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tv   Bloomberg Markets Middle East  Bloomberg  May 28, 2017 12:00am-1:01am EDT

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♪ yousef: the trump world tour heads back to washington but only after making relationships with america's allies. returns it to $50 a barrel after opec output cuts. qatar's advantage in the spotlight. it is 8 a.m. in dubai.
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tracey: this is "bloomberg markets: middle east." we did have a pretty busy week in markets in general around the world. let's take a look at the big moves we saw as we headed into the weekend. the dollar index, dollar \5th of aabout 1 em percent. opec finally getting the reaction it hoped for. take a look at the equity market s&p 500. barely changed on friday but that is enough to push a new record close. meanwhile the vix pizza dropping. down to 98.1%. european stocks not having as good a day as their european counterparts. -- as of their counterparts.
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yousef: a number of headlines are in focus. that includes what is happening with turkish stocks. an interesting five day trade. take a look at that in more detail. they did pair off some of those gains with a fall but they had a weekly gain of some 2.7%. gold, plenty of bullish increases. net loss at its highest in three weeks. african rand 12.88 against the u.s. dollar. south african president jacob zuma's fate in the balance. ino we had a lot of activity terms of some of the key players off the back of uncertainty about what is or is not going to happen in terms of the opec meeting.
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a 4% something drop in oil prices. basis, this is individual members across of the index, you can see some key companies that are gainers. this is the year to date. alsoan see agility, line isbahrain, the top a down 11.1% last weekend. also pressure on dhp entertainment. that stock continues to get hammered. beenne major exception has egypt. their stock index was up a little bit over 1%. tracey: let's check in on the first word headlines. qatar's's has cut
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credit rating, citing doubts about the sustainability of its growth model. their rating was downgraded to aa2 while his outlook was a change from stable to negative. moody says it expects of the current balance to move to negative and turn into a 2% surplus over the next 4 years. >> president trump left of the g7 summit without committing to the paris climate accord. after pressure from other leaders, president trump refused to say if the u.s. would uphold a deal to cut emissions. nations were given a statement saying it is still reviewing the climate policy. tracey: the u.k. has lowered its terror threat from critical to severe following several arrests related to last week's attack in
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manchester. prime minister theresa may said an attack is still likely and told the public to remain vigilant. they released at the photo of the suicide bomber in a call for help in reconstructing his final movements. aacey: a deadly -- yousef: deadly attack killed coptic christians. that thedent said president of egypt says they're are willing to strike outside the country. >> i address my appeal to president trump, i trust you, your word and ability to make fighting global terror your primary task. in thisyou will succeed mission supported by the cooperation of all other countries. yousef: president trump into his
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global tour at the g7 summit in italy. under pressure from other members, president trump backed a promising to fight protectionism. but he refused it to actively paris agreement, saying he needed more time. tracey: they did agree on the issue of terrorism and to find it around the world. >> this applies it to the issue of fighting terrorism, where we already issued a joint statement yesterday. this concerns the issue of international conflicts. whether that is the situation in north korea, libya, syria, russia, ukraine. here there is a high level of agreement. >> the debate during this g7 allows to advance very clearly the struggle against terrorism. france has been hit these past years by terrorism and the united kingdom and egypt.
