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tv   Bloomberg Markets Middle East  Bloomberg  July 30, 2017 12:00am-1:00am EDT

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♪ yousef: president trump looks set to fund the bill that toughens sanctions against iran, russia and north korea after the senate clears the way. risegn currency reserves for the first time any year. interesting numbers showing some weakness. movies downgrades command -- moody's downgrades iran. it is -- this is "bloomberg
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arkets: middle east." what a week to look for two, we have the jobs report later in the week and earnings for some of the heavyweights around the world. let me recap friday. is there ever a friday that is not of info. ? -- not even full? things tow important point out in the s&p. in terms of tobacco stocks, they got absolutely smokes. this is on reports that the government is seeking to cut nicotine levels to nonaddictive levels. that had an impact. also broadly, the week did see disappointing earnings. the stoxx 600 climbed 1.1% in europe, the lowest in 14 weeks. l'oreal was one of the companies
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that drag it down. the euro-dollar had a tremendous week. and the u.s. 10 year paper relatively unchanged. on a show you some of the other key asset classes that will be in focus. brent crude is one of those. not bad if you are able in this market. the best week of the year. a lot of paltry increase. at golde a look futures. $1275 per ounce. out the here pointing gold is breaking the six-year downward trend line. the dollar-rent trade up --
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dollar-rand traders appeared we are just under two hours away from the opening of the markets in dubai. let me show you the broader picture with the mrr function. i have done this on my bloomberg. you can see the broadly negative picture on trade on thursday, mrr, this isch to how some of these individual securities fared over the course of five trading days, you can see how easily i pull it up and change the range. this was a picture with some of the earnings they came in, commercial bank of kuwait up 9.4%. what he stocks dominating the picture. -- kuwaiti stocks dominating the picture. alomar i earnings uninspiring. saudil get into the
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earnings system and more digital shortly. -- and more shortly. >> australia's prime minister says counterterrorism agencies have foiled a plot to bring down a plane. four men were arrested after rates on several properties in city. in a televised press conference, malcolm turnbull said increased security screening were implement it at all airports. he added the plot seemed to be carefully planned and was not the work of a lone wolf. >> we face a range of terrorist threats, some of them loan actors. actors who activate very quickly with very little warning. on other occasions, you get quite elaborate conspiracies. this appears to be in that category. toafter losing a senate vote
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repeal obamacare on friday, president trump threatened to end key subsidies to help insurance programs. warned he, trump would cut the so-called cost-sharing reduction which helps ensure is offset cause for -- costs for americans. trump urged the senate to not be total quitters. has hit iran with a fresh banks of sanctions -- fresh batch of sanctions. six iranian companies describe as central to the ballistic missiles, steve mnuchin promised to counter the program. these are the second batch of sanctions imposed on iran from the trump administration this month. opec and non-opec members are set to meet next week to discuss
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compliance with cuts. it will be cochaired by russia and kuwait and focus on why some countries of falling behind their pledges to curb production. overall complaints -- compliance fell 70% in june after members including saudi arabia boosted output. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. yousef: thanks. let's talk about data from saudi arabia central bank. it is pointing to some weakness in the economy. we're joined by the head of capital management. great to have you back on the program. let's get into the foreign reserve data, which group for the first time since may of last year. inflection point or a one-off? >> thank you.
