Live on Bloomberg TV

00:00Bloomberg Daybreak. Our top stories this morning. The global stock selloff deepens. The S & P 500 suffers its worst day in almost two years as dismal earnings from the U.S. retailers increased fears of an economic slowdown. Meanwhile the Fed Charles Evans says a few hikes pass new throw should help bring inflation down from the current elevated low. We don't have to constantly increase the funds rate to be restricted. We can get to a restrictive setting and sit there for a while. Maybe we sit there longer get a less restrictive setting and it takes a little bit longer for inflation to come down. Might never grants breaks his silence on the terror USD meltdown calling it a big idea that fears a warning of a tough environment for crypto currencies will continue. And Egypt's central bank governor says talks with the IMF are going well as he prepares for a rate decision amid soaring food price. Just got a dam across the Emirates. I'm Yousef Gamal El-Din in Dubai and I'm Manus Cranny right alongside you. Slashing growth. That is the narrative from the United States from the big highs is there all the way through to China downgrading global Chinese growth by over 1 percent. But the stock market is where there was this annihilation yesterday. This is what we've crossed the probability according to Wells Fargo of a mild one night three to a mild and short lived recession is no more about froth coming off the market. The worst day in two years. JP Morgan Goldman Sachs JP Morgan downgrading U.S. growth to two point four percent 1987. And using that year twice in 48 hours first it was Wal-Mart. Then it was Target and Cisco. But this is Target imploding as we see the retailer really begin to take the pain in terms of you me and everybody else. Trading done. Cisco dropped by nearly 19 percent. The question is the fragility of the consumer. So stocks imploded. And the other risk item is of course bitcoin. That reassurance from MicroStrategy they're still buying bitcoin even though the market has imploded. They won't change their Bitcoin plans. Mike Novogratz you saw his image there at the start. The terror labs was just a big idea that failed. So there's a bounce back in Bitcoin this morning but he caused the run on terror a dollar a stress scenario akin to a run on the bank. Nada zero almost zero on terror. You know where we didn't see a zero it wasn't bonds. I mean how refreshing is that for. It changed on all assets sold off at the same time the global bond rally actually extended. We've done as much as 10 bits on us 10 year yields. At the moment we're two ninety one 19. Just giving back a little bit of that as investors hunt for havens amid the risk out of concerns of a US recession becoming more likely. It makes sense to have bonds and portfolios again with duration as a hedge. That is absolutely key according to Western Asset Management. A new note. A quick look here at the benchmark Australian yields. Those tumbled 13 basis points to as much as three point three three percent. We're now at three point four percent. I want to get to the effect space talk about what's happening with the dollar advancing for the first day and for the haven demand returning the dollars see skyrocketing right. It be go for our clients six point three percent surge since the start of the year. It's clobbered the end to a two decade low and it's seen some contemplating a rare action. Rare but it has happened before. Major nations agreeing to manipulate the US currency until it falls. When did that happen. Before. Well it happened with the 1985 Plaza Accord. That parallel is not going to be lost to the G7 finance ministers meeting that we're coming together as soon as this week. That's going to be a topic of conversation. I want to put the board again. The other big mover was Euro Swiss. This shows you the pop the franc rallying after the SNB chief says that he's ready to act if inflation continues and then maybe they're gonna be able to bring that back in. Well let's see how the rest of Asia is faring. Juliette Saly has the very latest from our Singapore studio. I mean Tencent Cent took a not jus high sentiment this morning. Yeah. Not good. Amana sees growth worries flowing through into Asia as well you mentioned some downgrades coming through. We've had Stan Schott cutting its growth forecasts for China for 2020 to 2. They now see just four point one percent growth down from 5 per cent as we continue to see the impact of the Covid lockdowns to Asian stocks actually having their biggest drop in around two months. So holding that four day rally when it comes to temps. And of course that was the big one with that revenue most intense. It really just warning too similar to what we've been talking about many times on this program what analysts are calling for. You really need to see some concrete action coming through from Beijing not just the rhetoric about support to the sector and the revenue miss seeing Tencent shares fall by the most in around two months. Let's have a look too. In terms of what we saw in Australia you just looked at the 10 year there. The headline missed on this employment and number really doesn't really show the full picture though because you've actually got unemployment at its lowest in nearly 50 years. As Australian heads to the polls on Saturday that three point nine per cent level we saw a loss in part time jobs offset by what we saw in the full time position. And that is a very bullish indicator for the economy and probably will lead to a more hawkish RBA Yousef. Yeah we'll see how they factor all of that and the RBA. Busy