tv Bloomberg Markets Middle East Bloomberg January 28, 2017 11:00pm-12:01am EST
i am tracy alloway. this is "bloomberg markets: middle east". we have to talk about donald trump's executive order. temporaryudges have block to the trump administration from enforcing that executive order that would have led to the deportation of refugees and visa holders. the order has led to people being detained at airports across the country and has raised anger across the globe. let me see if i can start with a chart i prepared for this segment. this is one of my favorite indexes. u.s. migration fear index, a count of certain words in news stories associated with fear around immigration. it is at a record high after
trump won the election, so if we assume that text of this executive order has not been stringent enough to make people certain of what it allows and does not allow, it seems like it has been open to interpretation, and given that environment and the worries over migration, it seems like that is causing a lot of problems right now. >> that is exactly right. the issue is that the text focuses on the entry, mentioning the word alien, so this leaves it open to interpretation of whether we are talking specifically about individuals from the seven countries or dual nationals or even legal residents, green card holders who live in the u.s. and have left the country and want to come back, whether they would be included in that ban.
there have been reported cases of green cardholders who wanted to board the plane and did not manage to do so and were pulled off the plane. the reason is that it seems there were no clear guidelines given to immigration officers and there is a state of confusion over what we are supposed to do at this point. it has created mayhem in the past 24 hours. tracy: hold that thought. let's take a listen to president donald trump defending his executive order. .> it is not a muslim ban it is working out very nicely. you see at at the airports. you see it all over. it is working out very nicely, and we will have a strict ban and have extreme vetting, which we should've had in this country for many years. tracy: one of the seven countries involved in that ban is iran. we did get a response from
iran's foreign ministry. it came out within 24 hours after the announcement was made. iran has a significant community about u.s., estimates of 900,000, close to one million iranians living in the u.s.. it is creating quite a bit of fear within that community. the foreign ministry said, called it against the dignity of the nation and the iranian people. it called it an insult to the muslim world and said it would respond in kind, so what we have iran willng is that not be issuing visas to americans anymore, but the iranian foreign minister said americans with a visa would be allowed to enter. they would not have the same
treatment as the u.s. with their citizens. tracy: definitely something to watch. thank you for joining us today. we will stick with this story. for more, we go to the senior fellow at the atlantic council. we were just talking about the confusion surrounding this executive order. what is your take on what exactly the order allows in, and what it does not allow for? >> it is unclear. is order in its current form very they. the administration wanted to make it vague. it bars at nationals from seven predominantly muslim countries from getting entry into the united states, even those who have existing green cards for traveling abroad, and those who have these those to come and enter into the united states. as yesterday, people were being taken off planes by immigration officials in europe,
haveng them we instructions that we can't let you back into the united states, so it is causing quite a degree of angst amongst those communities. tracy: we will talk about that angst and a few seconds, but one of the more striking things has been donald trump framing it in an antiterrorism away, talking about how this will prevent a rerun of 9/11, and the seven nationalities on the list were involved in 9/11. in fact, when it comes to syrian refugees, a syrian refugee has never perpetrated an act of terror on american soil. what is your take on that issue? there seems to be a bit of cognitive dissonance. >> absolutely. trumps rhetoric is highly filled with quite a lot of propaganda. there have been only been 13,000 syrian refugees admitted to the
united states. vetted, aeavily two-year vetting process, the most expensive of any country in the world. tracy: and yet we are moving to extreme vetting, which sounds like some kind of sport. >> i don't know how we can get any more vetting than we have. as you mentioned, of those seven nationalities, none have committed an act of terrorism on u.s. soil. in fact, the countries that have committed terrorism, nationals of those countries, got a free pass. have the judges staying trump's executive order, those headlines just cannot a couple of hours ago. what is your sense of the durability of the court order? stay of seven days that allows the u.s. legal system to work this out. the judge was careful not to overstep her bounds and talk about the constitutionality of
those individuals held. all we know is the judge said they should not be sent back come of it can they be let go? will their status remain as is? that needs to be worked out through the courts. tracy: you are a security expert, so let me broaden out this conversation. if we assume america is losing its moral authority, and i realize a lot of people might not agree with that statement, but what does that mean for american security abroad and america's place in the world? >> the statue of liberty is give me your weak, give me your hungry. it becomes a national security issue. americans, iranian americans, sudanese americans, serving in our forces and intelligence community. when you tell those people their relatives are no longer welcome into the country, you create and otherism.