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the discussion with rich on this subject and allowed for the first time to sign documents of common engagement divided on various fronts. tracey: let's bring in the chief chiefor advisor -- investment officer. when you see the consensus coming out of the g7 summit, terrorism seems to be the only thing they have in common. last year the u.k. had not decided to exit the european union and the trump did not have good chances of becoming president, it seems like everything has changed. >> there is no sense of economic crisis. i think even in the eurozone there was a that sense because bond yields were incredibly low and we were struggling with deflation risk. now we have growth in europe, a u.s. that is looking ok and japan, there are signs of some hope. the economy has been taken off
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the table as far as a discussion point. other things have come to the fore. yousef: in terms of the conversation on trade, it was of the other elements. there been described as intense by various leaders attending those conversations but there's nothing really tangible to be able to take clear conclusions as to the implications for the global economy. >> we've come a long way in the last 6-7 months. not so long ago donald was going to blow up every trade agreement. now he has seem to step back from that. it means there's not an imminent threat to global trade. tracey: if there's one thing that markets hate it is uncertainty and trump has changed his position related to a number of things. doesn't that make gauging trump more difficult? >> we of come away from an
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extreme. we are somewhere around neutral. the markets are already discounting some kind of tax reform, some kind of spending increases and if he does not deliver on that, the markets are in trouble. at the moment it is neutral and with some hope. yousef: we pulled of the ecb are fun. -- ecbr fund. in terms of additional catalysts, from a global partnership perspective, could we expect more momentum honda's discussions and more agreement in contrast to what we saw -- more momentum in discussions and more agreement in contrast to what we saw? >> all we need to do is keep things stable. if we can keep things stable, the numbers are still profoundly big.
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trumprd we have is a that was going to get significantly backwards. if that agreement with china stays in place, if the agreements with nafta same place, that is good news. there's some great bit of detail from our reporters on the ground in sicily saying it took until 3 a.m. for negotiators to agree on language for that trade statement and to agree what amounted to fair trade. as people deal with this question, how is that going to materialize? can you have this kind of fair trade without protectionism? >> if you take in the statements, there were a lot of comments when it came to terrorism about sovereignty. this word could be taken with a protectionist connotation to get it means i'm going to mount something at my borders. whether that keeps terrorism
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from coming in or goods and services, i don't think these politicians are distinguishing so hard. it is a threat that the trade we're seeing in the past will not be as vibrant in the future. yousef: still planning to get through that, let's get you a preview of what is to come. we talk about the investment strategy over the course of ramadan. where should you be placing your capital? tracey: just ahead we are going to take a look at some global risks investors are keeping an eye on including economic data out of the u.s. and the upcoming u.k. election. this is bloomberg. ♪
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yousef: you're watching "bloomberg markets: middle east" live from dubai. tracey: first quarter u.s. gdp on friday. by 1.2%
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thought than previously but that was the weakest since the first quarter of 2016 and followed a week growth in the fourth quarter. gary, when you look at the course of the u.s. gdp right now, you think we have passed th better things still to come? >> the beginning of the year growthwere expecting 3% and we are coming in at a 1% number. they thought there was going to be a rebound in the second quarter and that is not coming through. the index level is usually 60 and we're down to -30. i cannot see the momentum for any upgrades and the idea that the country is going to achieve a 2% is heavily relying on policy change from donald trump.
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yousef: you give us a little bit of insight into what they might or may not doing. in terms of how the analysts and experts, this and it from barclays saying the fed will initiate its balance sheet runoff in september followed by a 325 basis point rate increase after a june hike. our clients should remember, this key function, it is based on the fed points. what are you putting your money on? given what we are seeing in the actual data? >> interest rates are going up. if given a strong signal they are going to go up. i'm not concerned about this -- i don't think they believe monetary policy is that effective so why leave it so loose and it is creating problems with the bubbles we are seeing in many of the aphids
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markets -- asset markets. they're saying to donald, if you want to get this economy going, do not rely on this -- on us. you must give us a change on fiscal policy. tracey: they're getting into a difficult situation, by any measure of employment it seems the u.s. is there but inflation is stubbornly low. >> it is a completely new regime. if you look at japan, incredibly low unemployment and wages are going down, not up. it is not followthrough just because you have a better growth that you have wage growth. that is something around the world we are not seeing. yousef: let's get into the implications for recommendations for your clients, what is your investment strategy? one of the key experts in this field said that the u.s. tenure paper pretty much reached its
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2017, they do not expected to go much further from there. what you expect tenure paper going from there? >> we see the same yield is not lower. we are in a light cycle. that means inflation is going down and not coming up. it means that the central bank is tightening policy and that means higher yields, not lower yields. we are convinced of this base core interest rate around the world is still generally supportive of the bonds across the world. let's go back to the balance sheet reduction. that was big news. the philadelphia fed president described the balance sheet reduction as watching paint dry and it seems the fed is going to be careful in terms of the pace of the reduction.
