tv Best Of Bloomberg Markets Middle East Bloomberg June 16, 2017 7:00pm-8:01pm EDT
alliance securities. the fed shrugged off worries about using inflation. they say they are sticking to their path of normalizing interest rates. we asked john gorman if the fed provided any significant surprises. as you just mentioned, i think the further along -- markets where for a hike in september and it was. they give so much information before the june meeting, it looks like the mortgage rates could stall then and cause behind then and resume the heights in december. -- hikes in december. >> it was an to your but the balance sheet. how much clarity did you get on the balance sheet on one and the
active rate hikes coordination that they will carry out for the rest of the year and next year? that the coronation between the two is largely unchanged. as we stated, they are moving the tapering from september to december. based on the fact that they give so much more information in the june meeting than they expected, it is obvious that they will be doing it a little sooner. the question becomes how will they do it? they lied out how much they will buy over a certain. for the next year. it looks like the whole process will last three or four years. the most important thing to point out is the mortgage process will be something that will be like watching paint dry. they will be very careful about how they do it. they know they are in a financial crisis. the housing market was a stall wart that help them out of it. the last thing they want to do is mess with the mortgage and
tamper with the housing market success. i look at 10-year and 30 year u.s. yields. they fell. there was inflation data that missed some of the expectations. latest announcement, this is hardly a normal reaction for the market. now a quote from bloomberg, they are saying that making it clear that the fed moves, it gives the outlook for economic expansion. that looks a lot like a policy error. do you agree? agree.n't i'll take it is policy eric. inflation is on the weaker side as we can see. retail sales on the weaker side as well. the fed thinks that the retail inflation data is noisy.
the retail sales number i think you have to be careful about. the last one reported was revised higher. the most important thing to see is that the gdp numbers came out last night and even though those came lower, it is important to note that the gdp numbers they are projecting when higher after those numbers were put into miles. i think the fed is looking at everything and balance. going forward, i think the fed is that inflation is transient. cooler heads will prevail, the -- will straighten out. i don't think it was a policy mistake. >> a lot are saying that the reason the fed carried out the rate hike was because of -- look at the bloomberg chart. the bloomberg index is at the highest level since the 14. does this mean that the fed could have to move faster rather
than slower? >> it could mean that. one of the things you have to pay attention to is that the rates went lower after the numbers yesterday and continue to go lower after the fed announced their hike. only data, it is also that there are people out there -- whether it is real money portfolios and they have been looking for opportunities to buy for a while now. we see payrolls come out a few weeks ago, they're hoping that it would be a stronger number. the same thing with the fed, they were hoping for a hip. could put cashey to work. they need to shore up their balance sheet. they do make sure that their ballots she is look clean. it. are not seeing i'm thinking what we will see between now and the next few weeks is a head towards 2%.
there are people that physically need to put a lot of cash to work between now and then. >> we're talking about financial conditions in the u.s., let's expand that conversation and talk about the potential of a fiscal stimulus. i know that has been fading a little bit as the trump presidency rolls on. fiscale headed toward a stimulus, not this year but next year, how much of a risk is there that we could see ample room for repricing of the yields? >> that is a good question. the stimulus has been on the low side. next to none because trump has had a very rocky road in terms of his presidency. i think most of the republicans will agree that they want to get a tax cut through. by the end of the year we will see a tax cut comes through. it could be a fiscal stimulus. the fact that if
we get through this transient theater, that could all get to the point where we need to raise rates. if you look at the short end of the curve, it is much too flat. i think, especially in the 2018 sector, there is maybe only one or maybe 1.5 priced in. looking at two or three hikes in 2018. inin terms of volatility treasuries, we have seen remarkable trends over the last couple of months. we put this on the bloomberg. two key lines here. the treasury yield has your index moving up in blue there. this is the lowest level in four years. there isthat complacency out there and the traders could get caught off guard. do you agree with that? >> i completely agree with that. if you look at that chart for
the past few years, there is a strong spike in volatility. there is a lot of people on the market that are trying to gain money in such a lowball environment. what they do is sell volatility. when they continue to sell volatility, they are short volatility. it doesn't take a lot for the markets to move and volatility to spike higher. all these people have to flush out of their editions. that's what causes these spikes in volatility. i think it could be a dangerous side and i think we are in for a potential shock sooner rather than later. below 80.it following we see the price index continuing to fall. send you warning signs about the u.s. economy? >> not necessarily.