as ever. Thank you very much Jules for the moment. That's Juliette Saly there. Let's get more on this market sell off with the Bloomberg M Life contributor Garfield's Reynolds Garfield. I mean carnage really overnight in the US session. But now a little bit of a green shoot in US equity futures is that's just sort of a false flag. While at the moment it seems like the only certainty in markets is uncertainty. Yesterday's massive sell off in stocks came a day after we had a rally in stocks at a massive sell off in bonds. So there is an extreme lack of conviction out there. A lot of trading I would argue not too much investing because between elevated inflation and the Federal Reserve planning the most aggressive set of rate hikes since the 1980s to combat it. There aren't too many spots you can go where you don't face the potential of sustained deep losses. Well that's a salutary warning for anybody and certainly builds the case for for that bear market rally. Goffin. Thank you very much. We've seen these sprigs of green in the morning before from Sydney golfing rentals with a surge in retail prices hitting consumers at some of the biggest retailers as we've just shown you. Well that may be a ray of hope in the Fed's fight against inflation even if it raises recession risk. Our global economics editor Kathleen Hays is with us from more so covering lower profit forecasts at the consumer store with Wal-Mart showed the chart on Target. Translate that to heart helps the Fed. Interesting to think of it this way. You know they both saw a slowdown in purchases of general merchandise. They both lower their profit outlooks for the year. That's one of things that triggered that big big sell off in retail that fed into the broader market. And Target's CEO in particular noted that sales are shifting from big ticket items like like big flat screen TV shows to things like restaurant gift cards and luggage. And this is what people have been waiting for a shift from demand for merchandise all kinds of goods because of the pandemic. That's what we did. We stayed at home and shop. Right. Bought things online. And now we're full of our shelves and our cupboards and our garages are full of that stuff sourcing. Let's go travel. Let's buy some airline tickets. Let's stay in a hotel. And what we're seeing if you look at this Bloomberg chart. Goods prices goods prices are one of the main reason. The big jump up. Twelve percent year over year in the past few months. That's one of the main reasons why the CPI is at a 40 year high. Now services prices have started to heat up but they're much lower and they're not really quite a threat to inflation in the same way goods prices are. So the idea is if this is starting to cool off a bit that's going to help the Fed at least starting on the margin. And guess what. If we don't have such a big demand for goods all those choked up supply chains might be able to start easing a bit. So that's another factor looking at now. Charlie Evans who we were talking about him because he spoke last night in New York and then today he was on Bloomberg Television. He's seeing that a lot of these elevated commodity prices they're so high they're going to start easing. Same thing with chip supply chain constraints. He thinks inflation is going to be under 3 percent. Right. By by next year. And it adds as the Fed pushes the key rate above neutral. Let's listen to what he said. We go 50 basis points beyond that 75 basis points beyond that then that restrictive setting a policy should be working to bring inflation down. We don't have to constantly increase the funds rate to be restrictive. We can get to a restrictive setting and sit there for a while. Maybe we sit there longer at a less restrictive setting and it takes a little bit longer for inflation to come down. And remember no matter how much pain it causes retailers the Federal Reserve Paul said it yesterday. We need to curb demand. We've got a supply demand imbalance. We don't have enough supply. We've got red hot demand. That has to happen. Financial conditions. You're worried about big stock market sell off. Well guess what. If you look at another chart you can see that they're actually starting to tighten a bit. And this is something the Fed has been waiting for. They can't slow down the economy unless those rate hikes and lot smaller balance sheet go through the channel of the financial markets. That's what we see starting to happen. So recession risk lower inflation you know the retailers hurting. Again this is part of the kind of dirty work what the messy work of letting inflation get out of control and having to bring it back under control. These are the kind of things we're going to see. You know the stakes are very high. Kathleen thank you for running us through all the different angles to this story. Kathleen Hays in New York. Chinese banks may cut their benchmark lending rates for a second time this year giving consumers and businesses some relief. As Corbett lockdowns and outbreaks wreak havoc. A Bloomberg survey shows most economists expect a five to 10 basis point reduction tomorrow. That's it after a chief economics correspondent and the current so and the data just continues to push policymakers towards accelerated accommodation. It goes and tomorrow. Yusuf like you mentioned there's some expectation that the banks might bring down their one year lending rate by up to 10 basis points. Now on paper you would say that will take pressure off companies and households. But you know there's a bigger feeling here that it's not really about rate cuts that China's economy is