Transcripts For BLOOMBERG Bloomberg Markets Middle East 2017

BLOOMBERG Bloomberg Markets Middle East June 18, 2017

A. M. In london. This is Bloomberg Markets middle east. For a week it has been local markets. Especially if you take into consideration it was a week when we had the Interest Rates moved by the federal reserve. They hiked on that front. We had an attack on congressional representatives in washington. Political uncertainty that continues through the markets. And the market moving for whole foods by amazon. If i told you that this would this is how the u. S. Would close at the end of the week, you would of called me crazy. Theselloff did not prevent s p 500 to end the week unchanged. I will get you a quick run through of the markets. The nasdaq, 100, 2 week drop. That is the worst slide since november. Netflix and microsoft, you can cbs and p 500 early about the flat line. We did have some interesting moves on some of the bigger companies. Lets cross over to this part of the world, in terms of key Asset Classes and focus on brent crude. 47. 37, that was late trade on friday. Rent down 2 for the week. Brent down 2 for the week. Expande continuing to those oil rigs up to 747. Ounce. A 56,000 an up all trade at 12783, fifth of 1 . We have wrecks it negotiations just around the corner. Ongoing political anxiety with the uncertainty of the credibility of the new government. Are saying it is unlikely the sterling will be able to record financial gains. Is at 217. In terms of the polls, the rhythm for this part of the world, we have pulled up the s p index for the gulf cooperation council. Its get up bit of a different feel about what has been happening. This is your mrr, the bestperforming and worstperforming companies. I will flip this across to a fiveday horizon. That is some of the key stocks here. That, a. 3 in the face of a lot of the volatility that we have seen there. About 5. 6 . T of Dubai Investments at 3. 8 . On the downside they are mounting those losses at 10. 7 . Ismercial bank of kuwait also down about 4. 8 . Lets check in with the first word headlines from around the world. Says it is still an clear if the socalled Islamic State militant group was killed in a bombing raid in syria last month. Is still to have been among a group of fighters target in no russia in the early hours of may 28. He appeared in a video 2014. He announced Islamic States intention to form across the middle east. They reach the final lap today. The main question being how big of a majority will president Emmanuel Macron enjoy . People emerging for the first time in two months. The party has had as many may have as many as 476 and the 577 the national assembly. That would be the biggest landslide in the quarter of a century. French markets have rallied macron won the first ballot on april 20 third. Oil posted its longest run of weekly losses since august. 15. As libya raise production and u. S. Stockpiles remain strong. Crude fell to its lowest closing last week on consumer concerned that rising u. S. Supply would offset opecs attempts to drain. Oil faces further pressure with ,anadian oil output set to rise to be behind the u. S. Is the biggest contributor to supply growth. Egypt has been struggling with Rising Consumer prices since its currency control. The government expected inflation to remain well above 20 next fiscal year. At the aiiblusively meeting in south korea. Hes dead, taming inflation remains is top priority. He says, taming inflation remains his top priority. Cominge succeed in that month, we will be in a position to deal with it. Not handling it is more risky for us. Hours a dayws 24 powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Of a, rexs. Secretary tillerson has canceled a state to mexico to focus on resolving the crisis in the gulf. He state Department Said will try to d escalate between qatar and saudi. The first confirmation that he is trying to make a solution between the neighbors. I want to show you what has been happening on the newspaper front , in terms of getting a sense of the tone of the conversation. I am going to hold the septa the camera. Hold this up to the camera. This is the uae paper. It says here, the uaes position is the trust in qatar is zero. Look at that graphic. Cutting up the arab world. It is similar for other papers. Will not let forces from turkey come on to its land. Lets get more context on labor diplomatic. Newspaper, ine terms of diplomatic progress, are we really seen green shifts for a possible resolution . Verily. What we learn from the weekend is that the saudi alliances going to present a list of proposals or demands. That official said, at that , it is still very high. The hope is that this proposal, or these demands would make negotiations a little easier. You bring up tillersons announcement. Being beenis former ceo of exxon mobil has excellent relationships across the gcc and in the uae. To an extent he can actually deploy these relationships. As long as the ceiling of demand, the gap is wide, it could be too early. Yousef in terms of possible scenarios, and speaking of trying to get a direction the story could take. 14 scenarios being a relatively four key scenarios is a scenario. Quick on the hypothetical, pulling up a quick graphic to show to our clients and viewers, the break down in terms of the armed forces and whether this escalates further. Disproportione set up your, defense spending, 57 billion versus 4 billion for qatar. 