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the oil prices, according to our information, the oil should be on average $54, that would be online wiki government oil revenue, -- which would be online with the government oil revenue. reserve might increase. recently the government had issued a bond locally and had issued an international loan three months ago. that actually reduced the pressure on the reserve until now. assets, ite foreign might happen, but it won't be as and 2015.16 until now, the level of foreign reserves, the gdp is 80%, very
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healthy. yousef: that is one side of the story -- the data we got last thursday -- late thursday detailed economic stories, two highlights. we put this on the charts because the other batch includes interesting numbers on what is happening with consumer sentiment. this is a 198. int is your point of sales the private sector. this goes back to 2011. even the last data point they came out last thursday. have you read those numbers? they show further weakness in what is happening with saudi consumers, doesn't it? happened, saudi arabia -- there are two things i want to clarify. allowances reversed aback, the percentage of consumption increased. junew that at the end of
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and intimate. -- end of may. the announcement is .7%. with expectation of dust increase, consumption changes. people say that set of consume. that is what has happened. the consumption, the growth of conception, but there was an increase of the employment rate. yousef: brady stand on the saudi economic growth projections. we have quite a few downgrades over the past few weeks. what you see the saudi gdp headed in q3, q4 going forward as we going to 2018? if you look at the gdp,
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is based more on oil prices. sector -- in 2016, was just over 10 basis points. i think that was because of so many delays of payments to the private sector. so many payments have happened at the end of 2016. now we show that the nonoil private sector has grown by almost 1% in q1. estimations are higher. it was mostly 1.7%. i think it will be between them. yousef: hold that thought, we want to expand the discussion, especially with what is happening with the corporate balance sheet. we will dig into that. you are staying on the program. also to come, let's get you a preview. we will talk about a carrier that lost close to $2 billion last year, dealing another blow
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to the outlook for middle eastern carriers. we will break that down. first, we will drill down into the saudi earning season. the kingdom's heavyweights are outrting a lot of lenders with numbers. how you navigate and where does it tell us where the kingdom is headed? this is bloomberg. ♪
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♪ yousef: this is "bloomberg markets: middle east." i am yousef with commingling -- yousef gamal el-din. joining us on the set for more stories, our editor. could see you. downgrades forof arguably what has always been the vulnerability in the broader gcc. talk to me about the
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significance of this in the wider context. >> there is no doubt they have been the weakest links in the gcc economies, along with saudi arabia but different reasons. saudi arabia edging that higher. if you ask investors, they would be more invest -- more worried ain.t boring -- bahr the asset price does not reflect the fundamentals. offering -- if you look at the fiscal data, you see hardly any change that reflects policymakers cutting the budget deficit. last year.21% of gdp that is the highest in the gcc. 10xpected to come down to this year, but we have not seen any signs in the numbers, spending is flat.
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i've not seen any sign that this is actually, you know, coming down. foreigners are making on -- they have space to borrow, but at what cost? you talk to investors and they will tell you, if they don't see a significant fiscal consolidation soon, they will be under more pressure. yousef: the gulf crisis came at an inconvenient time. the last thing they need was political anxiety or the split we are seeing. theo what is going on with gulf crisis, we saw the arrival of some foreign ministers in bahrain yesterday. are we at the edge of a cliff of a another set of sanctions, measures from the gcc? what is really on the table? bahrain is firmly in the saudi camp. that in trenches it's a lying
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spirit -- in trenches it's alliance. oman and quake did not really take part in the decision to isolate qatar. it remains to be seen whether other members will help them if they are in trouble. we are not going to escalate significantly more, they are said we will have a measure here or there. they have had nine individuals or organizations to the list .hey want qatar to prosecute interestingly, when we spoke to analyst a couple weeks ago, they said we don't see additional economic sanctions that do not involve self harm on both sides. if you are saudi arabia and you ,o to international companies it can hurt your standing. ultimately, they'd denied intending to do that.
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and just in question. people don't see the scope for significant escalation that doesn't involve self harm. yousef: shooting themselves in the foot. let's get back into the .onversation with mazen the price being paid for the crisis, it is not limited to qatar. will we see even more downgrades going forward from these ratings agencies, the cost of credit and funding. will it get worse from here? mazen: if you look to what is happening in the gcc and saudi arabia and the link with a qatar and common benefits, saudi arabia is not affected. qatar is not a big supplier of oil. 2% --irt is not exceed the share does not exceed 2%.