after. It's more about what is the strategy and what's the path ahead for Covid 0 because it is the rolling lockdowns that are really hammering both activity and sentiment. There is a feeling that the financial system is in is not short of liquidity that banks already have ample cheap funds to lend. That's more. And it's root out the demand appetite is not there to borrow. So the thinking is that you know even the banks to cut their rates tomorrow. This is all about to cope with zero strategy. Obviously if the authorities control the virus then activity can resume. We're seeing that in Shanghai. We're starting to see ships again pull out of the port there in a meaningful way. But of course as long as these restrictions and lockdowns continue to roll the deeper it a drag on growth. And the harder it will be for China to meet that all important five and a half percent growth target for this year. And thank you very much Jana. A fresh downgrade coming through from Standard Chartered from 5 percent to four point one percent. And thank you very much. Let's get the first word headlines from around the world. Jules is with us in Singapore. Juliet Mann as the U.S. treasury secretary has confirmed it is unlikely Washington will allow Moscow to continue making bond payments on its foreign currency debt. Janet Yellen says investors have had enough time to adjust to Russia's exclusion from the global financial system. Speaking in Germany ahead of a meeting with G7 finance chiefs she said the sanctions on Russia are effective. The sanctions imposed against the Russian Federation has already had enormous impact. Russia is experiencing recession high inflation acute challenges in their financial system and an inability to procure the material and products they need to support their war or their economy. China's top diplomat has issued a warning to the US over its support for Taiwan. In a phone call with National Security Adviser Jake Sullivan Yang Jiechi said Washington was going down the wrong path and risk bringing the situation to quote a dangerous point. The warning came as Taipei reported that Chinese military aircraft had once again entered the island's air defense zone and Martin Schreck laid. The farmer bro who gained notoriety for unapologetically raising drug prices has been freed from prison for months ahead of schedule and transferred to a halfway house. Strictly was sentenced to seven years in prison in 2018 after being convicted of securities fraud for lying to investors and manipulating shares of Retrofit a biotech company that he founded Global News 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. At this point he says you very much for that Jules. Let's get you a bit of a snapshot of what else is to come on the show. Will the US stock road feed through to Middle East markets when they open later. Let me speak to the Demand Investments audience due to find out next. JP Morgan's market caught on a bet sees a path for stocks to climb out of the hole. And we dive deeper into the high too with the global market strategist said a job on Bloomberg. We are playing it more conservatively then more aggressively both on the fixed income as well as on the equity. So to your point. Dialing down areas that are high yield for areas like that it's a different fees are investing it takes different approaches. Your best approach is actually do you risk portfolios at least back to do to to some degree. I think today is a little bit more validation that the consumer is not as strong as we thought it was that we're starting to see inflationary pressures really affect the earnings on companies. The consumer is getting weaker from the bottom level up from the lowest income up and it remains to be seen where that starts. Some of our guests there on the steepest rise in almost two years for the US stock market. Now the mood is spilling over to Asia and the session that futures pointing a little bit more pain ahead. JP Morgan strategist out of Choi joins us now. And the question is can we climb out of this wall of worry and the whole sees no recession this year. I said it. Great to have you with us. The question we're looking at. We're almost in a bear market. We took another 4 percent off this market yesterday. One of your old colleagues on the other side of the bank John Norman he's prolific on LinkedIn. And this is what he says. I want to get your view. It's important to distinguish between removing froth and repricing markets for the next macro regime. Over the past 35 years the Fed has never tightened that triggering a spectacular asset price implosion and a financial crisis. My question to you is do you think we've done the froth. We've repriced markets sufficiently for a slowdown that everybody thinks will come. Frankly in the near term review that market volatility might likely to continue because market investors continue to actually price in actually trying to see a clear path as to where the Fed is heading to. And also with regards to the Fed going forward. Right now markets are concerned about like over hawkish fat and whether the Fed might actually tighten a bit too fast or too quick and took the economy into recession. I'll bet you is that the economy will unlikely be going into a recession and that the Fed will actually try and try and very fast its utmost to engineer a soft landing but will need to continue to see how the supply chain disruption evolve and also how the inflation numbers going forward will be. But right now we see that the equity sell off so far has been caused by the secured and expected inflation especially the recent numbers