tv Bloomberg Markets Middle East Bloomberg December 11, 2016 11:00pm-12:01am EST
♪ tracy: the asia-pacific benchmark he gets up early gains . shenzhen stocks fall most since september. oil surges to its highest in 17 months after opec's historic agreement with independent producers. >> donald trump saying the one china policy should be tied to trade. the fed prepares for its last
meeting of the year with little doubt about what policymakers will do. it is 8:00 a.m. across the emirates, 5:00 a.m. in london, i am tracy alloway in dubai. angie: i am angie lohan and hong kong. welcome to "blommberg markets: middle east". it was the oil surprise, but as we look to the next event, it's all about the fed on wednesday. tracy: that's right. ahead of the fed meeting, i'm looking at inflation expectations. this is one of the fed's favorite measure of that, the five-year-five-year forward even break. it is nudging above 2% for the first time in quite a while. oil plays into that. if we have a rally in oil prices, you would expect that two feet in two inflation expectations and consumer prices, so it looks like the fed
will have to consider that. almost everyone is expecting a rate rise at this time. angie: that is absolutely right. drivingng that was markets this morning here in the asia-pacific region was oil, but let's do a quick check of the state of play in markets. you can see those gains have been given back, and now in the .ed japan still a quarter of a percent higher. what's happening over there? tracy: we had a holiday yesterday, so some markets were closed. those open were saudi arabia, come all up 1% off of that big rally in oil. up can see the tadawul , and kuwaits qatar
just under 1%, so are a lot of enthusiasm in the region. checking in on the first word headlines from around the world, here is sophie kamaruddin. bill english has become the new prime minister of new zealand. he was elected unopposed after tubing rivals withdrew from the race and will have paul bennett as his deputy. english succeeds john key. he inherits a party riding high and a solid economic platform to campaign on next year. japan's core machine orders jumped more than expected in october, a gain of more than 4%. in threehe first rise months. however, still down 5.5% from a year earlier. prices jumped .4% on a monthly basis. analysts had seen a slight fall.
americas for decades one china policy may change with the donald trump saying nobody can dictate to whom he talks. the issue surfaced after beijing protested his phone call with the taiwanese leader. trump has threatened to brand china the concerns -- currency manipulator. managing director christine lagarde goes on trial on monday over charges related to her time as french finance minister. she is accused of failing to prevent government payout to a corruption tainted tycoon. million,arded $300 which christine lagarde did not oppose. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. i am sophie kamaruddin.
this is bloomberg. opec has sealed his first output cuts with independent producers in 15 years. oil ministers agreed to reduce output by 1.2 million barrels a day, and saudi arabia has signaled it is ready to cut production more than expected, promising a reduction of 450,000 barrels a day. russia and non-opec nations to cut by 558,000 barrels a day from january. >> the situation is different as we go country by country, but i was pleasantly surprised to see so many countries respond to the invitation by opec in russia to participate in the deal to stabilize markets. most of the countries which joined, and it is important to say they joined voluntary take, so nobody will force them to reduce production. it is their own will. most of these countries will be
taking active measures to reduce production. >> we wanted to contribute in as much as that reality of a transformation in mexico was also accounted for. thehis is also part of process of production decline that we have experienced over the last 10 years, and what we have done is a managed process of the client that is consistent with our own production targets. tracy: let's bring in our energy reporter. we have non-opec producers agreeing to cut production along with opec. 1.2 million barrels, here is the question for you. is this going to bring the market back into balance? >> it is a 1.8 million barrel question if we include -- tracy: there you go. >> it is due to take effect january 1, so that is a
significant change in the oil market dynamics, and likely to bring the oil market into balance in the middle of 2017. that is what most people are looking at. we have the issue of the stockpiles that need to be john down before we end this oversupply. tracy: right. >> that will start taking affect once the market reaches balance. so the question is when the market will hit the balance, and can the deal hold together long enough in terms of compliance and can it be extended beyond this six months, and will that be enough to really kill the oversupply. tracy: right, this is the other question. we do have political rivalry amongst opec members and a history of, i don't want to say cheating, but maybe not always adhering to these production cuts. what is the outlook? >> you can say cheating.