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but they need to the opec agreement for many reasons related to the economy. the gas market and currency exchange. saudi arabia, what is happened is the gcc conflict and what is happening with qatar -- in saudi arabia. that is facing the now is to revive the private sector, that is what was suggested. to revive it and try to cap the growth of an employment -- unemployment. gdp exceeding the current gdp. the government stimulating the economy. the pif to invest in the private sector, the other side, aramco. i think this might happen q3 or q4. at the i'm looking
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analysis. we are about a quarter of the way through the earning season, a good way to see where we're at . at the top, you have your surprise and growth cap. you can see 28 out of 146 countries have reported. there are more patches of red in sales and earning growth then green patches. it is not just a disappointing earnings season we are seeing in the u.s. and europe, it is clearly also the case in saudi arabia, isn't it? actually, and saudi arabia what is happening right now, the market actually, the growth of earning was more because of a con amazing the expense, making it more efficient. the growth was not high for it is tocompanies, but manage in the market. we are seeing for example, a big
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reduction in demand, a used to be 55 million, we are expecting 47 or 46t expecting with zero debt, majority of companies. they can manage paying a dividend in production. banking, the decline in borrowing,rowth of may have doubled dividends. there is no need to capitalize the earning and cost of the decline of borrowing, it has become actually much -- to distribute dividends. 3.3%,rket search from despite the highest in the gcc. yousef: which sectors are you bullish about?
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which sectors are you optimistic on? i'm looking at the petrochemical industry, they are pointing out that risks are looking within the u.s. classics capacity search -- surge. blockbuster m&a continue to disrupt. industries is in focus. waiting, but because of the oil production does not increase, we're announcing new products. -- new projects. the growth that is happening because of the evolution of shale gas, that increases the global so that's global supply, the global demand is huge. polymer is almost
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equal to the real gdp. the growth of real, global gdp. is aboutge of prices with the oil price, the oversupply. that is what is happening. i'm not really that worried about petrochemical analysis. petrochemical is not equal to the oil business. yousef: that is exactly what we want to -- right, that is what i want to pick up on. we'll have more about what is happening with opec and non-opec and their attempts to balance the inventory. u.s. stock files are continuing to shrink. we are seeing lackluster growth at restarting u.s. crude, but how much longer is is going to continue? is it just a flash in the pan? we will find out for you. this is bloomberg. ♪
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♪ yousef: this is "bloomberg markets: middle east." let's talk about what is happening with crude oil. it had its best week, surging with the biggest weekly gain since the summer. physical -- since december. physical spreads are also proving. the russian minister says he feels the oil market would rebalance more quickly. mazen, in terms of what to expect going forward, we haven't --c -- non-opec meeting, open-non-op -- opec-non-opec
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meeting happening. are they going to go to a level that a satisfactory for the saudi's? not satisfactory for them, for the whole oil industry. the giants in the industry are being affected mentally. the declining global investment byoil is expected to shrink $1 trillion, and we know it is a capital-intensive business. is 47erage depletion million barrels, there is no new investment and new discoveries. the number of discoveries has declined massively since 2016. that might create an urgent crisis in 2018 or 2019. to avoid the crisis, the global producers have to incorporate together and create a price that is sufficient for the consumer and the demand at the same time.
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they have to continue investment and support. -- they haveicient to have sufficient supply. it is about the global economy. yousef: do you think it will be difficult for the market to wean itself off the absence of crude oil from the opec non-opec group. it will take some time to phase out this kind of intervention after the first half of 2018. it won't just look at the agreement, everybody's going to reach the excess, the most excess supply. until now, we are not sure. there is notre actually supply, we are not even sure about the demand for the producers.
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agreement -- if the climbing of the global investment continues. yousef: we'll have to leave it there, we're out of time. we have plenty more to come.
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dubai.s 8:30 and in you are watching "bloomberg markets: middle east." trading the u.s. are blame over a naval incident in the persian gulf. said said a u.s. -- tehran a u.s. aircraft carrier fired a warning shot in what kuwait is calling on professional confrontation with iranian vessels. the u.s. navy said they were forced to fire when ships were unresponsive to attempt to communicate. the brother of a former pakistani leader is being lined
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up to be the country's next prime minister. he will contest the national assembly. he stepped down friday after being ousted after corruption allegations. on fridayther stepped after being ousted after corruption allegations. it should take 45 days. until then, the former petroleum minister will be interim premier. unemployment rate rose to 12.7% in the first quarter. it is a rise of 4/10 of a percent from the previous quarter. -- rate for saudi really saudi women sell. -- fell. fromplan to ban non-saudis working in grocery stores. model threeed its final form.