from the state's. I mean the duration of the S & P sell off has been ongoing since the first week of January running at about in excess of four months. The NASDAQ drop was the biggest since June 11 of 2020. Just in terms of what exactly you'd be looking for for signals the market's life team has been doing this analysis and they're wondering you know at what point would you say that the S & P 500 has hit a conclusion in terms of the downturn. And indeed right now we CAC to focus more on the trajectory of the inflation reading going forward. And if we look at actually the Fed tries to balance like the job growth and also the inflation outlook. But right now we see from last week the job number. Actually I don't expect it. Indeed there are issues with like supply supply labor supply. But in the near term we think that that won't actually affect aggregate demand or labor demand. At least it won't be reflected until the second half of this year. So going forward I think the market will continue to focus more on the inflation side. And especially after seeing for example last week double digit wage growth. This will also be reflected all in the inflation readings going forward. And how the macro reflects. I said we've got another downgrade this morning come through from Standard Chartered on the China growth story. I think five percent to four point one percent. Quite dramatic. So this is building consensus that you're going to get a movement in the loan prime rate tomorrow home much more easing. What is the most effective form of easing that will bolster the investment case for JP Morgan asset management in China. Is it more triple or is it LP or what is the driver for you. And now I feel right now we need more effective policy easing and indeed the longtime rate is also what we're pricing in for tomorrow. And this is a key signal to the markets that they are easing in hand. And also for example we see that so far they have been deployed off example tax rebates and also deductions for culprits. But one thing is that the fight is actually quite fleeting. Given that so far a lot of culprits have been lost making during lockdowns. So we need more drag for example cash handouts from central government all to something more concrete measures so that consumer and also market sentiment can be revived. I was talking at the beginning of the show about how bonds had become attractive again to quite a few investors and that for a change not all asset classes sold off at the same time. How interesting do you find the bond value proposition that your buyer of us tends at just under 3 percent. Right now actually at the beginning of the year we have been advocating like a bias on equity. But right now we actually see an interesting opportunity to look more into fixed income especially like some fall into investment grade give them how the credit fundamentals actually quite healthy and actually credit default rates are likely to remain low for the rest of this year. In terms of investment grade we see that it actually provide downside protection to slowing growth momentum and also continue to provide steady income stream. And as for light high yield credit we see that it provides exposure to risk on sentiment and also can actually help manage a portfolio volatility. So there's actually an interesting opportunity to look more into the credit side especially in investment grade credit. I mean we're off to the worst start since 1973 according to one key U.S. bond index. Marcella it's been fantastic to touch base. Thank you for running us through some of those themes. That's Marcella Chow the global market strategist at JP Morgan Asset Management. Without much more coming up on the program. This is Bloomberg. Get getting a bit of a recap of how Middle East markets fare that this is the picture that's likely to get aggressively repriced with the massive sell off in the United States overnight. But for all intents purposes looking here at the side of the Dow up a fifth of one percent cent the firm oil price helping support sentiment at Dubai was already on weaker grounds. Historically Dubai tends to be one of the first victims in times of global drawback or a wrong turn. Looking ahead to earnings as well from alcohol drive and the big investment from the Saudis into lucid trying to get manufacturing up and running in the next few years over there as well. Yes. The question we need to ask ourselves is whether we're in a bear market rally. Have a look at this. This is at work done by Dan Curtis on the chart team. Consumer stocks we know took a bath in Target along with Wal-Mart. But if you have a look at this it's what's going on in tech. The Nasdaq erased in the dot.com bubble four point six trillion. The current decline seven point six trillion. But then I mean that's one of the biggest drags even on the S & P 500. Let's have a look at the breadth of this story because this is where you really begin to see some of the massive moves on the day yesterday. Yes. If Apple dying six percent Amazon Alphabet and just the demolition on the year. Yeah. I mean I respect some of the houses that they put up their hand and say they were wrong. Kanter one of the strategists there saying the bounce was the wrong call when it hit the board. Get to the energy markets. Oil rebounding a little bit amid the strength and product markets after a two day slump. Driven by concerns around the global economic downturn some Brent at the moment a hundred and ten dollars at 75 cents a barrel with upside of about one point five percent. Investors are going to be focusing on the lower inventories as