it is ok now. compliance has not been great in the past. i won't name names. some countries have always complied better than others, so that has to be monitored closely. saudi arabia has shown a huge amount of will to make this work. they said they will cut more than they signed up for, and they are cutting more than anyone. so the will is there, but if there is widespread noncompliance, saudi arabia's patients will be tested. opec has tended to override political rivalries. we have russia, iraq, iran on board, all three sides if we look at the syrian war as an backing one side, on the other side saudi arabia and its allies in the gulf as part of the deal, backing the other side of that war. , so therey it grossly
are huge political rivalries and they still managed to get the deal. that looks likely to last in less there is an excavation. -- escalation. angie: what is the outlook for the oil price now then? well, angie, we have heard a lot of talk of it might go to $60 in the next few days. some people are talking about $70 being a new target price now that these barrels are coming off the market. what it depends on is how quickly u.s. shale production responds, and there is little agreement on that. some are saying that it will take 12 months to really have an impact on the oil in the market. other people are saying we have had rates coming online for the past couple of months since the opec deal looks likely, and it could respond in the coming months, but certainly $60 looks
like a reasonable price as these barrels are coming off the market. the federal reserve heads into its much anticipated final meeting of the year with little doubt over what policymakers will decide. a rate hike is fully expected, but that does the signal for next year? kathleen hays has more from york. plots will be big on wednesday as the fed wraps up its two-day meeting, a 25-basis point interest rate hike, zero point 5% is what the markets are pricing in. what they want to see is the latest version of what you're seeing on the screen now, 2017 in september, the fed officials were looking forward to bank interest rate increases next year. there is about seven. you can see that cluster. at the bottom, two fed officials did not see any rate hike said all. be more of a
consensus? this is the question now. the fed is meeting after unemployment hit 4.6%, a nine year low, so as they are putting together the steps, summary of economic projections that include those plots, will we see some changes? ?ill they see higher inflation unemployment has fallen so low, and that could mean more rate hikes. if you start with the question of unemployment there, maybe they will say, well, it is going lower, but because there is labor markets lack, we can tolerate that. ratethey forecast more hikes next year? that is the question, and that's what could be the market mover on wednesday. tracy: that was kathleen hays in new york. we will be talking more about the fed later in the show. first, let's get the latest from markets now. here is haidi lun. difference a couple of
hours makes. we were looking good this morning in the open, driven by positive sentiment that came through from the opec and non-opec member talks that yielded that surprising agreement and the pledge by saudi arabia that they would do what ever it takes essentially. we are coming unwound in the asian session, very steep losses from the greater china market, shanghai down 2%, shenzhen falling the most in three months, a selloff insurers come a financials, warnings about leverage coming through from the authorities there weighing on sentiment. hong kong down by over 1% come expecting to hear potential nominations for the chief executive role coming as soon as today. -- top, the financial financial officer has announced his resignation. the nikkei 225 cutting some of those earlier gains, stella .6%,
a weaker yen in play there. australia clinging onto gains, driven by the energy space. energy, theach producers and explores of oil seeing that must buying when it comes to the aussie shares, but the selloff across gold miners, down 5% with futures of the lowest since february. angie: haidi lun there on the markets. later on in the show, from bombs to political turmoil, how it went from bad to worse and south korea. $60 a barrel as producers agreed to a truce. we look at the impacts across the middle east. this is bloomberg. ♪
bloomberg television and radio. i am angie lau and hong kong. tracy: i am tracy alloway into dubai. i want to start off with a chart that summarizes what is relevant for the region this morning. this is the yield on the u.s. benchmark 10 year, hurtling towards 2.5 percent, quite a change from earlier in the year. i believe ise loyal, obviously recovering off the back of that opec deal. when you see a chart like this, do you think the paradigm has shifted? >> i think it is not a paradigm shift, but of phase we have to go through. i'm not sure we will see oil at $80 or $90. if we were talking about those numbers, we would be fearful of those prices driving bond yields 23% and beyond. we are absorbing this level, and
that probably agrees with a 10 year bond yield of 2.5% in the future. other trend is inflation expectations rising off the back of donald trump's planned infrastructure spending, fiscal stimulus. easier ormake life harder for the federal reserve at this juncture? >> it is easy to increase interest rates, and they want to to do that anyway, so they have plenty of excuses given that inflation expectations have risen. in the future, it is more difficult. as we look at donald trump's ambitions, we are not sure he will deliver on that. deliver, there may not be a follow through on inflation expectations and the fed will have reason to be less aggressive to increase rates further. statesyou were in the last week talking to investors about donald trump and what he could mean for markets. we have seen this tremendous rally in stocks, the selloff in