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electric car comes with two battery types with the long-range able to drive 310 miles on a single charge. taken in more than 500,000 deposits for the model three. it is estimated it could take more than one year to fulfill the orders. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. yousef: thank you. ago, therewo months was a shock to the islamic finance industry. a latest page in the ongoing saga, the company has said it won't need a payment request by deutsche bank. welcome back on the program. i know you have been watching this closely. talk to me about what extent you
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are surprised about the latest moves around the payment rate to deutsche bank. what is it mean for the broader conversation when it comes to gas? >> committee announcement quite some time ago when they made the injunction and loan in -- in london. it is an increase of the protection, to get the investors around the table to discuss. isce we last spoke, the key a judgment by the english court on the fifth of july. i think that is the -- is a very interesting judgment. someompany applying different interpretation but i think it is important to get down to the details of the judgment, i think that will tell us a lot about the thinking of the court and where this may be going.
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yousef: what is the next mile style -- milestone that could be a catalyst and what a conversation? is booked toearing be on the seventh of september in england. i think the important thing before that is to appreciate the fact that the english courts have ordered that the injunctions be stayed. the order also says the english court is taking jurisdiction to hear the entire issue, including the element of uae government doctrine. it says i, the english court, if required will hear evidence on uae law, but i will be the court and jurisdiction for deciding this matter. at what point does this become a concern for the industry?
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when the story first broke, there was a lot of reservation and anxiety, a lot of feeling it will send shock waves. but let's face it, despite the razzmatazz at the beginning, it has faded into the ground -- into the background. when does the market as a whole wake up and say this is an industry level problem with serious ramifications? rizwan: that is what we're all sort of trying to avoid innocence. let me take a step back. as you rightly say, when it started there was a lot of discussion and noise and concern. , and it has settled think it has settled because the market, the analysts, the practitioners have realized this is actually not an industry issue, not an islamic finance issue, but actually a credit issue. people.forted the announcement by the company
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that they would not be able to make payments in july and october followed by a week later with a said actually, we think our sukuk is unlawful. the real challenge or concern will be the decision of the escort. cited on theually basis of contractual obligations find him -- signed up by the parties. yousef: also, saudi arabia raising 4.5 billion dollars in what was the first local bonsall this year. really injecting some energy in what was a pretty dry market. rizwan: probably the busiest summer we have seen on the perspective of sukuk issuances. it is a phenomenal issue. mails of up to 51 billion -- real for an issue that size.
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the fact that they have the tranches.ches -- if you look at the conventional or the 9 million sovereign dollars secured -- sukuk, which is above the treasury, if you see the pricing, it is pretty surprising. i think they have to pay a bit to get the investors in. it is great for islamic finance investors domestically who have been yearning for sovereign paper. is what the saudi market was calling for. the question is, how frequent, how big and how consistent? yousef: that was going to be my follow-up. the you expect to follow suit in terms of the region or even globally, some of the others looking at sukuks.
