tv Bloomberg Markets Middle East Bloomberg April 16, 2017 12:00am-1:01am EDT
provocations in north korea. tests another missile. tracy: and the race for the iranian presidency heat up. yousef: it is 7:00 a.m. in his stumble. -- istanbul. tracy: i am tracy alloway in dubai. we know it is a big day for turkey. it is a big day for us as well because you are in istanbul to witness what could be the most radical shakeup since the turkish republic was formed 93 years ago. what are you seeing on the ground ahead of the referendum? yeah, this is a huge move by this administration.
as you mentioned, the most radical transformation. 18ing to push through amendments to the constitution in a yes or no referendum. at the moment, too close to call. the prime minister's office is going to get removed as part of that. you are looking at an extension 's her to one -- of erdogan leadership. those voting in favor are looking for a strong man against terror and the islamic state. those who were not, they are saying the checks and militants is -- checks and balances are being removed. shorter term stability might allow the government to move ahead with economic reforms. if you look at what happened to the turkish lira, it has had the best month so far. tracy: we are going to talk more
about the turkish referendum later in the show. first, let's look at how markets closed around the world. let's start with the u.s. we did have a holiday shortened week. the s&p 500 following more than two thirds of the -- falling more than 0.67%. have not had aks great time as of late. we had the start of earning season thursday. jpmorgan reporting better-than-expected results. we also did have geopolitical tensions heating up in the form of syria and north korea. we have the dollar index up .11%. that was also off the back of inflation data that shows inflation coming in lower than expected. the topix index in japan, also down.
the fifth straight week of losses. 10 year yield unchanged. now here, in the middle east, we are getting ready for another trading day. for golddown day equity indexes. kuwaiti stocks and qatari stocks down. let's check in on the first word headlines from around the world. >> thanks, tracy. north korea has fired a ballistic missile that exploded almost immediately after launching. it came after the countries leader oversaw an elaborate military parade. kim, his regime has test fired missiles five times before. mike pence will arrive in the
south korean capital today on leg of his asian trip. the white house said he would discuss sanctions and military actions. earlier this month, president trump dispatched a wharf ship and said all options are on the table for dealing with the north korean nuclear program. mucknd get a jet -- rudimentary that -- there is competition from a leading cleric. than 1000 hopefuls have signed up since the registration opens on tuesday in iran. mining magnet ros,uing george so businesshe lost
through a defamation campaign. so far, soros has not commented. protests have resumed in hungary over policies seen as targeting academic freedom. the rally followed similar demonstrations over the past to two weeks, provoked by new laws that could force the closure of universities -- a university founded by george soros. the hungarian prime minister has vowed to end liberal. democracy. the eu says it could take legal action over the legislation. news, 44 hours a day. -- 24 hours a day. this is bloomberg. tracy: let's go back to yousef. he is in standby in istanbul.
you mentioned the markets seem to be pricing in a yes result. tell us what you are going to be watching as the polls come in. yousef: quite a few asset classes we had our eyes on. also sentiment in terms of what the capital alligators >> -- capital allocators are going to do. it has only been nine months since the attempted coup, and the government has gone on putting 40,000 people in jail and firing as many as 100,000 people. if you look at some of the asset classes, you might be mistaken thinking there might not he is much as one would think. it is something the government
has made a priority in the last few years. look at gdp growth. put this up on a chart. cross it with the performance of the turkish lira. you can see how divergent the two rose have been. the key is the last moody's revision. movies coming out and making it clear they are revising upwards. their projections, 2.9%. that is up from 2.7%. that is in 2018. they say the government is undertaking fiscal stimulus. the central bank is relaxing credit terms. where does the road go for consumer prices? those are moving faster than ppi. what does that do to the broader capital flow? there was a note put out saying the key weakness -- turkey relies on inflows.
that is critical. i am glad you brought up the lira and the central bank. one thing i am interested in is how the central bank responds, post the referendum. a lot of people talking about the fact they may have already raised rates as much as they are able to go, at least in the way they have been raising them. take a look at this chart. it shows basically the bank average interest rate, 12%, which is basically near the mathematical limit of its funding mix. it shows the turkish central bank does not have a lot of room to raise rates unless it wants to add pressure on turkish banks. we know they have been reluctant to do that. they have been creative in the way to have tight policy. we will see whether they have tools left post the referendum.