900 battle tanks, versus 30,000 for qatar. Happening ont is the combat aircraft one. Which scenario is the more likely . Not the military one at the moment. You have also a large u. S. Base in qatar that acts as a buffer. All parties so far really just count the military solutions. We are now about to enter the third week in review can take up the click resolution part because we are not seeing a quick resolution. Trying to drag this on as long as possible in order to get the best terms. The question is, how long can qatar tried this on, and at what cost . To be dragging their heels and securing alternative routes for imports and trade. There were open and up could southeast asia. Yousef it is always great having you on the show. Lets widen out this discussion and bring in some context from riyadh. John, lets pick up straight where we left off in terms of scenario. Which one you think so most likely here . John i think this will be issue and conflict between the two sides. We can see a click we will not see a quick resolution. It is going to be pushing it to at brink. I think the saudis and iraqis will have a long list of demands. Us intogoing to take the other months of 2017. Yousef how long do expected to take . You are saying they are both digging in their heels. The wiserit mean for region wider region . John at all the pens on how far it goes in to what extent to find the solution. Iraqisly the saudis and are very convincing. The americans want to find a solution, but at the same time show there is some kind of a national coalition, a natural sense of unity. Eventually there has to be some time constraints. This will take a lot of negotiating. This will not be a quick resolve. Yousef we will pick up a conversation. We still have plenty to get through. We will also talk about getting gas in the program. Theyslamic bond market as declare their own unlawful. Exclusive our elliott asked the ceo about investments from saudi. Rabia as 1 billion valuation where did they see growth and where they go next . This is bloomberg. Yousef lets get you up to speed with key stories we are following for you. Starting out with massive blm thing they will try to keep whole food for premium quality. Acquisition goes through, we are told is expected to cut hims and change some project to help whole foods compete with walmart and bigbox retailers. The company has cut prices and the pace of its were sales price since going public in 1992. Unlawfuln by dana gas has bats baffled investors eye 2 trillion in the finance industry. Ato longer considered sharia compliance under uae law. Produces most of its dana gas produces most of its energy in iraq. General election wants more transport opportunity in the middle east and africa after signing a hundred 75 million deal in egypt. Vice chairman says ee is interest in turkey and algeria. Ge isirman says interested in turkey and artillery a algeria. Libya is producing rather u. S. Inventory is higher than expected or that will happen on the crew oil front. Ofkly losses since august 2015. Lets bring back in the director of the Economic Research center golf Research Center. I just want to pick up briefly on the qatar and regional impact, specifically on how that might be real. All the efforts and efforts to diverse ally away from crude. This is hardly going to help. John it definitely impacts qatar and its land to build infrastructure. Eventuallybe delayed. How does qatar supply all of its of materials. Inds it impacts the region because we did ask questions. It does impact interception in some places with the freedom of labor. Of course, politics is above everything else. That is the issue right now. Impact, it will be felt through qatar even if they say this will not happen. What about the msci division that is coming up about inclusion . Review for will that change of a look at saudi arabia . I dont know. There are consequences on saudi the impactcifically of its image and economics of the country. That this will right now be a factor. What we have seen his qatar being downgraded, not saudi arabia. Think the 20th of june is a very important date for equities and saudi arabia. I think the qatar situation will not interrupt that story. Lets circle back to the crude oil conversation. We did have data out late on friday and we put this up on a chart. Your top panel is the u. S. Crude production. You can see how it is expanded. This is over the last two years. You can see how that has kept to 747. Up a six 22nd consecutive increase. How is opec going to dig itself out of this . John it seems that opec will have to consider for a cut again in the coming months. I think oil and 47 is ok but not great. It goes further down, you have to make a decision. Analysts are beginning to question the ability of opec to go for another cut. My guess is that, over the next asked month opec will need to find a solution. Otherwise, what we have been told, a year ago is that inventories will go down in the supply is going to be reined in by opec. Now we are back to the same argument. They need to find a solution. Yousef in terms of what the fed has been doing with the latest rate hike, we heard from the , he isolis president basically dissented against the Central Banks decision to make a move they did. What he says, when hasbeen the latest softening, i want to talk about a transmission mechanism and how it affects audi economic projections. Is this much of a an issue and light of growth being under pressure . Absolutely, i think it feeds into the challenges. Liquidity was a concern, now we do not have liquidity. Banks have liquidity, they are not lending is much. It could create some challenges and obstacles when you want to so that is not helping the situation for saudi and the rest of the gulf. Dosef what can the saudis of the fed continues on its future windingof down of the Balance Sheets and possibly more rate hikes . Can they delay that or reconsider . Think that cannot be an option right now. The government and the authorities have been very clear in the past, especially the Central Banks. I think this is the right policy at the moment. Problem the stimulus needs to begin with that process andrder to stimulate growth build on confidence. That is very important. This is going to be an arbitrage in this is not what you want when the economy is in a slow growth momentum. Yousef good to see you this morning. The director of Economic Research for golf Research Center in triage riyadh. Plans to tame inflation amidst expectations it will remain above the 20 level next year. Our exclusive interview with the finance minister is next are this is bloomberg. Egypt has been struggling with Rising Consumer prices in selecting current controls. Finance ministers spoke exclusively to bloomberg at the aiib meeting in south korea. He says inflation remains the number one challenge. We are basically trying to bring down the inflation to the teens. We are at their to present of last month. Month to month it is 1. 