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is this a one-off for the market into motion, or -- we understand thiswill be a break -- will be an irregularity, but how irregular? saudi realrizwan: domestic circuits, it has been a domestic issue. saudi,read the data from they have 198 million budget fiscal deficit, first quarter numbers are 20 to .6 or so. they have to do slightly better than before. the saudi issuances to buy need and necessity. i think we will continue to see them tapping the market more frugally than the half. the global arena is interesting. we are not -- we're seeing nontraditional issuance coming to the market. we saw hong kong, south africa
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tap the market, we have read that kenya is talking about issuing a sukuk. there are some nontraditional issuers looking to tap the market. some fromking with exotic jurisdictions. i think the focus will be on -- there is market ever frequent issuance and new issuance. yousef: and pulling of a , the islamic finance overview. inshows you the breakdown terms of who has been issuing, how much, what is their market share. you can see the historical analysis and deals in every thing here. on what elsehts you are watching in terms of major risks that could be around the corner for the global sukuk industry? as is one.a g what is the bigger trend to
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watch? rizwan: the amount of huge, bank size issuances. what i mean by that, you can see the size of sukuk issuances increasing for medicine. like the 9 billion by the saudi. the challenge to keep up is that the sukuk will need to track the u.s. investor base. historically, if you look back, sukuk issuances have not necessarily been successful on a 144a placements perspective. i think that is the key milestone breakthrough the needs to be undertaken in the next issuance, to attract the volume of investors from the u.s. in the sukuk space. yousef: always enjoy speaking to you. speaking tojoy to you. let's could you a preview -- get
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you a preview of what is the computer. -- worst political carriers the worst blow to gulf carriers. is this the beginning of more pain the come? this is bloomberg. ♪
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♪ yousef: this is "bloomberg markets: middle east." we are just getting warmed up. let's jump into what happened around some aviation earnings. british airways saw stocks soar after quarterly earnings surged, that it spoiled the mood for gulf carriers, they had one of the worst losses in their history. a billionover dollars. good to have you on the program, i want to dig into the numbers. beimately, there is going to
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the shock, the initial shock, those are not easy numbers to digest. how surprised for you? >> they are massive losses, everyone should be surprised. the equity stakes they have in europe, they have also announced before they wanted to write off certain aircraft. on an operating level they are breaking even, that is what is being presented to the media, but they are having to write off assets. yousef: the broader conversation, i was reading a column in the bloomberg gadfly about 24 hours ago, once upon a time in length in the persian gulf were making a running in the market. eu, market power between the and china pose a profound threat to the vision of aviation future promulgated by the gulf
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carriers. are we at an inflection point where it is much more serious that there is a fundamental shift in the way the global system works? >> definitely, business models are changing. for airlines around the world, you have new generation aircraft what they have in the gulf. we also have the gulf carriers that are affected by premium traffic. it doesn't seem to improve. over the last four years, they have seen yields down by 25%. that is massive. it is not looking to improve in the next year so. yousef: we also have them interesting thoughts from other aviation ceos, let's see what the ceo of air france has to say. >> we're looking for fair competition. the same to apply
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rules we have accepted in europe and the u.s., and that is why we continue to advocate for the level playing field. yousef: let's pick this up. when you listen to this and the sharper rhetoric and look at the -- it ise cancellation not just changing in the dynamics of how the routes work in terms of infrastructure, but also the lyrically, there is a political shift underway. diogenis: correct. in 2016, it had quieted down. it was a quite year. it was the first time since 2015 you saw it being identified -- intensify the u.s. carriers. they were backed up by the trump administration. they are hoping trump will stick to his truth in what he is said before about the u.s. trade ties.
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identifyingey are that rhetoric. that is a major threat to gulf carriers. yousef: the other interesting trend, in the past we've had budget carriers and mainstream, mostly global carriers. those two are now converging. we've seen industry moves by lufthansa. we going to see more of a convergence of the two? diogenis: the business models are converging. adopting each other's structure. local lines are improving faster experience. you can see what is being done in europe. i think business models are converging. yousef: in terms of what they wrote forward looks like for gulf carriers, plenty of uncertainty and turmoil, fine. but where does the road go from here? what should they be doing to
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adapt their business model and prepare for what looks like an even bumpier road in the next the years? diogenis: think for the diversification of the business model. yousef: that's what one tried to do and it did not work. diogenis: not through equity investment in other airlines, but other markets. segments not as much affected by the downturn in the economy. emirates,een passenger revenue and cargo revenue has dropped or remained the same for the last three or four years. clearly, there is room to grow in other areas. these are large aviation groups. i think that is what they should be investing in, growing, not just in markets. yousef: i'm going to ask a question -- who is in the better position to come out on top of the main carriers in the gulf? emirates?- qatar, diogenis: emirates has a strong foundation and a diversified
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nation to build on that. yousef: what else would you point to when you look at the aviation industry is a moment, global trends? what are key concerns other than what we have spoken of? diogenis: the major issues right now, major trend is coming from the u.s. and gulf. those are the two regions of the world that have seen the airlines struggling with traffic. of course, i think from an innovation point of view, airlines have to prepare for x growth. had to prepare for what is going to come next. yousef: we hear from qatar airways they will continue with orders for the future. you are saying this have to change -- has to change. would restructuring the on the table, two aggressively reinvent the business model? diogenis: i agree. that is what is happening now. they have said they have seen some synergies from the state
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program they initiated last year. clearly that has to go further. we have to restructure the operation, plan for the phase. -- airlinescraft will replace aircraft. yousef: closing thoughts on the rebounding oil price, let's assume that opec price stays where it is, that the scenario plays out that opec and non-opec is hoping for and oh prices go upward of a $60 per barrel. it was always a tale of two stories for the gulf, because you have better consumer spending power, but how does it work this time around? diogenis: it is an airline strategy with hedging. they have been risk-averse, so they have been hedging. that has turned out to be negative. i think they might improve on that in the future. generally i think if oil prices go up, it will be a positive for gulf carriers.