you're creating two tiers of americans, and that is very un-american. tracy: right. a lot of people would see a historic parallel >> -- exactly. tracy: thank you for joining us today. it is time to check in on first read headlines from around the world. thank you. donald trump and vladimir putin have pledged better business ties and cooperation in fighting the islamic state. the kremlin said the u.s. and russian presidents had a quote positive and businesslike phone conversation as they try to defuse tensions over election hacking allegations. ofeadout made no mention hacking or sanctions against the country. u.k. prime minister theresa may has announced a defense deal with turkey worth over $125 million. the british leader revealed they would develop the project as she
visited and kara for talks with the president and prime minister. while discussions focused on trade, may urged president error a want to keep his human rights commitments. downgraded turkey's debt rating as political turmoil ways on the economy. the rating was cut to bb plus from bbb negative. that puts the country breaking at par with azerbaijan, bahrain, and portugal. moody's also has juncker grades on the nation's debt. angela merkel has taken aim at starbucks for excluding tax loopholes of the expense of german companies. the chancellor singled out the coffee chain during an attack on those who engage in avoidance schemes, saying it was unclear anywhere. taxes starbucks is appealing an order by eu watchdogs to repay $32 million in taxes.
global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. tracy: thank you so much. later in the show, the turkish lira slums as fitch cuts turkey's debt rating to junk, but next, we look at how markets in the middle east will react to trump's immigrant band. -- ban. this is bloomberg. ♪
a major question we need to ask is what opec is actually trying to do when it comes to propping up prices, and stabilizing the market, what are they up against? >> u.s. production is one of those things they are up against. market watchers, opec, anyone looking at the oil prices looking at the u.s. rig count, indicating how much u.s. oil will be coming on the markets. tracy: shall we bring up that chart quickly? there we go. u.s. oil rigs rising to 566 last week. the trend is ever upwards, right? >> as those prices rise up and people get more confident, that allows the producers to bring on more rigs and produce a more. earlier this month, there were some u.s. officials in abu dhabi saying u.s. production is about
where it was three years ago, using a third the number of rates, so efficiency techniques have helped producers bring more crude on the market more quickly , so there is that prospect that oil will continue falling, and the prospect of oil that is already produce coming on the market, big stockpiles, mainly u.s. stockpiles, and those also need to come down before opec can see a more lasting increase in the price. assume all u.s. oil production is rebounding faster than many anticipated, does that mean opec will have to reevaluate production cuts? what is needed to shift the market? >> demand will be a big factor, and the expert haitian, even before opec agreed to do the cuts, was demand would increase in the second half of the year and bring prices up, so that is one factor. one thing opec is doing is
cutting where they reevaluate to cut for a second six months also a possibility. it seems what opec is trying to do is to bring up the prices in the immediate term while keeping the prospect of bringing on production later in the year, eliminating cuts and bringing production back. that is keeping the backend of prices lower and should give companies the signal to take oil out of storage, so that would decrease those stockpiles. that is one of the factors, lower stockpiles. and higher demand, there is nothing opec can do about the demand. you might say that prices that are too high with depressed a man, but if demand increases towards the back end of the year, we could see that price stabilizing. tracy: if they are taking aim at the economics of the oil storage trade, and we have seen those economics deteriorate somewhat,
maybe not as much as opec had hoped in the what is the prospect of that that balance continues for the rest of the year, or could we get something that upsets a quite quickly? >> in addition to targeting the balance, they are looking at the economics of the opec countries themselves. many are running deficits, and that has pushed them into this corner where they shifted their strategy. on they that conditions ground change, and that's why they needed to abandon this policy of pumping full out so they could address that issue. can they change the market permanently? market,moving and fluid so that things they are doing now are really trying to firm up the price now, stabilize the market now, get it to the point where people can be confident that there's going to be a price as we see it bouncing between $50 and $60, giving people confidence that there will be price at that level so they can
base production on that. on oil.he latest thank you as ever. for a look at how donald's policies are moving the market, we are joined by our next guest. we were just talking about oil. or you'll giving a reasonably supportive backdrop to economies for the start of the year, but then we have trump, and we have the wild card that is trumps policies that we saw in full play last week. if we assume this is the first of an onslaught perhaps of anti-muslim executive orders, what impact is that going to have on offer economies -- on the gulf economies? these executive orders are aimed mainly at grabbing headlines. he has hit at seven countries that are not so relevant, let's put it as an understatement, for financial markets, for global