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do markets have anything to worry about at this point? is there any prospect of getting a paper redout? -- readout? >> when you look at the other bonds the fed has been buying, you have spreads that could go up and they seem highly dependent on the said reinvesting the money as they have done in the past. sou have to find other buyer and they manned -- and they may demand a lower price and therefore high yields. yousef: we've seen charitable equity move around but focused on fixed income in terms of asset allocation. >> we have been taking profits on many of the risk assets. more recently we have been selling down high yields. the high yield on junk bonds with no prorating and people are worried about the future.
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those have come down to incredibly low yields and even though they offer very attractive nominal yields, you see good value but you are actually paying a lot for risk. emerging-market debt, the spread is there, we do not think it is profoundly low and it will give us good long-term fundamentals. tracey: is the scenario you're worried about a credit selloff akin to the one we saw in late 2015 after the fed rate interest rates? >> there is a risk for dysfunction. andmarkets may take fright there may be a heavy handedness to policy of the fled -- of the fed and back to get a general credit spreads selloff. people still want those fields and if there is any selloff that is profound, it will be met with some buying. yousef: we have a lot to talk about, u.k. with the elections
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around the corner. investment officer for emirates nbd, silicon, sterling takes a pounding. the gap is closing between conservative and labor ahead of the election. this is bloomberg. ♪
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>> this issue with the brexit negotiations matters because of the european union wants of them to start 11 days after the election so we have to have a government that knows what it its approach is going to be and have the strong hand to take into that negotiation process to get the best possible deal. tracey: this is "bloomberg markets: middle east" live from dubai and that is prime minister theresa may saying she requires a tough hand to get through brexit negotiations with the eu.
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yousef: the conservative party lead over labor has narrowed to five percentage points and that came after weeks of surveys showing a bigger tories lead. these are the weekly moves, you can see the sterling has had its worst week this year and it was 1.78%. we did get some economic data. consumer confidence falling to the lowest level since the brexit vote. economic growth slower than first thought. let's start with political uncertainty because of that is what is underscored as absolutely crucial. markets do not like it. how serious should we take it? lead seems crazy and a 5% when is crazy.
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politics, the politics are about social redistribution of wealth and the significant tax on the wealthy. this is the kind of thing we are seeing across the world in terms of protest and it seems voters are moving behind that. we could go into that election at this 5% spread which could be a much smaller majority for theresa may's government. tracey: the pound has a dealt with uncertainty before. a lot of people were surprised resistance post the brexit vote. a lot of people put on short positions that i had a lot of simply for because they did not pan out -- a lot of sympathy for because of they did not pan out. 135 and we on to think fair value is around 140. there will be that headlines and
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good headlines in the u.k.. it will probably start with bad ones because there will be substantial belligerents from the eu side. there is a risk of us moving towards 123 which would take us into the low end of the trading range. yousef: let's focus on some of the emerging-market currencies. veryouth african rand, impressive streak, the best performing em currency and investors take a position of how they think the political arena will play out. where does the government here --where does it go from here? >> everyone wants the zuma situation to be clarified and get better and therefore they are willing to put the rand higher. it is profoundly weak. commodity prices have gone up, things are a bit better and
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therefore it will be higher and can go higher if the situation gets verification. tracey: let's get to all of emerging markets because it feels like we have political drama appearing in certain spots. over in brazil we had this bribery investigation. are em investors comfortable with that kind of risk? we've seen this insane rally in emerging markets since trump got into office, is that going to continue? consolidation at these kinds of levels will be helpful to emerging markets. to me it has been quite a surprise with the brazilian situation that we have not had a more are found selloff and there has been a rebound with hope we could get through these problems. in the past people saw the problems and sold everything in the emerging-market space. drop inwe saw a major oil prices just as a lot of the old ministers are going home from the deliberation at the
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meeting. explain what it means for a lot of these -- besides what it means for a lot of these key commodity currencies, where does will come from here? were you expecting more force from the opec announcement? >> i don't think the momentum is built within opec to do anything more profound. it may require more production cuts but there was not a consensus. oil is left to its own devices and people be looking at the inventory numbers out of the u.s. and u.s. oil production building. there is still significant headwinds to the old price getting above the $50 level. tracey: always great to have you on the show. .e are going to stick with oil we are going to be looking at the outlook for crude prices as investors speculate about opec plans for a production cut. this is bloomberg. ♪
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♪ yousef: this is "bloomberg markets: middle east" live from dubai. tracey: let's get straight to the first word headlines. british airways says it will try to resume flight out of london monday after a computer glitch paralyzed operations over the weekend. heathrow and gatwick airports were suspended, leaving thousands stranded after what the airport called a major i.t. systems failure. they blame the glitch on a power failure. bp world isi's considering a stake in the russian cargo carrier.