still have much more to come on turkey in this edition of bloomberg. yes, that is right. i just want to pick up on your point, tracy. the credibility of the central bank is absolutely part and parcel to the road forward. we have seen a stat between the central bank and the government under president erodagn. the central bank needs to face the reality of monetary policy around the world. itselfs to reasserts amidst a tumultuous domestic story. the volatility in global markets, the uncertainty going on right there. we will get into that story later on. we have a special guest who will be joining us to talk more about the central bank story, about
where he sees turkish economic going. and what central investors are likely to do in a yes or no referendum story. we expect the first results to trickle in sunday. that is plenty to keep us on edge, tracy. tracy: we will continue our live coverage as use of said from his just said as yousef from istanbul. this is bloomberg. ♪
consequences of the vote. everyone is talking about what a yes vote means. if you are talking about what we might see if we get a no vote. >> if there is a no vote, there will be the appearance of political instability in turkey. has created aagn certain atmosphere in turkey right now. the belief, as you mentioned earlier, the market has priced in a yes vote. if a no vote comes, that will be a huge blow. that is going to encourage the opposition. suffered quiteas a bit of instability, as well as domestic instability, may find itself in the same road in the medium to long-term. tracy: the assumption is erodagn
is already an authoritarian leader. how much more power can he actually take on. what would that mean for turkey? >> people who oppose their constitutional changes, they are imagining exactly that. in terms of business, talk about short-term, they are looking for a yes vote. that means continuation of stability. since 2002.es in the short-term, the stock market is going to be positive. the bond market is going to be positive.
short-term, there could be a push to a yes vote. medium and long-term situations. they are looking at institutional strength. that may be weakening. let's talk about foreign political powers. there were talks about joining the european union. it is still a nato member. mean ford a yes vote the relationship with the west? >> they are already criticizing the amendments. is aommission said this terrible blow to democracy in turkey. it is difficult to see the relationship improving. in terms of the relations with the u.s., we don't know what is
really going to happen. president trump is not really caring that much about president erodagn's policies, the checks and balances in the system. he wants a strong ally. he may see president erdogan as that person. you could look at the turkish political situation and say, we have an authoritarian leader assuming more power. this is something familiar to the u.s.. howdy think america is going to react to this? they say, why are you so worried? we have this in the u.s. people should decide that. if we look at the fine print in seeingmendments, we are
president erdogan will be able to hedge his own party. president trump being the head of the republican party. the executiveween branches, this is kind of a turkish presidential democracy. that is certainly going to have an impact on legislative as well as judiciary. the other big geopolitical relationship we have to talk about is russia. have you see that been affected? >> is going to be a crucial relationship. we have syria in a relationship we had expected.
this has gained additional importance. a yes vote with the relation between the two leaders, it is actually going to bring these countries together. forget, if the relationship which we are expecting to weaken, russia does look like a good option. both for political alliances and economic relations. we have seen the tourism inflows being negatively affected. the turkishd economy. and that way holds an important role. it is likely to improve. finally, let me put you on the spot. forecast foractual the results of this vote? are we going to see a yes or no? wisemen speak when they have
somebody to say. but if i had to say something, it is looking like it is going to become a yes vote. that is because the campaign resident erdogan has involved himself. as well as the nationalist sentiment. there is one key element and that is the nationalist party. the party leadership supported this. if there is a high turnout from the nationalist party, grassroots, we might see a surprise. let me yes q one more question. if we do get that yes vote, what is actually next for turkey? is erdogan stated? what is the next development which keep our eyes on? >> the next development is
president everyone will be -- president erodagn will be able position.his in terms of the actual changes, alexa and's are coming up in two years. presidential and parliamentary. we are not going to see a lot of changes immediately. turkey is under a state of emergency. a lot of these powers are already exercised. wherel be sanctioning president erodagn once turkey to go. the changes will be immediately recognized after the election. much, fornk you so staying up late with us. much more to come on the turkish referendum. this is bloomberg. ♪
"acy: you are watching bloomberg markets: middle east." welcome back for more on the risks in today's referendum. we are joined by our guest again. the ceo of business environment risk intelligence. we are spending a lot of time with you today. this is a fascinating development for turkey and also .or the geopolitical order you mentioned some of the market reaction we might expect to see. is it going to be the lira? the noises coming out of investors? what are you watching? important the lira is
to watch. the expectation is if there is a yes vote, it is going to hold out well. an immediate variable to watch. also, the stock market. to the stock market is going react. we are anticipating a positive response. a positive response to that as well. tracy: you mentioned a positive response from the stock market. is that going to be a short-term catalyst or a potentially longer-term development where investors feel they have some certainty over the situation and can get more comfortable with the market? >> emerging markets are fickle.