bonds, are investors getting ahead of themselves? >> i think they are, but i think the excitement will continue through the of not duration in the first quarter. they will wait to see if he can get his plans through congress, that will take 6-9 months, if not be on that. i'm worried that by the middle of next year, there will be disappointment on the pace of fiscal expansion, bring down growth expectations and the equity market, but run with equities at the moment. what about bonds? let's dive into the bloomberg now and pull up the chart that .hows treasuries how sustainable is this. you say equities, but can bonds finally start presenting yield for investors once again? there will bet investors looking at this 2.5% level, thinking this is good
long-term value. whilst we talk about near-term expectations of better growth, it isn't in the bag. there are a lot of questions as to whether donald trump will deliver on his ambitions. ecb, aroundth the the world, support for markets may start to wayne. i think you will see buyers at 2.5%. i'm not sure we break through that and run to 3% as some commentators suggest. angie: in the same way there is question about the certainty of these opec production cuts, what about the certainty of trump stimulus? both are getting market response to the positive side, but how certain are we? and non-opec opec moves, i think were looking at an oil price that $50 to $60 band. trump's plansnald
come on fiscal policy, consensus is building on wall street that he may only achieved 20% or 30% of his targeted increases in spending and tax cuts, so that would not necessarily promote a great positive move in markets beyond maybe 5%, 6% higher on equities from here. let's bring it home for this region. we have dueling forces for the gulf, higher oil prices and a higher bonddollar, yields, essentially tightening financial conditions. what will be the dominant force for the next year or so? increase interest rate we are expecting this week, i'm not sure it is a big challenge for the region. if the fed were to put on another 100 basis points, yes, a problem. i think we will take hope that the opec and non-opec agreement sticks, the oil price stays
$60.is band of $50 to i think equities can then press on with good gains. bonds are challenge because the tenure has gone up in the united states. thematically in 2017, how should investors set himself up? >> i think you run with the current theme, so for the first part of the year, one quarter or two quarters, equities will push on. i think there is a lot of excitement that the progrowth policies of trump will portrayal , and that will lead to upgrades for corporate profit forecast, and markets will follow. get back to we will reality, significant challenges around the world, in which case come the first quarter, backend of it, you will look at five bonds again and take profits on equities. angie: thank you so much for
joining us. we have some breaking news for you in the hong kong political seen as the financial secretary tenders his resignation. what is the significance here? there has been a lot of speculation in local media that leung said he would not run for a second term that tsang said he would. tsang tendering his resignation according to hong kong's cable tv. we are monitoring that it will continue to follow that. is a major shift underway for washington and beijing? will look at how the
tracy: i am tracy alloway. you're watching bloomberg. and hongam angie lau kong. america is for decade one china policy may be put to the test with donald trump saying no one can tell him who to talk to. will said his attitude depend on securing a better trade deal with beijing. tom mackenzie joins us now. no doubt causing a ripple effect across beijing, that this could be a significant shift for washington as well. tom: it could. more tough words from trump, they swipe at a
cornerstone of sino-u.s. relations. it was an agreement between the three parties that there was one china that encompassed the mainland and taiwan, and it is a policy that china has used to ensure its diplomatic partnerships and ties, that all those countries accepted this. it is sacrosanct for them. what it has done, the one china fragileis allow space, and tends though that is, relations between the mainland and taiwan to coexist. we have seen trade take up between the two. taiwan is the fact though independent and enjoys unofficial sovereignty, but trump is suggesting that he couldn't do that. he does not want to be bound by the policy when he negotiates with china. this comes after that
controversial telephone call he had with the president of taiwan , which ripped up the rulebook. tracy: have we seen reaction response from china yet? so far, we have not seen any official response, though we have heard a strongly worded editorial in the global times that described trump as being as ignorant as a child when it comes to foreign policy, saying the one china policy would not be traded away. in terms of their official response when it came to that controversial call, it was seen as moderate, but they're having to balance two sides, one is the vocal criticism, and the other is him appointing a diplomat, and ambassador, seen as a friend of china, so they are trying to define what the real trump and the real policies will be towards china. tracy: tom mackenzie in beijing, thank you so much. about the we talk
kong, 8:3030 in hong a.m. in dubai. i am sophie kamaruddin. oil surging after producers agreed to reduce output by 1.2 million barrels a day. saudi arabia says it is willing to cut more than expected, promising a cut of 450,000 barrels a day. nationsnd non-opec pledged to reduce production 558,000 girls per day in january. 558,000 barrels per day in january. longpec rally did not last
in asian markets. the regional benchmark has given up early gains, finance and tech shares among the losers. shares and shenzhen fell the most in three months on worries about property and stock trading. investors wonder whether donald trump policy may speed up that hikes. thursday is the deadline for , the pakistan exchange sale bidding thursday. two foreign groups have bid for a stake of at least 25%. we will get an update from the ceo later this hour. london home prices having their worst december in six years, led by weakness in prime areas.