financial markets, and the global economy, so leaving aside the moral and fairness aspect, which personally i think is enormous. this is a program about financial markets, so we need to focus on the relevant for financial markets. the executive orders of donald trump are to a large extent headline grabbing. look at the tpp. u.s. will not participate in this regional trade pact, well, it was never part of it. the executive order on the ,exico wall, on creating a wall well, the bulk of that wall is already there you could argue, onnow he is hitting out seven economies, however dramatic this is for people who come from those countries, however bad this is for businessmen from these countries , this is not having a major impact on the global economy or on financial markets right now. tracy: let me narrow it a bit
and play devils advocate, because there were people looking forward to iran's economy opening up this year, perhaps having better relations with the u.s. how much does the kind of rhetoric we have seen from trump this week change that thesis? to be seen.s i would say that he will be reluctant to tear apart a deal that has six participants, six countries. he cannot just tear that apart as easily as he will probably the pushback on by the state department and the dod. what he is doing now is annoying and also temporary. it will last three months, this liken travels, so i would to see that playing out. i 100% sure that he will sort of be interested even in disrupting trade, external trade of iran
with america or the rest of the region, which is executive orders cannot impact. tracy: let's broaden out the trump discussion to the trunk reflation trade. at the beginning of the year, they lost some steam and people were worried that we would not get the fiscal stimulus promised by trump, then last week, they seem to come back, everything except the u.s. dollar, but we did see for instance financials come roaring back, helping to push the dow about 20,000. we saw some other bits and pieces of the trump reflation trade return. you think this will be an ongoing theme this year? >> that is a very good question. i think it could last well through the summer. theme cameeflation at the moment the global economic cycle was already in an upswing. a lot of that comes from china expanding its economy. and credit's fiscal stimulus which should also last
of the summer. we had consumer confidence at record levels in the u.s. the market pmi, when of the major leading manufacturing indicators come a was also doing very well, so right now, this reflation theme is continuing. what we need to see as what will happen afterwards. are these policies going to grow the economy or grow inflation? that will be the trick. tracy: please hold that thought it we will have more analysis on markets in the middle east after this chart break. this is bloomberg. ♪
india's economy has been growing at one of the fastest paces in the world, but employment growth slowed to a six-year low, putting pressure on prime minister modi to fulfill his election promise to create jobs. onwill also see how the ban high denomination notes has affected those plans. wednesday, china reveals its first economic data with january pmi numbers. estimates are 51 .2, showing expansion, but a slight tick down from december. chinese stock markets remain closed for the lunar new year holiday. we will see how apple performed over the holiday season, traditionally its busiest quarter. it will be its first earnings report after the launch of the iphone 7, and early indications are that company will show a return to growth. tois facebook's return report fourth-quarter earnings on thursday, and the company has repeatedly hinted at a growth slowdown.
see ifs will watch to instagram is helping to fuel sales growth. all right, we will return to the ulf off ton, gol a weak start as earnings -- bit earnings have been a mixed, but we have seen the dollar weakened slightly from its quite an strength towards the end of last year. if you look at this chart, you can see the bloomberg dollar index is down for a fifth week, since may 2015. how much of a tail wind will that be for gulf economies that remain pegged to the u.s. dollar? is a double tail wind. not only does that mean it will be easier for banks to extend liquidity because it would keep
the interbank rates at a lower level, but it is important to stress that a lower dollar is good for commodities and oil prices because he keeps the global demand in local pricing terms higher because of the dollar being weaker. from thatat perspective, the weaker dollar is very important, but i would like to extend this discussion. as i said to you, at some point in the time after the summer, the contradictions of running expansionary fiscal policies in the united states at the time that is close to full employment , up, up, up, and of course there will be inflationary pressures, then the fed may be cornered into taking more aggressive policy stance am a but for now, this weaker dollar is helping china. u.s., and it the is helping emerging markets tremendously. it is also justified from a fundamental basis.