even now there could be leadership that might look like they're bringing stability. ofis also dependent on a lot other factors. one of these factors is the united states. how are the interest rates going to move. there is talk about that with what president trump said last week and the infrastructure lanhee is trying to put together. we have inflation numbers, even though this month was not that high up, the price growth pressures are there. the federal reserve might react with faster increases. emerging markets are going to be affected negatively. turkey is no exception. think foreign investors are looking at turkey, even after a yes vote. it is subject to these changes that may be brought up by the
united states. that hase thing interested me is we did see the geopolitical risk. concerns over north korea. and yet emerging markets have held up relatively well. people got nervous when we saw geopolitical tensions rise. >> it is very early. the emergingt market performance, it has been pretty strong. badly,ve performed so six months before then. they are starting from a low base. if you look at the macroeconomic markets,als of some there is a divergence there. that is always something to worry about. continue andns
show me netflix. sign up for netflix on x1 today and keep watching all year long. 8:30 a.m. inis dubai. russia says national inspectors should be sent to syria to investigate the use of chemical weapons. the u.s. has accused the syrian leader of carrying out deadly chemical attacks. the russian foreign minister said more transparency is needed to find out what happened. >> if it is possible to ensure an independent group, we are confident the outcome of the
investigation with a visit to the aerodrome and the province will be objective and, as my colleague said, there is no doubt those determined as the culprits of course should bear responsibility. >> switzerland was once again included among countries singled out for the value of their currencies and exports. this could make life more onplicated which has relied intervention to counter the franc's strengths. switzerland has added to the the -- was added to watchlist last year. countries seem to be engaging in what are seen as unfair face penalties. united has changed its policy on
travel and will ensure crew members are booked 60 minutes before departure. this comes after the deal shows a united passenger being dragged from a united plane. he was take an off to make room for an airline employee. uber says sales growth is bypassing losses. net revenue was $6.5 billion. as a privately held company, uber is not required to report finances. global news, powered by 2600 journalists. this is bloomberg. turkey's benchmark index
has gained more than 70%. but it has lost some momentum. dippingseen investors their toes into the local currency bonds which is a bit of a reversal. more, let's go to yousef. in istanbul. yousef: tracy, let's white know this conversation. joined by a man who is very close to what is happening when it comes to the turkish story. thank you for coming on the program. you've got a yes vote on this referendum. concern is the longer-term implications of this. relative stability.
an extension of the status quo. what is your read on how this changes the longer-term situation? >> it is logical if there is a -- what does that mean for the checks and balances? a lot of international investors will look for this. especially if there is a turkish style presidency in place. of power will have to be very clear. it will have to be marketed and communicated very clearly. that is the one big unknown at the moment. >> what is that going to do to economic reforms? >> there should be clarity.
what every investor wants to see out of the executive branch is a continuation of the significant in the they had done first part of their power, effectively. so far, we don't know. if there is a yes vote, there will be focus on continuing the reforms. that will only happen if there are some sort of that guidance. yousef: let's assume a no vote comes. what will that do? frankly, i don't believe that is a realistic possibility. erdogan has bet his credibility on this. it is not an election.
therefore, it is quite simple. to say, it is a no but let's do it again. i don't think that is something they will want to see. in the longer-term, what will have to be made clear is, how does turkey go forward? they have to make a clear statement saying -- yousef: we have spoken about the turkish lira. goingo they have to do forward? where does it leave them and their credibility and connection or lack thereof? >> no matter what happens, they have to ensure markets. questions there are from a foreign investors. to are you going to react
what is happening around the globe? independent of each other. you have the u.s. central bank in a rate hike cycle. with the economy growing significantly. the flight make sure to quality doesn't happen drastically. the turkish central bank will have to show markets it is ready to be able to defend the lira if need be. only tool they do have is monetary policy. this has been a lever between the exchange rate and currency. yousef: foreign investors looking to put money to work. how would you tell them to trade and theerendum story scenarios that will follow? >> turkey has to be a long-term play. the asset are important. infrastructure. energy and power in particular.
growing country and will always need investment in the energy space. i would advise investors to take a look at the growth sectors and not to think short-term. not just going through a tectonic shift of global politics. the macroeconomics changing. what about the strength of the dollar? make quite a healthy return but it doesn't mean much if the currency continues to devalue. it is quite tickled to price in. stability, an era of communication from the administration, will be important. has tensions in syria
clouded your view? does give more prominence. yousef: it is a platform for engagement. >> is a nato ally. it plays a tremendously important role in being able to contribute to the resolution. unfortunately, it will continue to be an important part of the discussion. thanks again for coming on the show. tracy? tracy: it is a beautiful backdrop. we can see you are doing your part for turkish tourism. saidormer ceo of shell has oil prices are high despite production.
i think frankly with the recent production cuts, if you look at the total picture, it is always a bit more complicated. you can't say stocks are going up. depends where you sit. as a consumer, you like low prices. would stop cutting production, you would return to overproduction. people try to read the tea leaves. cooperate with the theians to lengthen production cuts? tracy: what is your view? >> my view, i learned in my days when i worked for shell, be prepared for every situation.