well. Much more ahead. This is Bloomberg. This is Bloomberg Daybreak Middle East. Our top stories this morning the global stock selloff deepens. The S & P 500 suffers its worst day in almost two years as dismal earnings from U.S. retailers increased the fears of an economic slowdown. Meanwhile the Fed's Charles Evans says a few hikes past neutrals should help bring inflation down from the current elevated levels. We don't have to constantly increase the funds rate to be restrictive. We can get to a restrictive setting and sit there for a while. Maybe we sit there longer at a less restrictive setting and it takes a little bit longer for inflation to come down. Mike Novogratz breaks his silence over Terror USD Mauldin calling it the big idea that failed. Warning that the tough environment for crypto currencies will continue to Egypt's central bank governor says talks with the IMF far going well as he prepares for a rate decision in the coming hours amid soaring food prices. So let's see whether this side many bites that we've seen in the US equities has had any impact on risk in Asia. Juliet is standing by in Singapore. Jules. No. Yeah. No matter. We are still certainly seeing quite a selloff coming through here in the Asian session. We've got tech stocks actually having their biggest drop in around two months as we hold that four day rally and these growth concerns really come into play across the Asian region. You and I both mentioning that call coming through from Stan Shot as well. They have lowered their growth forecast for China for 2020 to now seeing four point one per cent in terms of economic growth down from 5 per cent. And just adding to those chorus of analysts that really do not believe you're going to see that bullish at gain of around five and a half per cent that China is projecting elsewhere. We had unemployment in Australia ahead of the federal polls this weekend dropped to a near 50 year low three point nine per cent as we saw companies start to take on full time jobs and really cut lower these part time jobs. That is leading to a more bullish outlook for the economy. You've certainly seen the Aussie spike. We're seeing Aussie bonds spike as well. And when it comes to some of the other currency moves we are watching a use of a weaker yen today a drop of around half of one per cent against the greenback. There's quite a bit of news flow from China. But I want to drill down on some of the corporate specifically 10 cents numbers. I mean those were a shock. What does it mean for some of the other tech names. Yes shock in the sense that we kind of knew it was going to be the worst revenue since listing in 2004 but it certainly still missed in terms of what the market was looking for in Tencent then itself warning on the corporate call. Now the only school I should say that it really wants to see concrete action from Beijing followed up from those public policy supports that we've heard from authorities. Tencent itself saying that it is time for Beijing's promises to support the sector to translate into action. And we heard in terms of some of the other analysts city having a buy saying that the Shanghai lockdown is going to negatively impact offline payment volume and vital knowledge saying look this report is almost backward looking. When you look at the effect of the pandemic what we are seeing now is tensions share price and analysts target. And it's going to have to rally something like 40 percent to get those levels of 490 Hong Kong dollars in the next 12 months. At the moment the volatility on this stock kind of almost behaving like an old coin minus. Jeers. There you go. Volatility spreads its wings in every direction. Juliette Saly in Singapore to Egypt the central bank there. They're going to make the monetary policy decisions today with inflation hitting its highest level in almost three years. So Simone Foxman has the job from Doha to tell us what the economists are expecting. How big will the hike be. Is that what we consensus is riding on Samoan. For the most part minus that is the question all but one of the nine economists polled by Bloomberg do believe we're gonna see a rate hike today. The median estimate for about 100 basis points. But some believe we could even go as high as 150. There was a call out there for two hundred basis points of a hike. This is really a test of how willing Egypt's central bank is to try and hike rates in order to draw back foreign portfolio investors for such a long time. We were focused on the carry trade high real interest rates. But now if you take a look at this video you'll see that inflation is just so high over 13 percent that even a substantial rate hike today is not really going to move us back into that positive territory that would draw back those investors. Also you could potentially hurt an ailing economy if you do hike rates too far. There are some positive drivers on the horizon. For one those talks with the IMF. According the central bank governor they seem to be going well. We've seen that flood of Gulf money come into the country as well as sort of supportive particular on a medium term basis. And we've seen some stabilization in local currency bond yields over the past week or so. All these things going to go into this decision as the central bank looks at the outlook for the economy today. Yeah I mean the twelve months forwards on the different parts of twenty a twenty two pounds and sixteen pastas that compares to a spike rate of but 1840 the differential is nothing short of jaw dropping. What about Turkey. Because I look at the Lear over there and the slide seems