♪ tracy: checking in on the first word headlines from around the world. >> protests and global condemnation followed resident donald trump's ban on citizens of seven middle eastern countries from entering the u.s. for 90 days. students, refugees, and dual citizens are stuck overseas or detained. lawsuits are being filed, and some is is is have warned employees not to risk leaving the u.s. two district court judges have
temporarily blocked the order. ban inceo slammed the notes to employees, saying more than 100 staff are affected by the order. facebook ceo mark zuckerberg and jack dorsey of twitter have called the moves upsetting. uber's ceo said he plans to issue at the first meeting at the trump administration's business advisory group. u.k. prime minister theresa may has said she does not agree with donald trump's immigration ban after facing backlash over her initial failure to condemn the order. may has refused to publicly disagree with the president during her visit to the u.s., but the press association reports she will now take action if the ban affects britain. the prime minister had come under fire from her own conservative party colleagues over the issue as she tries to win support ahead of a brexit debate in parliament on tuesday.
israeli prime minister benjamin netanyahu has voiced his support for donald trump's controversial border wall with mexico. writing on twitter, benjamin netanyahu compared the president's plan to his own anti-immigration wall along israel's southern border, calling the construction a great idea. mexico's foreign affairs minister said in a statement that he was disappointed in the israeli leader's position. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. tracy: thank you so much. uncertainty and security risks and turkey have continued to impact the economic outlook with fitch lowering the rating to junk status following moody's and s&p, who also have junk grades on the nation's debt. here to discuss further is justin kerrigan.
how much of a surprise could this downgrade have been? >> not much of a surprise. it was pretty well flag. fitch have them on a negative outlook. this brings the rating in line with moody's and s&p. if you look at the way in which turkey's ratings have improved over the past 10 years, you can see how it was a gradual increase in sentiment towards turkey during the early part of iod,president erdogan per and now all that is disappearing. we have all three ratings companies now have turkey in junk, and that has not been the case for three and a half years or so. tracy: it is easy to be negative on turkey right now, but let me bring you one piece of good news. take a look at this chart, the volatility, the two-week
volatility of the turkish lira, and in recent weeks, volatility itself is falling, the turkish lira isn't actually going up. what do you make of that relative stability in turkey's currency? >> the turkish lira is only really going in one direction at the moment. the fact that it is less volatile than the mexican peso, but the hard numbers are that the turkish lira is down almost the mexican, and peso, which we have heard so much about during the trump thaness, it is down less 1%, so that puts it into perspective. the longer that goes on, the more difficult it is for turkey to pay down its dollar debt, which isn't so high, but of course becoming more expensive to service, and that cannot be good for the outlook going forward. right, managing
editor for emerging markets, thank you so much for joining us. always good to get your perspective. hit asst, ubs took a investors pulled over $15 billion ahead of switzerland's push to share data with tax authorities. he seessays while similar outflows, things will start to taper in 2018. he also said investors are waiting for concrete actions from the trump administration before they invest their money. >> well, 2016 was challenging, much more than 2015. i think the good news is that of the diversified business mix geographically and contributed have managed this environment. i think the investor confidence is there. are talking regularly to clients and investors about it, and we do see a readiness and , noting for investments
only potentially financial markets, but underlying businesses. it is quite clear that investors are looking for concrete actions by the new u.s. administration in order to go into investment mode. >> hath a physically changed and move to transaction mode since the election? have they showed you the money, to coin a phrase. >> not in a meaningful way. you see a better momentum in the u.s., although i have to say that the fourth quarter in the u.s. was a positive one. if you look in general outside the u.s. am i think the situation hasn't really changed goods foro fundamental reasons if you look at the situation in europe in general, particularly the political side, and also in asia, there is still room for improvements. >> let's talk about outflows.
we have had outflows across wealth management and in asset management, are we seeing the ization fore regular clients, the end of cross-border outflows? >> know, what we saw in q4 was an acceleration of the process that will be going through as automatic exchange of information applies globally. emerging markets and some asian markets, this is now executed. we do expect similar outflows that we saw in 2016 for this year. we see some tapering in 2018. ubs ceo.at was the time for a quick check of business flash headlines.