if you are prepared for every you don't bother. it does go to show the change in the oil world we are in. >> the philosophy is very simple. up, shale oil is the balancing supply. realize, at the same time, there are two other factors. it takes a bit of time because we were still in the last year completing pipeline.
take a view, 4-10 years out. much, evenment is so with increased u.s. production, you may still have a higher peak in oil prices. what does that assume for the bigger projects? of 5% perne rate year. you have to do then the investment. the additional five in order to produce the same amount of oil. world will growth, growing very slowly. it is still a growing. invest every year, 5% to stay the same. and a bit of additional growth. that comes partly from shale oil in the u.s.. that was the former shell
financial center. you have come back from a big roadshow in germany. tell us what you are trying to achieve and how that ties in with cap tars goals to diversify diversify.goals to hashis is an economy that been growing at double-digit levels for the past decade. they are economies in transition . a transitional economy. by that i mean these economies have to diversify away from oil and gas and promote the private sector. qatar isnment of trying to move away from being a provider of wealth to providing -- becoming an enabler of growth. the qatar financial center plays a major role in these efforts. it is one of our mandates to
attract more foreign direct investment. create more jobs. develop the financial services sector. tracy: it is difficult, isn't it, because it seems like every golf country is trying to do the same thing. gulf country is trying to do the same thing. how do you distinguish yourself? >> we distance ourselves in terms of -- i think the qatari model is unique. this is an economy that has been able to grow through his spurs and natural gas. these rates are probably unprecedented. the way we distinguish ourselves qatar financial center has he, and onshore center where businesses can transact locally in the local currency, and in
international currencies. our center has been able to integrate with the local economy and become part and parcel of the economy. the way we are going to distinguish ourselves within the plans in the near future is that we will hopefully be able to build a new financial center. it is going to be downtown. art real state of the estate project. will be able to mandate this for the financial services sector. would it be fair to say you are raising the bar when it comes to your ambitions? taking on financial sitters and perhaps, where is that demand going to come from to help you
reach that target? i think there is enough room for competition in the region. the way we see it, the financial center is providing for a local need. we want to develop our local financial service sector before competing regionally with other financial centers. i think there is enough room for growth between these countries. it each country has a unique growth plan. our priority is to develop our local economy. and directmore jobs investment. think looking at areas we would become, where we can attract regional growth. months,y within three we will be able to launch a very
aggressive strategy in terms of differentiating ourselves from other financial sectors. eousef: you have just com that from those roadshows. what are investors telling you about what might keep you away for the time being. donald trump, north korea, any of that? >> the geopolitics is always the main point of concern. what we tried to tell them, qatar is one of the most stable and safe economies in the region. our track record speaks for
itself. unless there are secure countries, good enough business environments, i think that is very important for investors. investors, i think they want a business environment they understand. legislation they are familiar with. theye judicial environment can understand as well. again, safety in terms of politics. who doesn't want to invest in a secure economy? run up ansef interesting point about populism. there is a great bloomberg story about a populist politician, potentially talking about imposing more of a tax on foreigners. added tax.n value
your business is outward facing. you are trying to bring in foreign businesses. is there a bit of tension developing? taxes is probably a new phenomenon. we have always been a text environment. there is nothing new there in terms of our business model. businesses to do business onshore. gatewaynd of like your to the local economy. on the other hand, we are trying to figure out tax amendments that will attract foreign direct investment rather than drive them away. an example would be we will soon announce the exemption of all foreign sourced income as long as there is a significant
presence. hopefully that will position us to attract more regional activities. environment, new taxes are going to be something new in the region. think by 2018, there are deathly going to be major shifts in terms of taxing structures. qatar and the nearby countries as well. to thethank you so much ceo of qatar financial center. coming up, we are going to continue our live coverage as voters begin heading to the polls in a referendum that is as of yet too close to call. this is bloomberg.
yousef: you are watching bloomberg. where thein istanbul sun rises on what is a special day with a lot at stake. i am tracy alloway in dubai. a lot at stake. we are counting down to the referendum and you are looking at the polling booth. 56did have polls open minutes ago now. what are you finding most interesting on the ground at this early stage? yousef: it has been calm so far. result expected for early in the
evening. you could be looking at results in the vicinity of 7:00 p.m.. bes is a country that will voting it one of two directions. voting for a strong man to take on terrorism. provide a platform for the future. the checks and balances are being taken out of the system. this is a country that prides itself on checks and balances. many charts for clients. it again shows you the impact this had, the uncertainty. plenty to watch out for. that is right.
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