we are not pricing in enough height. the long end of the curve is called the tenure sector of the curve. that cash needs to get put to work. it is a lot relative to the rest of the curve. we are seeing a lot of people buying in the tenure sector of the curve. >> the emerging market currencies have put up spectacular performances. affect ors going to possibly derail the rally we see there? there is always a risk -- high risk-high reward area. people are heading toward that to get returns and carry. the flipside is when the fed starts to take action.
what they need to see is yields rising a little bit. we will start to have a repatriation. >> coming up on the best of bloomberg markets middle east. what this balance sheet unwinding means for this part of the world. this is the chief economist at the investment fund. that is next, this is bloomberg. ♪
the dollar. there is an undisclosed basket of currencies so it has more room for maneuver in monetary policy. kuwait's stock market has done pretty well in the past few months. they are showing this amazing rise. at the seen this surge highest level since 2015 or so. it has been pretty solid. when it comes to stock markets across the gulf, after the fed rate hike, we saw it pop up as well. does that mean that this rally in the markets could be sustained? >> i think so. there are two elements. one is the oil price. it has been quite volatile of late. people have gotten used to this.
they're gone back to the stock market and our training on the fundamentals rather than negative expectations. furthermore, it is the process of diversification out of the oil extraction factor. this favors the companies across the spectrum and this is reflected into the prices as well. >> when you look at some of the key metrics for debt, inflation and the peg which has been around for a few decades, is it time for a rethink for saudi arabia and qatar? we a seat a lot of pressure on the dollar. >> at present, i will think there is any need to change this policy. the fact that it serves the stability of the region very the gcc is as
currency union. the fact that they have benefited from the monetary -- >> many an amendment is due. so many key variables have changed. the swing from the u.s. to other powers and china shows that you -- what isappened happening in terms of: oil prices, it needs to be be looked at. yes, even if gcc oil is exported in larger quantities to the east, it is still a billion dollars. the kicker for the economy any interest rate remains the dollar. future, if those economies were to diversify more base,ve a broader export
then this call can be made. at present, i think it is premature. >> talking about the dollar, we are seeing some pressure on the greenback. a fed rate hike should essentially bring a stronger dollar. if you take a look at capital flows and trade, also tourism, which countries in the gulf are going to be most affected by a stronger dollar? general, i have a strong currency guy. i think that the strong currency brings more benefits than people normally think. in terms of asset evaluation and so on and so forth. the appreciation of the dollar has been notable.
i do think at this particular juncture, the changes and fluctuation of the dollar are having a major impact on the region. what i would like to point out why thethe reason interest rates are going up is also because of the global picture. yellen pointed out that the hot labor market is justification for this. there is an unspoken factor and it is the fact+++
♪ >> welcome back to the best of bloomberg markets middle east. i'm yousef divinity. qatar says that a look of diplomatic efforts to end the standoff with this neighbors. that theynister said have not received any specific demands from the saudi alliance that spearheaded this new first place. defined andis are they have a clear message. they need to see a demand and they won't compromise on their
independence. that has been the position from day one. they're willing to talk about issues that will deal with the collective security of the gcc. they are waiting for those demands. that hee actually said is frustrated a little and is funny difficult for people who created the gcc to see the situation that could lead to dire consequences. the diplomacy is still working but it is entrenched and not really moving. >> let me direct this question to you. we have seen some mixed messages out of washington. they are backing the a's election of qatar. >> what we are seeing on the global stage is an international stance.
you see saudi arabia welcoming -- trump'stion reaction. they are using the measures on qatar. the same thing for the u.k.. they were urging an easing of that measure. they're saying that qatar should the extremistt groups. qatar is a major investor in the u.k. and the u.k. is a major transport of saudi arabia. the absence of this, the mixed messages means this could continue for a bit longer. onwe don't see any pressure that aligned, it means that this will continue along for a little bit. ,> speaking to one of the ceos he said he wants trusted in the
gcc, it is broken. what is the next milestone? the foreign minister is also bring his visit to some of his peers to a close. everybody is watching what this is up to next. been talks in the uae and talks and qatar. there are still negotiations. what they said yesterday is we haven't received a demand yet. we're notes that really near a solution that qatar would consider acceptable. from the foreign minister and the finance minister, it is a message of defiance. unless kuwait comes up with a solution that said qatar, qatar seems to be gearing to a prolonged feed.
>> they are assessing how the isolation of facts the economy. that followed a downgrade from the snp last week. this is the founder of lighthouse research about the strength of qatar's position. >> the downgrade came as a bit of a surprise. when you look at the economic outlook, there is no doubt that there will be a slow down this year. the overall impact depends a lot on how long this current crisis last. not saying that we have much visibility unfortunately. when you look at the main drivers of growth and in the wider gcc, the economic model is quite simple. it is oil production and government spending. to the extent that those two factors don't change, i would say that the overall impact on qatar wouldn't be as severe as they think it would be.
