This is Bloomberg Daybreak, Middle East
and Africa. Our top stories this morning.
Taiwan hit by its biggest earthquake in 25 years, toppling at least 26
buildings, injuring dozens of people and disrupting air travel and manufacturing.
We'll have a live update from Taipei. Stocks in Asia fall along with U.S.
futures. While U.S.
yields hit their highest levels this year as a rate cut, hopes fade.
Brent's approaching $90 a barrel. Plus, President Biden issues his
strongest criticism yet of Israel's
conduct in Gaza following the deaths of
seven aid workers in Israeli airstrikes. It's just on a day.
I'm across the Emirates. I'm Vonnie Quinn in Dubai.
And let's see how we're shaping up for a Wednesday session that's bound to be
rife with geopolitical issues and concerns about Federal Reserve cutting.
As you can see, futures pointed lower. This after two down days now for the S&P
500. It was down 0.7 percent in the Tuesday
session. The NASDAQ 100 was down nearly 1% in the
session. The worst p
erformer there being Tesla
after vehicle deliveries, disappointed greatly.
We'll hear from Fed Chair Powell later in the Wednesday session.
But we already heard from Mary Daly and her Cleveland counterpart, Loretta
mester. They're both still expecting the central
bank to cut rates three times this year, but neither of them is in any rush to
begin lowering borrowing costs. And of course, we do have traders
pricing in fewer cards, actually, than the Federal Reserve at the moment, still
about 65 ba
sis points. Gold holding a rally over the past six
sessions, as you can see, at 22, 85, 55. And Brent crude just off its highs of
the session so far, still above $89 a barrel.
We got good data out of the US as well, and that's paradoxically hitting the
markets. But we want to see how things in Asia
are faring now after that earthquake hit Taiwan.
Yvonne Man is in our Hong Kong studio and has an update for us on how our
markets are reacting overall for the post-war feeling in the
chip sector. Von
nie but if you take a look at how the
taiex is doing in taipei, we're actually taking things in stride.
We're studying the downside. We'll talk about the chip impact a
little bit. But really what we're dealing with and
the narrative in Asia is still what we're hearing from the Fed as well as
the dollar moves. We've seen the stronger data out of the
US that continues to push the Treasury yields higher.
The fact that U.S. ten year yield are hitting those 2024
highs of 435 right now. That certainly
is roiling Asian
currencies in particular seven 2515 for your dollar trying to trade here this
morning, you throw better data, a stronger fix in the mix here.
And we're not seeing any sort of reversal in this trade as of yet.
It's still a Fed story right now. But right now you take a look at what
the high want. As you talked about the worst earthquake
we've seen in 25 years. We've have seen the corporate impact, in
particular the likes of Taiwan Semi UMC. They're talking about halting some chip
making, evacuating some plants after this major quake.
Right now, they have moved some staff to other operation areas of a certainly
this was something that rocked the city of Taipei and even the eastern part of
Hualien City in particular. That's where we're seeing most of the
damage here this morning. So you are seeing some of these chip
makers feeling those effects here right now, although you take a look at the SK
Hynix, Samsung as well. There was also that Intel, the Foundry
business postin
g losses that is also roiling a lot of these chip makers here
today. I want to enjoin this, though, to set
you up for what's really going on in Taipei.
We take a look at what's going on with the map and why we're focused so much on
the impact it has on manufacturing the like.
So we talked about where what's really being felt is the eastern part of the
island here where you're seeing this this yellow party with blue and yellow
dots, or that's where the industrial base is.
That's where most of the
se foundries and factories in Taiwan live.
So you can say geographically speaking, perhaps the impact of this quite might
not be that long lasting. But a lot of these companies right now
taking precautionary measures. Vonnie.
Yvonne, thank you so much. We'll continue to check in with you
throughout the hour. That's Yvonne Mann there in Hong Kong.
Taiwan, as Yvonne was saying, still assessing damage after its strongest
earthquake in a quarter century. At least 26 buildings have collapsed,
with mo
re than 50 people now confirmed injured.