to be picking up steam. What's going on there. You know we're talking about this rout in U.S. stocks but there's also a rumor going on in the Turkish lira. It seems to be long held fears about Turkey's economy really catching up to the currency at 16 to the U.S. dollar. That's what we're flirting with today right. About fifteen point nine seven to the U.S. dollar. We'll see if we pass that crucial mark. Remember back in the midst of that major rout back in December we saw a sixteen point four one that is as high as we got. But we are not far from there today. If you take a look at our GDP go you'll also see that emerging market currencies have relatively stabilized and Turkey has fallen substantially against the U.S. dollar. The finance minister out there talking to companies trying to get them to put in price freezes. But at the same time traders are telling us that there's a lot of demand for dollars by corporations. There are also seemingly the state run banks that have been important to intervening in these foreign currency markets. They're seeming just kind of scale back their operations. And it doesn't help when you have President Richard type everyone out there raising the ire of Europe and the United States talking about perhaps standing in the way of NATO expansion. So econ pressures geopolitics maybe a little bit all catching up seemingly here to a weaker end result in a weaker lira. So Simon bringing the electric car dream alive in Saudi Arabia takes a little bit of extra investment. How much would a lucid get and what's the ambition here for Lucid on Saudi Arabia with this buildout. Saudi Arabia paying up to encourage expansion of manufacturing its non oil economy to the tune of three point four billion dollars in financing and incentives over the course of 15 years. So big number over a long time period. And when you look at that in the guise of PBS that's still a relatively small fries. We also got some details about how many cars loose it expects to make in Saudi Arabia. We're looking at a target of one hundred and fifty five thousand vehicles a year. That would be a substantial increase for Lucid which is projecting 12000 to 14000 vehicles produced at all this year so far. We expect this Saudi plant factory to come on line by 2026. That's what the Lucid CEO told us. And clearly if Lucid can do this then Saudi Arabia wins not only because it expands and on oil economy but also because PBF owns 61 percent of the company. Yeah we'll see how these plants come together. Andrew Liveris the chairman of Lucent of course a regular figure in this part of the world. Let's get to the U.S. stock story and the impact that is having in terms of the rest of the world. In this part of the world specifically the biggest daily drop in almost two years for U.S. equities. Investors assess the impact of higher prices on earnings and the prospects for monetary policy tightening on economic growth. Let's carve all of that out in terms of the strategy for the open in about a couple of hours time. Joining us now is Ali and I do easily head of asset management that demand investments. Ali I mean historically I look at the correlation between to buy stocks and the NASDAQ the S & P 500. There's quite a close correlation when U.S. stocks get smacked. Dubai tends to be one of the first lines in terms of a sell off. What do you expect today. Well if we if we see a saw from the beginning of the year with our markets have been protected by higher oil prices and we can say we can see it from yesterday's differential in terms of U.S. markets versus or even emerging markets versus Egypt and markets. Our our view is that the markets in general should should outperform. We might see some some some corrections. However overall adult performance should be there. And for us is that the oil price the current oil price is actually stabilizing the market. But the two big global stories which we want to get a sense to what level were immune from this Target and Wal-Mart over the past 48 hours. Cisco drops the most on ever but focusing on the retailers Target dine Wal-Mart down the most since 1987. That has the ability to infer a top die in recession risk on retail. How does that play out in our region on retail. We caught up with one that the other day. OK. They're not directly retail. But do you expect a slowdown in that sector. And do you play defense now in that area. Definitely. If we if we look at the Q1 results off of the retailers and the region we're seeing that margins are shrinking. Costs are increasing. There is a shift in the consumers toward more and to service rather than. So the the discretionary type of retailers should benefit in Jarden being deflowered. The defense definitely has to be you know on our ISE allocation and John Tucker. We have been defensive. And we have been increasing in our dividend yield exposure. And that has been protecting us a lot. In addition even cyclicals we are we are we are very good in terms of exposure. We are very selective for example and not all petrochemicals we are bullish on. And because we are seeing some margin some margin pressures. However let's say let's say urea related companies are actually benefiting. So overall our asset allocation and the region which we still like that each and I think that region has been and is proving to be defensive in the current sector. Consider this in terms of fleshing that view out in a bit more detail. The banks you know has been one of the big calls you know over the last couple of years here. And as a result there is quite a bit of froth that has built up in some of these bank