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rumors of that bp world would take control -- that dp world would take control of the company. fesco said a deal could be close. say etihadrces atways is close to looking hiring financial advisors to way it stake in air berlin. it says it plans are to be part of a broader view in equity holdings in struggling airlines. it has had to tell out air berlin several times already. back -- wills are prices are back at $50 a barrel. sea,e we jump into that let's talk about what is
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happening from a technical point of view. just in terms of where we were and where we are. you can see right here the green that blue line issuer november cut level. we are higher than we are at the time. -- this speaks to a bullish story. hsh nor bank make this clear. happenedak down what in the and i opec. saudi arabia taking a different approach to resolving the situation with these stockpiles? >> we've seen saudi shifting from the pump and will policy will policypump at they had, now they are doubling down on these cuts and getting to the system of giving each member a number of cuts they are
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allowed to have. and what hasere been new over five months is a they have other non-opec members on but we are seeing more cooperation between saudi arabia and russia. those are the two biggest producers in the world. there's going to be more impetus going forward as we see the saudi's doing more to get the stockpile down. tracey: saudi's taking a lead role and also putting their credibility online because u.s. exports are easier to track. what actions can they undertake to make sure this new strategy works? >> we saw saudi arabia cutting more than they had to in the past five months. they have been making up for other laggards like the right -- iraq that had not cut to
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its full potential. we are going to be really watching russia. tother they are going to cut the united states, that is a market that historically supplies $1 million a barrel. they have got a big refinery there that will supply a good 600,000 barrels a day. saudi crude is a heavier crude and that is something that is needed for those gulf coast refineries. they are able to fix that heavier crude. it is not a like for like a match that the saudi's will be taking on but those are what are the factors they can do to hit of those stockpiles-- to hit those stockpiles. failed toey arguably grasp an opportunity to provide
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clear direction as to how they are planning to develop an exit strategy. they made that clear in the latest bloomberg wi-fi column -- gadfly column, is there any indication about how they are going to wind this down? >> people have to watch the market. are more skeptical of opec say they have lost control of the market. of market this kind management is not going to end. there is the potential they see how the market goes and perhaps they just take their foot off the brake in terms of the cuts and let members come back up and start increasing protection -- production to meet demand. we do not have an in game. -- an endgame.
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it is possible that we see the demand, which is what opec hopes for and these cuts peter out. it is going to be a long time until we see that in the market. so far it has been skeptical. tracey: one of the more interesting take i read came from olivia jacob and he said he read the meeting as opec giving up on rebalancing inasmuch as rebalancing met reading stockpiles down -- meant bringing stockpiles down. they seem to have this consensus around $55 a barrel also opec stresses that they do not target a price. we saw some ministers calmly talking about prices at $50 floor, potentially getting up to $60 and then the minister speaking to bloomberg saying he thought $50 was optimistic.
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targeting this $55 level is a level that opec members can be comfortable with and it is something they see as keeping shale at a certain level. $50 seems to be no problem for them. $55. perhaps that keeps off the market some of those more expensive projects people were talking about when we had oil at $100. press accuses some of those things off the market and what's enough shale to come in -- and let enough shale come in. about one of talk our favorite functions which is tv . you can pull it up on your device and begin the great thing is you can roll back here and watch previous parts of the show.