Our Taiwan markets reporter Betty Ho joins us from Taipei.
What more can you tell us about the assessment of the damage so far, Betty.
Right. So as far as we know right now, like you
said, we've seen the government that has already confirmed that, plus people that
have been injured, 20 plus buildings that have collapsed in the wake of this
earthquake. I think right now what we know about
that is that there has been there has been one or two suspected deat
hs
reported by the government. But as of now, we are not sure if those.
We cannot confirm for sure that if those suspected deaths are already they are
actual deaths right now as of now in transport in terms of the companies, as
you mentioned. So chip makers, TSMC has said that they
will they have they have evacuated some of their staff to keep them safe.
And then the other some of the other tech suppliers in Taiwan are also
evaluating the impact of the earthquake. That's what we know as of now.
I think one concern and then, Betty, there was a tsunami warning and it
included also Japan. What do we know about what's happening
with aftershocks and also the potential for tsunamis?
Right. So in terms of aftershocks, we have the
aftershocks. We have felt several aftershocks in, you
know, in in in the in the following 20 minutes or so to an hour.
And, you know, after the first earthquake hit in Taipei, the Taipei
weather officials reported that the aftershocks are the bit one of the
biggest a
ftershocks that we've seen in Taiwan that has the scale of 6.5.
So it is quite it is still quite significant.
And I think the government has also warned that in
Taiwan, people should be aware of other aftershocks in the following in the
following later today and then the day after.
So I think the government and people are are all, you know, closely monitoring
the situation right now. And as of Japan, I am I think right now
the impact outside of Taiwan is still limited.
So I think that's somethin
g that the governments elsewhere I was looking at.
But thank you so much for the update. We will check in with you a little later
on. Again on markets reporter Betty Ho there
in Taipei. President Biden says Israel is not doing
enough to protect civilians in Gaza. That's after the Israeli military killed
seven aid workers, among others. Those aid workers included an American
in airstrikes. Bloomberg's Paul Wallace joins us now
for more. Paul, could this be the bridge too far
as it were, the lever
age that President Biden needs in order to get Benjamin
Netanyahu to perhaps reconsider an invasion into Rafah and what's happening
in Gaza? I think that's what a lot of Israel's
allies might be hopeful about, that they really want to stop this planned
offensive on Rafah by. By the Israelis.
It could be a turning point. Seven people killed in this strike,
obviously outrage. The U.S.
says it was outraged by it. A lot of criticism from the likes of
leaders in Australia and also Rishi Sunak in in t
he U.K.
and Poland to all those countries had had nationals among among the seven
killed. So that remains to be seen.
However, as we've been saying for a long time, Israel is absolutely adamant about
Rafah. And Benjamin Netanyahu has said time and
time again that nothing will stop him sending forces into the city where he
says am I still has several thousand
fighters. You know, we have a story today saying
that this war has destroyed about eight and a half billion dollars worth of
infrastructure
and further and obviously, you know, 74% of Palestinians
are unemployed. You know, at least.
Right. And the huge amount of infrastructure
that might take years to even begin to rebuild.
We're not even getting to talk about that yet.
Right. Because we haven't even seen a peace
process work. I mean, how long is the estimation for
when, you know, Gaza will start to look like Gaza again, if ever?
This is a big question. And the Gaza Strip has been absolutely
devastated by this war, as you mentioned
, even beyond the death toll,
according to this report, that the World Bank and others were involved with,
close to $20 billion worth of damage has been seen in in the Territory.
The the question about what happens when fighting stops hasn't really been
answered with any clarity by Israel. I think that's because Israel is just so
focused on trying to wipe out Hamas as a military organization.
Some Israeli officials have talked about Arab states sending in peacekeepers and
the likes of Saudi Arab
ia and the UAE funding Gaza's reconstruction.
But it's extremely unclear that any Arab state is going to be willing to send
peacekeepers into the Gaza Strip, especially if Israel is not willing to
start negotiations toward a two state solution with the Palestinians.