>> a quick look at what is happening in terms of the bets against the peg. describing the pressures on the peg has unfair. i'm looking at a chart on the bloomberg, it is the highest since 2001. how likely is that scenario? perspective, the government came out yesterday and said they could defend the paper several years and i would agree with that. i think that the main risk, it , rathern the ability the willingness. >> up next, the fallout from theresa may's disastrous u.k. election call. this is bloomberg. ♪
♪ >> welcome back to the best of bloomberg markets: middle east. this is an election that theresa may called herself, it is casting a shadow of uncertainty. the u.k. prime minister is being pushed to reapproach her assessment of brexit. this covers all the angles. >> the latest coming from two former primer ministers -- prime minister is. rs. this is both of them trying to soften the brexit process.
two former conservative prime minister's. one is speaking on radio and another speaking in part of europe. breaking cover if you like. suggesting that theresa may is forming some kind of alliances. this allows them to collaborate on rival parties and shaping the u.k.. they are planning to keep the u.k. in the custom union. that is the conservative party's protest about staying in the customs union. that is why the talks continue today. of that european leaders, what are they saying about this? the german finance minister and emmanuel macron, both of them suggesting the same thing. the door is still open to the
u.k. changing its mind. they went surprised far as to say that they don't think that is very likely. they are not expecting the u.k. to go back on the referendum decision. all that added complication coming from the european commission and their plans around euro division -- euro derivatives clearing. all this adds up to a busy week. the biggest reaction to the u.k. election was seen in the currencies, specifically the british pound. on wherefor his view they are going. >> we think that it really does matter. think itort-term, we is clearly luck. a lot of uncertainty, absolutely, the reality is that there is still quite a bit of uncertainty to go through. what form the u.k. government would take and what form the on
the brazen negotiations they would take. a lot of uncertainty. we do think it is lower. those numbers actually aren't very far away from where we are today. we have been through a lot of weakness. it depends on the horizon. longer-term, things could change. i'm looking for things from daybreak. the prime minister has yet to realize that he is a political zombie. for all the players on downing street, this is the day after britain's general election which declared that she is roaming the land of the undead, sooner or later, reality will find a point to bite hard. what does it mean for brexit negotiations?
>> the thing with any negotiations like frexit is that starting points do matter. also, in terms of the amount of money that the u.k. owes the airway before they were able to leave, how strong of a can you canposition start up with? that is important in as much as what the u.k. want out of the process. the bottom up for markets is that there are many more questions than answers. is that it hurt more on the side. why there are many other parts of the world where we like
equity in one market. accelerating inflation in the u.k.. what should we expect? a i think we should expect bit of caution. higher inflation, at the end of the day, it should never be a significant trigger for a significant amount of time. we do need to think about short-term impact versus the long-term trend. the situation is not specific to the u.k.. what all this uncertainty adds is an extra dose of caution. we think it back up and when is more likely to see where this goes and that is why for investors, we think there are many aspects. starting with europe equities, it will look much more interesting at this time. >> coming up on the best of bloomberg markets: middle east, the czechia look for the oil theet we at -- we check outlook for the oil market.
♪ >> this is the best of bloomberg markets: middle east. oil prices fell to their lowest level since november this week. further increase in the u.s. gasoline stockpiles. we have the public from jonathan barrett, cio of alliance in sydney. >> there is a more of a wash with oil. see how the drivetime in the states picks up and see whether or not it consumes enough oil to keep passing at this level. >> it is really interesting to see the inventories climb and imports into major countries ,uch as the u.s., china, japan what does this tell you about the compliance?
>> at we will always be suspicious about it. that was always an issue. is that effectiveness that we always find out that people really have to come with the goods. >> it comes to the key indicators. the market has abandoned hope of rebalancing anytime soon. oil prices for immediate delivery are lower than the other contract. look at december 2018.
they are still hovering around the lowest level. where does this curb go from here? this is an that accurate reflection when it >> i to supply and demand? think that it is. it is a market that tells us that it hasn't worked the way they expected to. the economies are starting to pick up and hopefully start to absorb. we have the u.s. saying that they will hit 10 million barrels a day with supply. that doesn't seem to be affected as we can see it. balancing hasn't worked. the mental pickup from the economy. >> let's talk about two wildcards. one is libya, one is nigeria. the latest figures and bloomberg. we started one of their key oil fields.