indexes. You could argue maybe Saudi Arabia is in the front line of that. But how do you pick within the financials at the moment. What do you like and where would you stay away from. Apart from the obvious play on higher interest rates for us is that we we look at the banks in terms of the new interest rate cycle. This is one second. The the banks that have wide exposure to corporates there are banks that have more exposure to higher long growth because those banks will benefit. And in addition we are monitoring banks that that are focusing more on digitalisation. And this is this is in general is one of the key matrices that we are focusing on. And plus the financial capital market activity in the region is picking up. And this is impacting on non-interest income both of the earnings of the banks and and fix up the new IP orders that are coming in the higher trading volumes. The more interest in the region is actually propping up propping up banks are it. And the last but not least is the provisioning and provisioning has been going down. And just which is which is good for for the banks. Maybe a little bit more right backs up and we're going to get a rate decision out of Egypt. We're debating the size that we've had a couple of gas ends at 100 hundred 50 basis points. What comes to mind is whether what do you think is more important. We know we've got a food price inflation global issue specific and Egypt as well. Is it about restarting the carry trade or defending the currency. Do you think the priority is I think the priority is more off of the carry trade other than the really priorities of defending the defending value of the currency. The focus has for us is that the focus should should be more on how to tame down inflation increasing you know increasing interest rates to to reduce the pressure on the on the on the on the on the individual the Egyptians to join. And I think the central bank with the IMF has been very proactive in that. And currently you know if you look at it in the past Egypt has been benefiting from inflows because of the positive yield that that has been that has yet. That wasn't it. Currently it's not so. And I think in defending the currency as is the policy that that the central bank has hasn't been actually following for for a while just in terms of managing the uncertainty broadly in the region and in the world for that matter what is the cash allocation that you recommending kind of his base case for clients. Is there a gold allocation as well. Just to kind of give us context on how much risk appetite you're really looking forward to some of your clients. We are in our portfolios. We have. We have been increasing cash because we see a lot of volatility. And as I mentioned earlier the cash plus high dividend yield in the region should be supportive for portfolios and should reduce volatility overall. And this is this is key. Could you quantify that in percentage terms. Of course. Our our our for example our I would fund now we're at 20 percent close to 20 percent lives of terms of cash. That price you've been for a number of years or. Yeah I think yes it has been the highest. Plus we think we need to. There's a lot of opportunities when it comes to IPO was coming. And this is why I think we need to be very very adamant. And that and I think this is when we when we say put the cash allocation to look at opportunities. And this is I think one of the one of the major opportunities that we are. Well let's hope you get the allocation when they cut when when they build the order book. Ali thank you very much. Ali Allawi head of asset management over at Demand Investments. Our guest this morning keeping the powder dry for the IPO. Much more ahead on DAYBREAK. Middle East discipline back. Let's get back to Middle East markets with our equities expert for ISE. So far out in terms of how the stocks are holding up so far this week. What are we expecting in terms of the open. What else have you been here or any you yourself. Well we've had a little bit of a mixed picture after the sell off we saw last week that really took out some of our markets really took a hit from free. Look at the Dow will just sweep for that. We're at the top of all global soft markets. Now Abu Dhabi is exceeding it of W and divisive. A little bit of a recovery this week. Saudi Arabia continues to be under pressure. You were just talking about the froth Yousef. That's where we really saw in Saudi Arabia. And that's the one that investors have been continuously watching valuations in Saudi Arabia. And how much more of that profit booking that we're going to see particularly with earnings for some companies not impressing some analysts and some investors. But on the flip side we have we've had Kuwait after a 7 percent slump last week. It's also strange staging a little bit of recovery as well as Qatar. So these are some of the markets that we could watch at the open. Now we've interviewed a couple of CEOs in the region recently. We just heard from ideology the immunity. But you know oil has always been a great bolster for a lot of the momentum here in terms of the earnings. What do we focus on today. What do you got your love today minus. We've had we're a little bit towards the end of the earnings season. After yesterday for example we had Saudi electricity some about 7 percent after its earnings missed estimates. So history is trading ex-dividend. The stock was still under regression. We had Saudi ground services. Again the stock was still slumping. So under pressure after again we had an earnings miss. So any names that are upcoming we say you