So in terms of what happens, we have very little clarity.
You know, if the parties would even agree to that.
Paul, thank you so much. That's Bloomberg's Paul Wallace there
with an update on the Israel-Hamas war. Meanwhile, President
Biden and his
Chinese counterpart, Xi Jinping have spoken by phone and their first 1 to 1
communication since November. For more, let's bring in our china
economy and government reporter Lucy Liu.
So what stood out to you in these talks that we know of?
Lucy? Hi.
I mean, so this is the big laundry list of, you know, consistent concerns.
The two sides have had touch on everything from military to tie winding
to a I to that no to to trade. So it really covered all the bases.
It's a continuation re
ally that stability that the two presidents tried
to establish in November and apex. So where you know we're seeing more
conversations but of course is in terms of what comes out of them, there hasn't
really been a you know, there hasn't been a result, although, of course, we
are seeing positive things like those talks in trade, like those talks in in
terms of that, no, continue. So there are some positives.
And of course, everyone agrees that talking is better than not talking.
You know, the Tr
easury secretary, Janet Yellen, she's visiting China this week
as a possible that will move the needle on any issues.
Yeah, absolutely. I mean, I think the you know, the big
headlines are about she's going to China and overcapacity.
But of course, we've already seen in Chinese policy meets, we had the two
sessions earlier this year. We had the premier speak at events to
foreign CEOs very recently. There just doesn't seem to be this
acknowledgement that China really sees its industrial policy as
threatening or
as an issue for, you know, global markets.
And so there does seem to be a disconnect there.
But, you know, especially with China sort of
doubling down on its, you know, its plan, its manufacturing emphasis, we're
not seeing a lot of consumption side stimulus.
So this is certainly this is an ongoing issue and something that Yellen's visit
will highlight in terms of will there be concessions from the Chinese side?
I mean, we're not really seeing hints of that yet, but certainly look
ing forward
to this visit this coming week and over the weekend.
Lucille, thank you so much. That's our China economy and government
reporter Lucy Liu in Beijing. Tesla shares tumbled after the EV
maker's first quarter deliveries missed estimates by the biggest margin in seven
years. Tesla ships just under 387,000 vehicles
compared with the average estimate for 449,000.
Let's get more from our Asia transport reporter, Linda.
So more than 60,000 short. Linda, what caused the shortage?
It really w
as a whole range of factors, starting with the softening global
demand as well as really intense competition.
And Tesla's second largest market in China, where you've got more than 100 EV
players launching, you know, hundreds of products into the market, as well as
supply chain disruptions such as from the Red Sea Houthi attacks, where it's
led to the Berlin factory production being affected.
So all of these have added together to paint a really bleak picture for Tesla's
first quarter deliveries
. Well, it's a little ironic that it's
coming in the same week that Boyd reported this sort of, you know, record
or at least equivalent to Tesla for a 24 hour order is right for their new EV.
So Tesla has to be careful, particularly in that region.
Yeah. So Tesla's biggest rival, BYD, has done
really well for March with a sales increase 46% compared to last year.
That brought their first quarter deliveries of plug in hybrids as well as
EVs to over 600,000 vehicles. The interesting thing is, even
though it
is doing really well overall, the specific electric vehicle production and
sales has gone back down below Tesla for first quarter.
So by be sold about 300,000 EVs in the first quarter compared to 386,000 from
Tesla. So now Tesla is back to being the
world's largest EV maker. Linda, thank you so much.
We'll be watching that closely today. That's Bloomberg's Asia transport
reporter Lyndal, you just want to give you an update on the
Taiwan earthquake. The fire services are now saying at
least four are dead from that quake. Again, Taiwan Fire Agency saying at
least four dead from the quake. This is the biggest earthquake that has
hit Taiwan in 25 years, 7.4 magnitude as measured by the USGS.
We'll continue to keep you updated. Plenty more still ahead.
This is Bloomberg, Middle East and Africa. I think that is a very reasonable
baseline. But I would like to say here that this
is a projection, right? Three rate cuts is a projection and a
projection is not a promise. San francisco
Fed President Mary Daly.