asking prices have fallen 4.3% from november, with lending dropping 6%. the bubble in prime lending continues to deflate, and it sees prices declining 5% next year. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. angie: president-elect donald trump has dropped his strongest can't yet about his pick for secretary of state, describing rex tillerson as an "world-class player." let's bring in our energy reporter from singapore. his can you tell us about background and how it might relate to such a position, not confirmed yet though? went to therson' university of texas and has been n exxonon -- been a next
lifer. he threw that company has had a lot of foreign experience. is a texan, he has slightly different values than most people affiliate with texans. he helped the boy scouts of america usher in their change to allow gay scout leaders. humorouslywhat banded together with residents of his town in barton ville to fight against a water tower that would be used for fracking, so he could be called an anti-fracking activists in a small way. the biggest thing is that exxon is a giant corporation with employees all over the world, and they are well known for being quite. don't leakir job and
out information, and they get results. qualitieshink about that you would want in a secretary of state, a lot of that comes from that kind of thought about him. state noe secretary of doubt is in a lot of ways america's top diplomat. a lot of people are buying for this job controversially as well, politically speaking. how does exxon's position in the world help prepare rex tillerson for this post? >> exxon is a giant company. before the oil crash, it was the world's largest company. it has operations on every continent outside of antarctica. asbe able to deal with that, ceo has to deal with leaders of state, do the risk reward scenario making sure they stay happy there. he took over after in 2006 had a rough go in venezuela.
the chavez administration tried to get more out of exxon the next on wanted to, and hugo chavez ended up nationalizing exxon stakes there, costing billions of dollars. on the flipside, rex tillerson has had a lot of success in countries like russia for instance. that leads straight into our next question. we know russia's and and owns relationship with russia has been the focus of a lot of attention. how will that affect rex tillerson's prospects for this position? >> russia is where he made his market exxon before he became ceo. he was there in the 1990's and helped exxon get out of this bottleneck there and open up exploration off the pacific coast of russia, unlocking billions of barrels.