volkswagen recalling hundreds of thousands of audi models due to airbag defects and faulty coolant pumps. vehicles may have airbags rupturing, while others have bombs that can overheat and catch fire. owners andnotify repair the vehicles for free with the recall expected to begin next month. donald trump's pick for treasury secretary has made it clear he does not want wall street to get back into the business of making risky market bets. in a written statement to lawmakers, steven mnuchin and offered support for the vocal role, saying banks should be restricted from making speculative trades. his comments add evidence that trump may try to tweet volcker rather than dismantle it. lebanon is looking to auction energy rights in air is contested by israel. the dating process kicks off thursday and will last to the
end of march. companies from exxon to rosneft are qualified to did for projects offer lebanon's coast. the move ends a three-year delay to develop energy assets. israel says it is following the development and will ensure its rights are protected in maritime areas. up, squeezing saudi bank profits and why there is more challenges ahead for the kingdoms lenders. we get the view from moody's. this is bloomberg. ♪
what a lot of banking analysts will have an looking at recently , the three-month rate in blue, the saudi interbank lending rate, and you can see it has been coming down, pretty big drop in october after saudi sold $17.5 billion worth of bonds. when you look at that chart, do you think the liquidity squeezes behind us? >> it is fair to say that it has eased a lot, and it is not only the result of this bond issuance . it is the result of a number of monetary policies to ploy it by the saudi central bank, and to some extent as well the reduction in credit growth, something we expect to continue in 2017, so banks need to lend less because the economy is weakening, less lending opportunities, and as a result, they fight less for liquidity in
the system. tracy: before we take a look at what is coming up, let's look behind this because saudi bank earnings season is finished now, and we saw 5.5 percentage point drop in year on year profits. what drove that decline? >> two things. the first thing is the reduction in fed flows come at the same we observed in the region, and that reduction in non-interest income for almost all of the banks, and that impacted mainly corporate business, banking business. the other aspect that came later in the year, which we had expected, is deterioration in the asset quality of the banks, leading to more provisioning costs throughout the end of the year, especially in certain sectors. year was allt about higher provisions, then going forward, if we have oil
prices more stable, things may be improving a little bit at the marginal economies? does that mean banks will be releasing provisions or is it too soon for that? too soon.ar the problem loans are lacking indicators, so they come after the problems have accrued, therefore it is likely we will see an increase in provisioning costs and 2017. spots one of the trouble remains the building and construction sector. how much of a headache will that pose in 2017? duesbig chunk of the over have been paid in october last year, but we estimate there are still more to come. there are more reviews on projects, even if the budgets are positive because the government promised to invest more in capital expenditure, which will benefit the banks and
the economy overall, i think it is fair to say a number of contractors will still have low volume of business in the coming year. tracy: the other big catalyst for saudi banks was saudi arabia's budget released just before christmas last year, and in it, saudi arabia said it was allocating 200 billion in order to stimulate the private sector of its economy. how much of a tail wind could that be for banks, and how might that help? we are back to the levels of spending and capital expenditure where you have it set at 16, so positive, but we know as well that the government careful in spending, and the constant review and postponing projects, so we will have to see whether there is this implementation. one other aspect positive for to theks, the commitment
national transformation program, which starts really this year with 40 billion spending of which, 30 billion will be capital expenditures, so they have a very ambitious program ahead, so they have to spend and support the business, that's why we anticipate nonoil gdp growth, which drives the credit growth of the banks, will be 2% and higher this year. iscy: the other big project trying to attract foreign capital into the country in various ways. is that a negative for saudi banks? does it mean they get squeezed out by foreign investment? caused because they benefit from increased participation by the rest of the world? positive, it is because if you look at saudi arabia compared to the uae, depth penetration is very low, debt to gdp is low.
there is plenty of room for banks to grow if the economy accelerates. the thing is that one of the concerns we have usually with the economies in the region and -- is the concentration, so the more we have a variety of sources of financing, the less concentrated the balance sheets of the banks will be. tracy: when it comes to the outlook, give us a sense of how you see the saudi arabian banking system performing relative to other goal financials. >> last year, we took actions on a number of banks by downgrading some of them, so it is fair to say that the number of negatives towards the end of the year have been captured within our ratings. i think when you look at the capital buffers, the
profitability, this metrics are still header and saudi arabia than the rest of the region. another thing is the liquidity is easing. it is not the case in qatar or oman, so we are not too concerned about saudi banks performance compared to other systems. at the moment, there is a bit of moderation. tracy: you mentioned you had already taken some actions when it comes to saudi bank ratings. do you see more actions coming this year? now thate upgrade liquidity strains might be easing little bit? >> the outlook for the banks and is noarabia, there pressure. i mentioned as well that there was lower profitability, and we expect the profitability will further moderate next year, so i don't think at the moment there is pressure.