6 . On a yearly basis it is still high. , ormost important fact challenge we are facing is inflation, something that we need to bring down very quickly. What impact would tightening have on your budget deficit . It would not be of good worry it should be a temporarily until we see inflation level coming down to a more manageable level. That is for any investor or for growth, or for those with money. Thatll not be something lives for long. We will not live with it for long. When it comes to investment, is a shortterm thing and people are looking for longterm investments. They should not worry about that. They should worry about high inflation level because it disturbs the market. This is our first challenge. Look at standard the wave your inflation target . Our price is now at a level that is manageable. Our Commodity Prices are at a manageable level. Increases oil prices and oil inc. Produce a big risk. We need to bend down the inflation. If we succeed in that in the coming six12 months, we are under control and will be in a position to be able to deal with any external shocks. It is more risky for us. There are concerns about reform fatigue and high inflation you were talking about. Will that impact your growth target . Not really, in the Third Quarter this year we have in atwth yesterday it was 4. 3 . Next year four point 6 is manageable for us. The number one thing that we are coming from next year 4. 6 is manageable for us. That we arene thing coming from also the issue with the current he and the andcts regime during 2015 2016 closing the economy tos causing the economy to slow down. Now, the economy is kicking back up. Remember one thing, tourism has been very strong since 2015, october 2015. That also affected our Economic Growth prospect. Inflation has its effect, but we. Re seeing a better momentum also, the rotation of the currency is resulting in more Economic Activity moving higher in a much stronger way. That is the finance minister speaking exclusively to our haslinda. I want to show you quickly what is happening to the egyptian pound. Bit. Widening a little you are looking currently at about 2. 4 in terms of demesne in terms of the mean. We will talk about the market for islamic finance that is in turmoil. This is bloomberg. These are the first word headlines. U. S. Secretary of a trip to mexico on monday to shine results of the qatar crisis. This eight Department Says he has already had more than a dozen on conversations with gulf and regional leaders in what is the first confirmation that the u. S. Is attempting to mediate. Washington faces a delicate situation with saudi arabia, its biggest gulf ally, but qatar closing its middle east headquarters are it barclays is said to be ready to plead guilty to u. K. Charges that it filed failed to make proper disclosures about a multibillion capital raised during the financial crisis. The bank is racing for a fine of as much as to enter million pounds, or 250 million. The office is expected to announce any charges against the bank and firmer executives involved in the deals this week. Says the twitter account of its arabic channel has been restored after it was briefly suspended on saturday. It went offline around 10 00 a. M. Local in what the Networks Says teams to be an organized campaign. Engineers talking to twitter say the account was object to a storm attack of mass report, which forced the algorithm to temporarily suspended. Twitter has yet to comment. The turkish lira has shrugged as this intro bank remains unchanged and indicated it will remain a monetary stance until inflation in crude. Lira traded lower. President said his government will continue to intervene on Interest Rates to ensure stability. He said high Interest Rates would hurt production and employment. News 24 hours a day powered by more than 2700 journalists and analysts in more than 100 that 120 countries, this is bloomberg. Recorded as gas has unlawful. That has baffled investors. It has sent shockwaves across the board. They plan to replace its 700 million worth of sukuk. They offer a lower price but on theother hand there is convergence. Founding manager and. Great to be back on the program. . Hat is going on is there precedents for this kind of move . Sure, you have to go back to the financial crisis. There was a Kuwaiti Company and they were the owners of aston martin, along with the liquidity pressures up the time they became distressed. One of their instruments was an issue in compliant finance. As sure he a company, they are not to be engaged in interestbased transaction. When it came to repay this transaction, they said we should not have to pay you back. Obviously the bank was not impressed with this and it went to a prehearing in terms of the court. The judge said, maybe you have a case for nonpayment of interest, but you have to pay back the principal and the capital. The tid was not interested in paying that back so it never went to court. They are coming out and saying this is unlawful, we have to restructure this. Number legality point of view, is there a Solid Foundation for them to be getting on in making that claim . Sukuk for most documentation, it is not a defensive fall. There is a reason no distress or acceleration contingent on noncompliance. Partiesa matter for the at the transactions to agree it is complying, then it is taken off the table. Also in the uae, it is not sharia law that takes precedent over banking or transactions. It is a civil law jurisdiction. You have to look at this specific documentation, but these sorts of things are unlikely to happen in most sukuks transactions. Yousef i look at what the market is pricing in in terms of is dana gas, sukuk definitely pricing in quite a bit of volatility. It is remarkable how some of it shot up. Expense of the sukuk holders. For the industry, more broadly, does that mean there is now a flaw with a regulator needs to move in and patch things up . Khalid there is a definite in sukuk and t

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