in 2000 11, he negotiated a giant deal with rosneft to explore the arctic. he has won the order of friendship from russia. he has had a lot of success dealing with russian diplomats and russian executives, and if donald trump once somebody to increase their ties with russia, there are worst people in america than rex tillerson for that. tracy: bloomberg news energy reporter from singapore, thank you so much. despite those rising oil prices, our next guest expects 2017 to be a year of paying for africa and the middle east. he says tough austerity measures will be greeted by a new round of deals. gus, let's pick up on that
intro. we have seen oil prices rise significantly off the back of opec deals. i feel like distressed debt investors are always waiting in the wings for opportunities. we have a big rally in oil prices, will that make identifying that opportunity more difficult? intracy, we will see a rally asset prices over the next couple of weeks or months, and that is certainly welcome. a lot of our positions would benefit from that. at the same time, we have seen a paradigm shift in the region. a lot of austerity measures that have taken place are here to stay, so government reforms, government spending cuts. a lot of the bad debts and loans on bank balance sheets will not change because of the slight rise in oil prices. u.s. shale is there to switch on the second prices hit $55 a barrel or $60 per barrel. she'll producers brought on 22 rigs last week, so they're going
in faster to lock in hedges at higher prices, so it has put a ceiling on oil prices for some time. tracy: walk us through where we are in the distressed debt cycle. what you think? cyclehink we started the one year ago, so there is always a lag effect when there is a collapse. for lehman brothers, it took a to tumble.set prices after oil's collapse, we did not see the pain until mid-2015, so i would say we are in the first quarter if we were looking at a basketball game of four quarters. tracy: you not playing with the baseball analogy, basketball instead. aree: whichever quarter we in, it seems like we are witnessing secular change? angie., hi,
we certainly are. there are reforms and measures that have taken place, countries and economies in the region making long-term structural changes to benefit and diversify economies to the alongside. -- for the long-term. when we talk about middle east and africa, what are talking about here? and how are you wanting investors off these equity markets? >> we are talking east from turkey to morocco and down to south africa, that is the geographical region we look at. that is the space. angie: are they miss priced in your view? of, sorry, can you please repeat the question? angie: do you think those priced right now?
>> we certainly are. in general, the markets in the middle east and africa are mi spriced because they are dominated by retail investors that don't focus on fundamentals, so a lot of mispri cing results. in terms of volatility, they are more exaggerated. it is our job to playoff the fear and greed pendulum swinging through the cycle, taking advantage of asset prices when investors panic, and selling these assets back when investors are overly excited about the prospects. tracy: let's get into some specifics. what are you lying at this time -- buying at this time? where is the value? >> we're looking at a lot of
angles. just recently, one most recent investment is a hospital operator out of saudi arabia that has receivables from the saudi government, that we believe will be repaid. so we are spending time on public equities and trade claims from private corporate's that are owed money by the saudi government. we are looking at trade claims --provide capital alternative capital solutions. tracy: give me your take on turkey. when i think of distressed opportunity and look at a chart of the turkish lira, i think that i'd be a good hunting ground. certainly is. unfortunate, turkey is somewhat of a basket case. it's going to be a very fertile landscape for distressed equity and credit investors in the near term to the midterm.
the currency pressures we are seeing are making it more challenging for local corporate's to service their hard currency denominated debts. the same goes for a lot of the importers, having to import when the turkish lira is falling. also, the central bank has no independence. even local citizens don't trust the currency, so we will see a lot of opportunities rise in the bank space and the equity side. tracy: really interesting discussion. up, the operator of pakistan's main stock exchange is seeking bidders for a stake of up to 40%. the latest on the process, next. this is bloomberg. ♪
kong. the turkish lira fell more than 1% after twin bill is. -- twin bombings. 155 other people were wounded. militant group says it was behind the coordinated attacks. saidsage on its website the bombings were in response to turkish forces. turkey's president is closer to concentrating power in his office as his ruling party proposes an executive presidency. the bill would amend the constitution to change turkeys landscape from a parliamentary system to a presidential one. the bill could come up for bird early next year. boeing has agreed to a $16 billion deal with iran, 5737
planes and 30 77 variants to do variants to be delivered over 10 years. president-elect, trump to balance priorities with american jobs. the karachi stock exchange plans to sell a stake of 40% to investors, and the deadline is thursday. joining us now is the ceo of the exchange. thank you so much for joining us today. asked a lot of our viewers what the best-performing stock market in asia was this year, they might not necessarily think of pakistan, but let me show you this chart. indexs the karachi 100 outperforming not just the msci market index, but also the in
sci frontier markets index. when you look at this rally, how much further do you think it has to go? ,> let me put it another way the market cap to gdp ratio, which is a valuation metric, is 30%. before the financial crisis, it was 40%. in a-shares, 70%, so we have some way to go there. in terms of foreign investors, what you seeing? the rally has some foreign participation, but perhaps not as much as some people might expect. date, you have an outflow from foreign institutional investors of $230 million, but an inflow from domestic institutions of $450 million, so the domestic market is pushing it up at this time. we did have the index
recently included, so why aren't foreigners coming into the market? marketink frontier players are going out. as the new year new allocations come in, there will be interest. there is a taper tantrum issue with expectations of the fed, so they are selling into pressure. angie: i want to ask about investors of another kind, and that is for your stake sale of the karachi stock exchange, reportedly 40% to be sold. who is interested? speaking, i cannot give you the specific names, but i can say broadly speaking that there is interest from china and from the u.k. and the u.s., so at the moment after the set of
19 parties that applied for the expression of interest, two strategic players have come in and we will have some bidding on thursday, so let's see which party actually gets a higher bid. istanbul bourse bidding here? opted out a couple of months ago because they had their own restructuring going on. they were initially one of the foremost players, but now they are out of the picture. give us an insight into the road shows you have been having with potential investors. how are those going? come thursday, are you going to be satisfied with the outcome of this process? strategically speaking, there were four parameters set for this particular sale. one was to increase the investor base substantially.