Their solid U.S. economic data are adding to doubts over
the pace of monetary easing. As you can see, the ten year yield at
435 11 is highs of the year now. And you could see that across the curve,
in fact. So let's bring in our guest to talk
about this. Doug Wenig is CEO and CIO at Florin
Court Capital. So thank you so much for joining.
I know that you think frustrated is a word that might describe the
conversation around inflation at the moment, but yet we got better d
ata again
yesterday in the United States session. And now we have Mary Daly and Loretta
mester both saying, no, no, we're still on for potentially three cuts this year.
What's your thesis on why inflation is overstated?
Well, CPI inflation has the shelter component
comprising 40% of core, okay? And I think about 25% of the total.
And shelter inflation is mis measured in the CPI.
They use something called owners equivalent rent for the majority of it,
and it's stale by about a year. This is a poi
nt my good friend economist
Kam Harvey has made repeatedly the actual inflation rate.
CPI inflation is now below 2%. If you substitute a more real time
estimate for shelter inflation using rent.
Okay, so that's the shelter component. But the Fed has said that it's watching
services and that's been incredibly sticky and isn't coming down.
We haven't seen it come down at all. That has to factor in.
Plus the fact that now we're seeing oil rise and we're nearly at $90 a barrel on
Brent. Well, the th
e Fed, it's appropriate for
them to be cautious. But services inflation is always more
sticky than other forms of inflation. And if you and if you look at things
like core PC services, ex housing, that's been steadily trending lower and
that's Powell's favorite measure. It's down at around 3% now, but it's
been trending lower pretty consistently. The U.S.
economy is in shockingly good condition considering the amount of monetary
tightening that was done. So how many cuts this year?
I think, too.
Maybe.
And when does the write cycle start? June is 5050 and in the opinion of the
market. And I think that's probably okay, but it
might be later. Now, I know you don't consider yourself
a stock picker and you know, you're more of a quantitative research firm.
Where, though, are you liking right now? What parts of the market?
What pockets of the market do you see some value?
Well, on a macro level, we're a macro quant fund.
And on a macro level, we're constructive about risk assets in general,
including
equities, but especially U.S. equities.
That would that's something that looks very attractive and credit as well.
In addition, you know, we are short electricity in Europe.
Again, there's a process of de-industrialization, a weak economy, a
tremendous supply of net gas, as well as high renewable supply.
We would I'm certainly personally very constructive on gold and and, you know,
and other hard, hard currency substitutes.
Well, certainly we're seeing continued records for gold these
days.
Well, on China, I know that you say extreme views on China are just not not
constructive here. Yeah, it's really good to take a look in
the mirror because we're frequently hysterical on one side or another.
We kind of cycle through mania because China has just such a tremendous scale.
And at other times, we're sort of paranoid because it makes the Western
world uncomfortable that a peer competitor has organically emerged.
And then we get depressed and unhappy about China because their sys
tem is
different from ours. The reality is they have tremendous
resources. We you know, for years we talked about
excess savings in China and how it distorted world markets.
So they have a very, very deep pool of savings.
At the same time, the economy really needs to be transformed because of the
old growth engines. Okay.
Which is just building more infrastructure, exports, urbanization
and so forth. Those things are kind of running out of
road. And so we're going to be moving toward a
more cons
umption oriented, high tech, digital value added economy in China.
And the authorities are trying to get there in the midst of a sort of property
slump. So we have seen a run up in the Hang
Seng Enterprises index this year, about 16% plus.
So that's one sign. But there's also been this narrative
percolating in the market that perhaps Japan has been overdone, maybe even
India, and that some of that money will go into China.
Do you anticipate that? I don't know.
I don't know. One thing is clear, p
essimism got too
extreme. Back to my cycle about our extreme
emotions and China. China is going to be big and is going to
be important. However uncomfortable it makes some
folks in the West, it's just it's too important.
