes back to the same level, u.s. production should go up. the other factor you just mentioned, what donald trump's policies do, that is an unknown still. there is a lot of talk about easier regulatory environment that would allow for more easier acquisition of federal land, and
of course not to forget lower taxes. those could drive down to shale costs considerably. in terms of time horizon, i'm not looking for that to happen soon. we have to see whether those policies are put into place and for them to percolate through the system and physically make an impact on the bottom line of the shale producers. i think that will take a while, rubbing more like next year. let's dig deeper into the numbers. we are looking for two government data on u.s. inventory. let's put up the chart again for additional perspective. , verticale those bars bars, those are u.s. crude inventories. your line and white moving along side that is your opec daily output. you can see that drop towards the end as opec makes the agreement to cut production together with non-opec, but u.s. inventories are still at multi-decade highs.
what are the u.s. inventories going to do going forward? will they stay stuck at those levels? that is the key indicator, isn't it? >> absolutely. look, opec production levels if there is can't clients -- if there is compliance will come down. inventory should start declining globally, but somehow the u.s. inventories, the most dependable numbers we get, and they are not that much of a laggard, and they have become the bellwether. i suspect that will remain the case going forward, so the market will be keeping a close eye on them week to week. we have seen prices moving up and down in response to what happens to weekly u.s. crude inventory data. they expect crude inventories in the u.s. to continue drawing down. i think that should be a bullish
factor. keep in mind that this is further out in time, if u.s. production recovers, that could start building up u.s. inventories. what we need to keep in mind is that also the market loses sight risingfact that prices and u.s. production recovering cannot be a one-way street. prices will get pressure down because of higher production numbers and higher inventory numbers, and that will bring production back down again. other weak spot in opec's armor is what is going to happen with the libyan and nigerian story. standard chartered said if there is a rebound in those markets, it will offset the cuts from the agreement into seamer -- in december. do agree with that view? or the fact that faster rebounds in those countries exempt from the cuts ruin the whole thing? libyan and nigerian
production has been recovering over the last few months of 2016. however, libya is one million barrels per day off of its potential to produce up to 1.6, and nigeria is 300,000 or 400,000 barrels off what it can produce, so there is a combined capacity for the two countries to add 1.3 million barrels per day. however, i am personally not very bullish on that. they both have intractable problems. a point wherehed production is staying level around those levels. lindy and needs huge investments to go back up and for oil services companies to come back into the country. nigeria, i think the problems there are intractable as well. on oil prices,ll is it going to break above $60 a barrel by the summer? >> i doubt it.
if it does, i'm calling for $50 to $60. that iseaks about $60, a natural corrective mechanism in the market which will bring it right back down. yousef: we will see how it plays out. still to come on the program, we will look at one turkish etf that has not enjoyed success. we will get you that story live from abu dhabi next. this is bloomberg. ♪
>> strategically, we made decisions about six years ago to realign our manufacturing in the u.s., and the realignment was going to move out of canada and move it closer and put it into 4'sco so we could build rav in canada. question, not only foretell yoda, -- for toyota, you build in the united and less expensive cars in mexico? >> there are some that want to build these smaller cars, but others want to build full-size vehicles, so there are two being ways to go. in our case, it just so happens that it is closer to mississippi, and in mississippi, you have a five-year old plant.
early to add complexity to that plant. someday may so, but it made sense for us, yet this decision was made 5-6 years ago. >> we now have a new president coming in, and i suspect it is important for all companies to be on the good side of the administration. will you change your investment plans in mexico at all? >> if you look at all the product made in north america, only 5% comes from mexico, so we are a small player. we were delayed to move into mexico. presidentand what the ones to do, and we all agree with the president that we want to make america strong. we want to have good paying jobs, a good economy, because eventually that helps my business if i'm selling cars in a strong economy, allowing me to sustain boeings into the future. it is difficult to look at mexico as an isolated area.
we have been in this country 60 years now, investing $22 billion, and over the next five years, we will invest another $10 billion in our plants to make them more competitive, new headquarters in jackson, and autonomous vehicles. ota at: that was toy the north american auto show in detroit. let's cross over to abu dhabi, an etf that tracks turkish government bonds has seen a quarter of its value wiped out since being launched in june. if you had to pick a worst time, you would not have been able to do a better job. >> i think you might be right. essentially, this etf launches in june, than a month later, we had the political coup in turkey that sets off a chain of market
events, including the fall in the turkish lira, which we are still seeing today. unfortunatethe terrorist attacks that have hit risk sentiment in the country, and basically you have a not good confluence of events for an etf launch. what the fund managers were trying to do was replicate the etf's that track state owned and takepee notes advantage of appetite for higher yields. turkey is yielding something like 11% at the moment. there are some people out there who are still positive on the etf and think the fall and ,urkish lira will boost exports so we will have to wait and see. give us a broader picture of how investors currently feel about turkey. if you remember, 2-3 years
ago, turkey was the darling of the emerging market investors. that is not the case anymore, but positioning is not as terrible as you might have suspected given the market moves over the past seven months. managed of actively funds, they have a modest position on turkish assets. , and its is pessimistic seemed to be borne out by yesterday's market moves, another fresh low. onlymanagers aren't the ones smarting from those moves in turkish assets. we have seen economists caught out, the turkish lira depreciating faster than the estimates of 44 analysts. lots of people having a painful time with turkey at the moment. right.
>> 1 p.m. in hong kong, i have an update on the top stories. china's factory prices rose of the fastest pace in more than five years in december. up 5.5% from a year earlier. that means it is poised to become a global inflationary source. chinese consumer prices climbed in december below economist estimates. on department store operator news alibaba and others want to take it private. the statement says the deal will happen at 10 hong kong dollars per share which would value the company at $2.5 billion.