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the right column has the key factoids and key functions we have been using. at the bottom, you can ask a question. let us know if you degree -- agree or disagree. yousef: talk to us about middle east equities because coming up in the show we're going to be getting the outlook for middle east stocks. find out what one of the region's top equity teams have to say about saudi arabia potential. that is next. this is bloomberg. ♪
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yousef: you're watching "bloomberg markets: middle east" live from dubai. tracey: we promised you more on middle east equities, who better to discuss than our equities the equity well as permits -- herfg
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mez. a company that we are watching ezdan.s qatar's it's a shares fell 10%. explain what is going on. >> we saw the shares dropping 10% and that is a reaction to the decision to start the procedure to take the company private again. it is interesting because we are talking about a stock that has thesecond-biggest wage in index. a lot of people are asking what is going to happen with those index, what is going to be the rebalancing?
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we should see some inflows into other names within the stock exchange. we have been told that there could be passive outflows out of million.$415 it is quite a lot of money going somewhere else. arbitration finally being wound down and coming to a conclusion, what are the key takeaways? that isis another story getting a lot of attention off industries. announced the company last week that they are aiming to live somewhere else, they are looking for a foreign stock exchange. we do not have any information of where this is going to happen or when.
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the stocks have been suspended in kuwait for the past two weeks because of the company said they are about to announce an important event. investors are waiting for trading to resume and this could be one of the biggest names in kuwait. yousef: moody's affirmative the rating on kuwait. they said it is a very strong balance sheet and hydrocarbon reserves continue to support a aa to rating -- aa2 rating. , look at theuwait favorable rating. if you take a look at some of bookalues, on the price to and the dividend yield, given this is the best performing index, what legroom does the rally have? >> it was one of the markets
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overweight in addition to egypt. you have market reforms that kuwait has already taken by changing the daily limits for stocks to move so we think over time that will increase liquidity. you also have pakistan getting upgraded in the front here market -- frontier market index. the money will be allocated somewhere else and kuwait is a prime target for that. it seems like weight will have frontier of its on and there are a lot of things happening domestically. from an old price perspective, -- oil price perspective, it is a balance sheet of the gdp. a be the simple journalists because we do have these upgrades for kuwait but also for the uae. i've seen research saying the midi position to upgrade was premature -- moody position to
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upgrade was premature given the headwinds in the economy. we had the opec agreement to but that is going to weigh on gold ulf producers. >> for kuwait, oil prices are comfortable for that economy. we think we have a comfortable reserve position. if you take the uae, you have southern -- sovereign wealth close to $1 trillion and there is a lot of diversification in that economy. we do not think it was premature. we agreed that kuwait and the at will be the top in the gc the moment. kuwait has i think been one of the hottest spots in
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the region for stocks. we had a lot of questions, a lot of demands in terms of how the --companies are doing. i think they should continue to that's a veryot hot spot for investors. i was looking at my schedule of rating reviews, bahrain is a due to have its ratings reviewed by s&p by june 2. the outlook there is stable. i had one fund manager describe ce of thes the gree middle east, is that accurate? gcct is the smallest economy, the budget is not that big and the population size is not that big.
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they are working on reforms and they would get support from other gcc countries as well. it is nowhere near as bad as greece. yousef: the surprising move has onn the moody's move qatar. they are putting in question the sustainability of the country's growth model, are you as bearish as moody's is? >> we are not as bearish. if you look at the country companies, they still have high return on equity. the driver of the economy is at the government and government spending but again it is a small population size. i guess one key concern would be the long-term outlook for that market. everyone is focusing on oil but there is a lot of supply that wellbe coming from them as
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and will put pressure on prices. they have been doing a lot of rationalization of spending, i think we are fine for the medium and short-term. tracey: setting aside saudi arabia's inclusion in msp i indexes, what excites you in the region? >> kuwait is one market that excites is a lot. there's also egypt. -- kuwait is one market that excites us a lot. we have launched in pakistan and i think that is a market that a lot of frontier and global emerging market investors will be looking at. yousef: even though it is not get a great valuation rating? >> this is definitely because you're looking at trading multiples.