know in Saudi Arabia unfortunately we don't have the earnings agenda which is maybe something that we can discuss with the companies over there to tell us when they will be reporting at least for most of them. But watching what. Why are we having a lot of those misses coming out of Saudi Arabia particularly. And that's another factor weighing on the index just as we were discussing previously about advanced petrochemical for example there one of the companies that surprised and they earn an upgrade from GM as stock soared to the high at the most since December 20 20 yesterday on the back of that upgrade. And they're expecting their earnings to improve after a little bit of a squeeze in the next quarter. And that would be a jam packed session. Thank you for that. That's a final note there. Still lots more ahead. This is. In 2019 under our child was ready for his next move. He spent several years transforming the investment bank at UBS. Now he wanted to take things up a notch and the opportunity came as the offer came in from Santander. To be CEO. But things didn't go as planned. With the Spanish lender abruptly withdrawing the appointment after a dispute about compensation. The Italian banker went on to become CEO of UniCredit. But he's been locked in a legal battle with the Spanish lender ever since. Or Charles spoke to Francine Lacqua about the case. I will always be sorry for how it went. This is another bank I admire a lot and that hasn't changed. I think for me it was more about confirming the facts confirming the truth. But I knew existed and that has been done. And it's controversial. I mean you will find it black or white through the process that has happened. That for me was very important because a number of stories were were written at the time. What happens then. I mean obviously Santander has appealed. We'll see. But for me the important point was that the truth is very effects out there. And police mentally have moved on. I mean your case is probably studied in universities because people want to know how they're paid. You know I think 68 million without never starting a job. But also trying to understand what labor laws and everything like that work. Do you think it's changed the way we look at banking laws. I don't know if it has changed. What I know is that we shouldn't forget that banking is a highly regulated industry as a as a result of that senior jobs have a very large component of deferral in their compensation. In your case seven years and more than 50 percent if not 16 certain cases of your compensation is deferred over seven years. If you do the math that means that at every point in time you're gonna have between 3 4 X of your compensation deferred and by using DAX to the share price of the bank where you are. And if it goes up for 3 4 X it becomes even more difficulties when you change organisations. What do you do. You either have the new organization that assumes that deferral or you don't move because in effect that deferral is your entire savings. So I do think that although these are large numbers they need to be put in context of how it got there. Usually in most cases in all cases the organization who hires. Assumes that liability will defer. So that number is about liability and deferral. His plus a few other things that occurred because of a case. But that is what it is. Was it an emotional roller coaster. Is it something that you put behind or something that you don't think about. At the beginning it was obviously an emotional roller coaster. I think from a family standpoint it was quite impactful. And I think personally given the esteem ahead for that bank it was quite impactful. I think the the important point flaws a once they went through the preparation of the case I detached and I left other people deal with it. And I was quite fortunate. But most people were excellent. And then I trusted the process that a lot of people told me not to trust the process. But I did. And it ended up being coursework. Our colleague Francine Lacqua they are sitting down with UniCredit. See you Andrea. Or it's show on the latest episode of Bloomberg's Front Row. You can catch that full conversation on your terminal Michael Bloomberg dot com. I want to get to the equity story. Wow what a downturn it was with the S & P 500 close to a bear market. GDP go for our clients for an additional perspective to kind of visualize debt move lower. Interesting to see the analysts scrambling to recalculate their forecasts. Cantor Fitzgerald saying it no longer makes sense to own equities. We were wrong. The earnings are really shedding a lot of fresh light on key themes. Yeah it's a big admission. I mean the drama of that job is pretty impressive. Blood red for a blood red day. Let me show you where the money went to. There's the equities bouncing off the lows up an 8 to 1 percent went into the bond markets. Yes. That's where the biggest draw was. J.P. Morgan of course Goldman Sachs cutting the growth forecast. If the Aussie rates that you want to keep an eye on done another five basis points tracking the bid for treasuries.

No schedule data available.

'Bloomberg Daybreak: Middle East' Full Show (05/19/2022)

"Bloomberg Daybreak: Middle East" live from Dubai, connects Asian markets to the European opens. The show focuses on global macro issues with a Middle Eastern context. (Source: Bloomberg)

More From Bloomberg Daybreak: Middle East
All episodes and clips

Bloomberg Markets
"Bloomberg Markets" is focused on bringing you the most important global business and breaking markets news and information as it happens.
More episodes and clips