moody's lead banking analysts, thank you for joining us today. in the pounddrop has been cause for concern among businesses from the moment the u.k. voted to leave the eu, and for carmaker ford, the pound is top rated brexit risk it faces. jim farley told bloomberg that the currencies falling value could impact earnings by as much as $600 million this year. >> the biggest risk for us we are seeing this year is currency. sterling has deteriorated quite a bit, double digits. taken some modest pricing, the whole industry has. the demand for vehicle still seems robust for the europe and u.k., but we will see how pricing, whether food, automotive, or technology pricing, starts to add up for in 2017, so the
biggest risk is offsetting the bad news in the currency. there is a lot we can do. we have been in business for 100 years in europe so we have experience in weakening currencies, and there is always a plus and minus. for example, we are seeing russia do better this year than last year, and some momentum growing in russia, so there are always offsets, but mostly it is decisions they can make to offset the headwinds and currency. are encouraged by what we heard with the prime minister of a tariffremise environment. that is what we are looking for. inmillion automotive jobs europe, we build engines here in the u.k. we export them to europe, then import the cars back, so the environment is a must-have. was ford europe's jim farley speaking to
bloomberg. well, donna trump and vladimir putin have pledged better business ties and cooperation in fighting the islamic state. the kremlin said the u.s. and russian presidents had an "positive and businesslike phone conversation as they try to defuse tensions over election hacking allegations." a russian government readout of the call made no mention of hacking or sanctions against the country. u.k. prime minister theresa may has announced a defense deal with turkey worth over $125 million. the british leader revealed be systems and- bae another company would develop turkey's first fighter jet. while the conversation focused on trade, may urged president erdogan to honor turkey's human right's commitments. has taken aimkel at starbucks for exploiting tax loopholes at the expense of
german companies. the chancellor singled out the those whoe chain, engage in tax avoidance schemes, saying it was unclear if it pay taxes anywhere. starbucks is appealing a 2015 order by the eu watchdog to repay $32 million in taxes. coming up, we will take a look states can offset the pull of the dollar peg. this is bloomberg. ♪
we just talked about thanks there. there was a lot of expectation among investors about how those numbers would turn out, and we saw actually a very good rallying of banking stocks in saudi last week because basically investors were expecting worst numbers. npl did not rise is much as they were expecting, provision starting to stabilize, so analysts are expecting to see the numbers we have seen so far staying at the same level they are now, so banks where the best performers, among the best performers in the indexed last week, and it was the first week in a month that we saw saudi stocks rising as a whole. it was up for the week, so we can said banks were a surprise on the positive side for stocks, of course. we had cementand, companies that were among the worst performers. their numbers were week, demand
was falling. nobody knows how the sector is going to perform this year, and we have some big companies, close to 15 companies traded in saudi that are in the cement industry, so that was very frustrating for investors. tracy: one of the major themes in global markets is the stronger u.s. dollar, which is of the utmost importance to companies and investors here. you are talking to people day in and day out, what are you hearing about the impact of the stronger dollar on gulf equities >>? many see this -- >> many see this as positive for equities.ulf you have the strong the dollar. and you don't have the effect on your investment, so even though they might sometimes be trading a premium as of other emerging markets, you
still don't have to face the fx risk, which is supposed to play big for investors this year, so it is some natural hedge, natural protection for investors. interesting theory. we are still in the midst of a earnings season. it goes on for a few more weeks yet. what is your highlight this week? very quickly. >> sure. the international bank of abu dhabi are going through a big merger and are extremely important for the abu dhabi stock exchange, so earnings come out this week. max, dubaiir properties, and also dubai investments reporting earnings in a few days. tracy: we will have to have you on next week to run through the numbers for us. thank you for joining us today. that is it for this edition of "bloomberg markets: middle east" . we will be live from the region again at the same time tomorrow. this is bloomberg. ♪
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