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egypt is muchh in higher than the rest of the region. we will write an out the conversation and talk about ramadan. tracey: it is the first day of ramadan yesterday and it continues today. yousef: what it means for traders, how can you carve out a strategy around ramadan? we'll find out the results for you. this is bloomberg. ♪
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tracey: "bloomberg markets: middle east -- this is "bloomberg markets: middle east" live from dubai. is in thetar spotlight after its 10% fall. a significant waiting on the qatar index. watching bp world, they're considering a stake in the
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russian group of far eastern shipping. company,dhabi energy they have got some updates on their dutch gas injections that have been cut at june 10. last 12 month return is about 23%. tracey: the other thing happening is at the start of ramadan, the islamic holy month started officially yesterday and that can mean different things for trading. we will bring back our experts to discuss. i've been reading up on equity and is and during ramadan seem to things. one that volumes fall of the cliff and there is one thing call the ramadan affect where you can make a lot of money -- ramadan effect where you can
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make a lot of money. are 89% lower in the month of ramadan and performance is negative in the months before and after ramadan. this month you have a msci rebalancing and a lot of inflows and outflows from benchmark names. in the uae, you have the inclusion of the markets in the msci and the market is at 6% and you have seen some -- and you will see some positive performance in the next few days. them gettinghave removed from the index. it will be a buying opportunity once of the outflows are out -- once the outflows are out. that's what investors should be looking at.
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yousef: this is in the case of currency, you can expand it, you can see the month of june over a five-year average. the downside pressure, that is the same case for the 10 year average. this is not ramadan specific but a great way to benchmark averages. which sectors could you trade? does the traditional thinking still apply, this is ramadan, more consumer spending, go defensive on construction, on banking. in some extent in saudi arabia, it will be valid. it would support the consumer theme this year. going into this year, people were more negative.
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i think consumers will stand out. could: you mentioned we week due to the rebalancing of msci, should we see trading slowing down all over the region? and it which markets do we recognize more activity? >> across the board without exception you have falling volumes on ramadan. selective events might lead to a change in that. if you have a global macro event like oil prices falling below $30 a barrel which we do not expect but that would lead to higher volumes. towards the end of ramadan, you have the review coming up and that is going to be important for saudi arabia. traders will come back earlier than usual because of the announcement we are expecting for the saudi market. >> prices in saudi have been
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quite low, should we see -- i think as individuals come back to the market, it will. that is the reason why volumes have been lower. they are still adjusting to the changes but we may have an announcement that they come back to the market. tracey: how do you see that review playing out in the market aside from volume? been much going to more foreign investors are going to be looking at saudi arabia more closely. investor, you have all the world to look at. is 2% -- isrship 10% of market. there is a lot of room for foreign influence into saudi arabia and over the next few years depending on acquisition and we expect anywhere from 25 billion.o $50
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yousef: if i look at what is and some of the dfm the other exchanges, it is not where it needs to be compared to last year. >> there are few catalysts to look at. we do not think oil prices are going anywhere. we expect 50-55. the reforms are slow-moving. the index inclusion is of the key story and that would take center stage. tracey: it seems like we're going to have quite a lot to keep us busy during ramadan. yousef: infinite fantastic. --isn't that fantastic. tracey: thank you for joining us. yousef: that is all we have for this edition of "bloomberg markets: middle east." a reminder we did see oil prices
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under pressure initially after the opec meeting. plenty to watch out for her and visit trading week. tracey: we will be live from the region. -- from the region this time next week. ♪
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♪ jonathan: from new york city for our viewers worldwide, this is 30 minutes dedicated to fixed income. this is bloomberg "real yield." ♪ jonathan: coming up, chair yellen has a plan to unwind a $4.5 trillion balance sheet. it makes it as boring as watching paint dry. the u.s. economy's first quarter was not so miserable after all but a big upward revision fails to shake treasuries. opec, whatever it takes falls on deaf ears. production cuts struggle to stay -- to stabilize oil. we start with a big issue, chair yellen's campaign to make the


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