how could that disrupt some of the ambitious plans for the plans for survival that opec has? that,hink when we look at we have every right to start to pick up that production. as with nigeria, nigeria has concerns out there are in their coming back to the table. i think when we look at the supply, there were various carveouts. it is interesting to see nigeria in terms of its apply and it increased supply. it, you can see that we are expecting more to come online. the price of crude has are restated up relatively well. i started to question how long is likely take before we do get a quick selloff to the outside. about's talk a little bit the isolation of qatar. we do know that the scope of the
qatar shipping been has been fluctuating a little bit. qataris a restriction on muscles and also more general bands to have all ships car. what is the risk that your hearing there? just given the fact that most make stops in saudi arabia, what would be the impact of the oil exports? >> when you look at it across the board, how much of an effect is this really having on the production of shipping? the oil and the natural gas side of it, you can see that it doesn't really seem to have too much of an effect. i do think it is starting to escalate. i think qatar won't allow that. if they do, remember that qatar certainly has a lot of orders for natural gas in particular out of countries like china, the
u.k. and japan. they could cause an energy crisis if they chose to. i don't see that happening. the market certainly has reflected on that. i think you'll find that this whole situation will actually result itself went amicably. >> in terms of the wider commodities complex, we talked about crude oil and natural gas, i want to focus on what is happening with some of the pressures -- precious metals. reserve, wherel do the prices go from here? if we look at cold -- gold, it is currently trading under a major trend line that started in 2011. if it does break that, remember , if we see $1900
that continuing, if we do big veteran, i think it could be exciting for gold. we also have fixed asset investments. this will play into base metals. the expectation is that the numbers will slow from the previous months. my question to you is what should investors focus on? the numbers out of china are slowing or the fact that they still remain pretty strong. industrial production is 4.6% over theow year. >> when you look at the growth quantities, the industrial metals, you get the sense that there is a lot of infantry built in china.
it is as if that industrial number will come. remember, we have a government behind a lot of the projects, as dr. be positive, if you believe , you havelish phase to believe in that china story to really check that infrastructure. >> coming up next, on the best of bloomberg markets, middle east. bahrain raised more than a billion dollars by sharing -- selling shares. now it is looking to do the same with another one of its operations. this is bloomberg.
visit the markets? are they doing a good job? we had new people on the ground. i would say that yes, we can do better, the market is doing ok without us. to be honest, we want to bring in the value as soon as possible for our customers. are clearlyholders happy. we saw shares of as much as 10% yesterday, why the need for a special dividend? >> i called the mothership. it has zero debt. we hope we can finish everything by november. just before the end of the year we should finish it. >> it sounds like you're quite banks?ng, have you hired
>> we have been at it for about two months. a lot of work has been done. >> any idea of exactly how much you might expect to raise through this? we don'tl people that have the exact number but i think we should not be very far off from the public offering. >> i think it will be that level. if you look at our total value, when you look at the $53 billion value, when you cut into pieces, you realize that there is zero value which is really massive. our backlog is close to a billion dollars. we will probably do about $5 billion. that will keep going into the development business. our land bank is massive.
>> that leads nicely to my next question, why the development specifically? are there any other units you could be looking at? >> i think we should look at maybe entertainment, maybe hospitality as well. we are not in a rush, we are a young company. we're making sure that we are organizing these divisions more. >> if you start spinning were these companies out, does that mean that it becomes a holding company? the value for our shareholders at the end of the day. they are more focused on their businesses. of course, to be a holding company with a focus on driving these entities. >> let's go back to the property market in general in the uae. it has been struggling in the face of lower oil prices.
now we have added uncertainty geopoliticalof tensions, how do you expect that to play out? >> every time we dig a hole, that is five years or four years to do. we see the days and the night and the summers and the winters. these things do happen. our storyis there and is strong because it is such an amazing city. it is in the center of the region. these things come and go. we need to focus and move on and execute. at the same time, the good news is win out and we see the markets reaction. i think we are on the right path. >> what is next for you?
it sounds a you will be very busy up until november potentially, after that, what is next in the pipeline? -- the reals region estate business is still a developing business. overve grown here, we took the in the operation. the real estate business is moving up in growth and developing infrastructure. we have to focus on doing things right. quality, weatch need to watch how to hire these people. we have to really take care of our customers. one thing i know about our people is we are so passionate about this business. that is why we do well. we push people. we make mistakes and we get up
>> coming up on bloomberg best, the stories of shaped the week in business around the world. surprises are not in what these banks do but how they do it. >> it is amazing that they lost over both of the readings. >> i expected different votes. this is clearly something else. >> hackles are raised in capitol hill. britain's leader tries to hold their ground. china's economic picture may be getting cheerier. >> we see the chinese government providing