the other was to upgrade technology. companieswas to allow to access international markets. and finally, increase liquidity in the market by bringing in derivative products. two major consort tia competing - sore tms our roadshows to most potential fourtors took these strategic issues as the main reason why we want to divest. tracy: on thursday, are you going to be happy with the price? >> that is the development , thettee, the owners former brokers of the karachi stock exchange and the potential bidder. i am basically an observer of this picture, but expectations are given the performance of the market and the outlook, they should get a decent price they are. tracy: here is a tougher question for you? 100 index, the benchmark
index, there has been some criticism as to whether that represents the wider pakistan market? is that representative? >> i think it is representative. 20% is oil and gas, 20% is the banking sector. if you look at the difference between 10 years or five years ago and today, there is a huge difference. youors keep on changing if look at singapore and emerging markets. you still have these eggs sectors which amount -- egg sectors which amount to 45% or 50% of capitalization. you are seeing consumers, because consumer demand in pakistan is high. we have seen 100% expansion in 70%nt, steel, and more than in auto assemblers.
as these come through, the sectors will be underweight. tracy: let me show you do one final chart. this is the brief history of your stock exchange. adding it tosci the emerging market index in the 1990's, and removing it in 2008, then adding it back in. what is the next milestone in the history of the karachi stock exchange? inwe had demutualization 2012, then integration of the three stock exchanges in january this year. in june, we had msci, now the divestment, so huge, big strategic changes have taken place. i foresee we are going back to 40% of gdp in terms of market cap to gdp ratio, which means 60,000 on the ks 100. tracy: thank you for joining us.
thousands ofds of people rallied on the streets of seoul, korea over the weekend, keeping pressure on authorities to remove president park. the constitutional supreme court has six months to approve the recommendation for engagement. we have reported by young koreans and their futures. >> for many people in south korea, the move to impeach president park is the first step in changes they want to see in the country. as you can see, they have come out again to make sure their , holdinge heard handles to shed a light on the murky ties between business and government. , it isy young people
poignant because it is difficult to find work. generation have housing and workplace problems. i came here to show my opinion in the hopes of a better society. >> unemployment for under 30 is high at twice the national rate. in february, 12.5%. add to that high housing costs, and it's no wonder young people say they can afford to get married or have children. older generations have seen the country and themselves advance, younger koreans find it difficult to progress. they are aiming their anger at president park and the corruption she symbolizes. the instability and government needs to be dealt with if we are ever to get any reform momentum. >> the many young south koreans say those changes are not happening fast enough. markets have reacted
positively to the prospect of a change at the top. we are flat at the moment. if you look at the gains we have seen over the last week, the up 3.5% going into that impeachment vote. leadership has been battered by these influence peddling scandals. if you want to look at the credit default swap risk chart in your bloomberg, that shows it started falling by mid-november as protest started on expectations that president park would be forced to step down. means newrnment policies, more fiscal stimulus, and potentially getting south korea's economy back on track. we have recommendations from fund managers. gary greenberg saying no change,
angie: oil is surging after snnt producers agreed to the first production curve in 15 years. ready to reduce 450,000 barrels a day. english is now the prime wland.er of new subsidy he was elected unopposed after have paula nd will bennett as his deputy. unexpectedly stepped down last week. the partys