And right now, they are relying very heavily on infrastructure spending to
keep that GDP up. And, you know, that's not ultimately
where they want to be. But I think pessimism got overdone.
And I think and I think probably we're going to see a reversal to a degree of
some of the
negative flows and news. Doug, thank you so much for joining.
Much appreciated that is Doug Granick is CEO and CIO at Florin Court Capital.
Plenty more still ahead. This is Bloomberg, Middle East and
Africa. Welcome back to Bloomberg Daybreak,
Middle East and Africa. Just want to give you an update on the
earthquake that hit Taiwan earlier today.
At least four dead, according to the fire service Taiwan Fire Agency saying
at least four dead from the quake. Damage is still being assessed, of
cours
e, and we are anticipating hearing from officials in the next few hours.
But again, at least four are dead. We know at least 26 buildings have been
toppled and at least 50 people injured in that quake.
Tsunami warnings were also issued. One has been revoked for Japan.
Well, another story we're following in Turkey.
A fire broke out at a nightclub in Istanbul during renovations, killing at
least 29 people and injuring at least three.
The club was on the ground and basement floors of a residential
building and all
the dead were reportedly workers at the site.
The fire was extinguished later on Tuesday.
We did get some economic data out of this region.
March S&P global pmi's for the uae coming in just a little bit under
expectations still in expansionary territory though, 56.9 versus 57.1 in
february for saudi Arabia. The PMI came in at 57.
That was just a little lower than the February reading and the Dubai March PMI
58, again, just a little lower than the February readings.
So we'll see
how markets react a little later.
This is how they closed in yesterday's session.
As you can see, the TADAWUL was up 0.4% higher for a second day led by materials
there, the DFM general index in Abu Dhabi.
Little changed up just about a 10th of a percent.
Banks contributing most there to the gains.
I would have a commercial bank in particular and the DFS.
Well, it was up fractionally for a fourth day.
Just the Qatar exchange index down 7/10 of a percent.
Stay with us on Bloomberg. This is Bloomb
erg Daybreak, Middle East
and Africa. Our top stories this morning.
Taiwan hit by its biggest earthquake in 25 years, is toppling at least 26
buildings, injuring dozens of people and disrupting air travel and manufacturing.
We have a live update from Taipei. Stocks in Asia fall along with U.S.
futures. While U.S.
yields had their highest levels this year as record hopes decline, Brent
approaching $90 a barrel. Class President Biden issues his
strongest criticism yet of Israel's conduct in Gaza f
ollowing the deaths of
seven aid workers in Israeli airstrikes, among others.
It's just gone. 8:30 a.m.
across the Emirates. I'm Vonnie Quinn in Dubai.
And we want to get straight to Asia now and check in on how markets are reacting
to that biggest earthquake in 25 years. For Taiwan, Yvonne Man is in our Hong
Kong studio. Yvonne.
Yeah. You know, obviously, we're not
disclosed, you know, discounting the human impact of all this.
As you talked about, at least four deaths now being reported from th
e app.
But you are seeing when it comes to Mark is taking this in a bit of stride here
this morning. TSMC certainly is the one that you're
feeling, seeing the bottom. Your screens there were down some 1%
after they did mention that they are going to be halting some chip making
also evacuating some plants after this major quake.
As you said, a 7.4 magnitude is something that we haven't seen in more
than two decades. So certainly that's what we're feeling
here this morning. You take a broader mark
et, so we are see
a bit of risk off moves here. Obviously, what we've been seeing when
it comes to these rate cut bets being faded the first time in a while, we've
seen actually bond traders prices, less cuts than the Fed projects and the dots.
Right. So that's how we're continue to see that
sell off when it comes to U.S. treasuries.
We're back to those 2024 highs. When it comes that U.S.
ten year yield, oil prices are also elevated.
We're punching close to 90 bucks for Brent now.
So that's obvi
ously keeping the Fed up at night, too, in terms of the upside
and to inflationary pressures. And so we're seeing stocks on the back
foot here on the back of U.S. futures as well.