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because of the premium traffic, the business traffic they attend to. yousef: we will see how it plays out. thank you for stopping by and the program. let's show you a really cool not big planes in the sky, but so cool. money show you on the bloomberg, the interactive tv function. just click on the interactive tv function. on the left, you can score back and watch earlier parts of the program. on the right, that is your column with key factoids and functions that are pointed out here, see you can scroll back to earlier in the program when we were speaking about the weakening saudi economic data we saw in a team numbers and some of the point of sales transactions. there was an upside in the story with foreign reserves. you can watch that again and send us your thoughts on the bottom left. check it out, tv . on the0 more to come
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show. -- still plenty more to come on the show. we will take a look at other corporate earnings you should be keeping an eye out for. what is the bigger story? this is bloomberg. ♪
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♪ yousef: this is "bloomberg markets: middle east." they posted a net loss for the quarter driven by efforts to shed its africa unit that moves past the tps scandal. -- tpi scandal. overall,vestment bank in our advisory business and that underwriting, equity underwriting, we have a great quarter, the first half of its year was one of the best result bank has had in that part of her business. credit-rating did quite well.
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in rates and currency, we are, we were down in the second quarter. we have made some recent very important hires. get that corrected, but overall, i think the investment bank had a pretty good quarter. >> you're still happy with the extent to which you back to the investment banking business at barclays and you think you have taken enough action to turn the performance around? room forll have improvement, we are clearly very pleased with the strategy we set out in terms of the transatlantic and consumer apartment -- consumer and investment banks. we are number one investment bank and the u.k. with a market share of over 10% in the second quarter. so we like the business, it is important to the overall strategy. we will continue to invest in our investment bank. oncan you give us an update
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the status of various investigations, the sso's looking into the markets. the u.s. doj is looking into investor issues. are these legal issues proving to be a distraction when you're talking to investors of the company? -- about the company. thee deftly want to put issues behind us. -- definitely want to put the issues behind us. -- including discussions with those entities. i don't want to discuss those issues because their ongoing investigations. >> you talked about another 700 million in charges for ppi, the deadline has been extended. is this all you're going to take on ppi, or could there be more? ends thepe is this
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reserve for ppi. the bank is taking those two 9 billion pounds of reserves related to the ppi issues, but the government has put an end date to the ppi claims, so we hope this recent 700 million pound reserves will bring the issue to a close. yousef: that was the ceo of barclays there. that's get you some of the key corporate to watch out for. the lowest analyst estimates. reaction likely today. they're saying operation expenses rose 45%. they had an increase in an impairment charge. also watch out for saudi investment bank, they are reporting after the close, or reported after the close, second-quarter net income of 456 million saudi reals. one of the heavyweight industries earlier, the stock is
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up 9% for the year. zero -- fourand buys, 11 holds. this is bloomberg.
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jonathan: from new york city, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." ♪ jonathan: coming up, the u.s. economy rebounds, but inflation forces fade, raising questions about the fed's next move. at&t gets away with the biggest debt market deal of the year. the market wanted even more. issuellionaire investors a warning about current valuations. we begin with the big issue, reflation forces raising questions for the fed. >> yes,

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