We're slightly lower here this morning and that just adds more fuel to this
dollar trade in particular, we're back to those 2024 highs for the Bloomberg
dollar index, also for the dollar index as well, and is adding pressure to the
likes of basically most Asia for a foreign exchange.
You talking about the yen, The renm
inbi certainly is not immune to that.
You take a look at how the onshore rate is looking like.
We are now approaching the pboc's upper limit of around that 2% trading band.
Right. So we have seen the offshore rate
actually break above that for about eight sessions now.
We actually have seen some traders talking about how they've seen maybe
some block trades being some swap trades being blocked maybe is a sign that
perhaps we're getting very close to that weaker end of that band right now.
And it
just goes to show how there's a lot of depreciating pressures out there
here, despite stronger effects from the PBOC, despite the macro backdrop asset
looking better data actually has been turning more positive of late.
Vonnie we still have that jobs report on friday.
China goes into a long weekend here starting tomorrow.
So certainly we are likely to see a bit more pressure moving forward.
And Fed Chair Powell speaks later Wednesday.
EVANS Thank you so much for that. That's Yvonne Man there in
our Hong Kong
bureau. Oil holding on to a rally after an
industry report pointed to a drawdown in US crude inventories and ahead of an
OPEC+ meeting at which the group is expected to affirm at current supply
cuts. Joining me now is Bloomberg's energy and
commodities editor, Andrew Janes. Andrew, we've seen this rally over the
last few days and we're close now to $90 a barrel on Brent, even though we know
that Opec+ is already not meeting those supply quotas and the globe seems to be
awash in oi
l. Why this rally?
iPhone eight. Yeah, I mean, there's a number of things
behind the rally. We obviously have open classic to a
firm. It's reductions through the end of June.
We've also got, you know, continued problems with shipping due to the Houthi
attacks in the Red Sea, which have been adding transport costs.
We have Ukrainian attacks on Russian refineries.
And then we have the summer driving season in the US, which is getting
closer. So a number of things sort of supporting
prices. If you
look
at some technicals, the market's moving deeper into backwardation.
That's when near term prices are higher than those further out.
That's generally a signal that supply is tightening and prices are going to go
up. We've even had Jp morgan Chase predict
fairly recently that prices could go to $100 a barrel by September.
Not sure if they'll get that high, but there is definitely a number of factors
that are going to pushing out prices at the moment.
We've also had a bit of positive news, macr
o news out of China recently,
although China does remain. Chinese demand does remain a bit of a
big unknown there for oil prices. And then we've also got sort of still
strong supply out of the non-OPEC countries, which which is keeping prices
from moving really high. A brief word on gold, if you would,
Andrew, as well, because we are seeing continued records for gold.
I mean, does that continue until we get the first rate card and the rate cutting
cycle begins? Yeah, well, I mean, the slightest
little
league higher for gold seems to have been driven by comments from Fed
policymakers that three rate cuts are still on the cards.
But, you know, gold's been on a tear since mid-February.
Then this sort of the expectation that the Fed's moving closer to this much
anticipated that has been underpinning that rally.
But it's also been driven by a number of other things.
We have elevated tensions both in Ukraine and the Middle East.
We have a lot of buying out of China, and that's both from the
central bank
and also just from regular consumers who are very concerned about a number of
sort of things in the Chinese economy, like the property downturn and the
collapse in stock prices we saw earlier in the year.
So, yeah, we've got a number of sort of things drive and go even further
out. Of course, we've got the US presidential
election in November, which could be massively destabilizing for markets.
Yeah, so a lot of positive factors driving gold.
It is possible that it could be headed f
or a pull back if we get indications
either via comments or from data that that sort of scenario for three rate
cuts in the US is looking less likely and.
All right, Andrew, we will keep an eye out for that.
Again, Fed Chair Powell speaking later, might give us another signal.
That's Bloomberg's Andrew Janes. Thank you.
And joining us now is Monica malik, chief economist at Abu Dhabi Commercial
Bank. So, Monika, Andrew, just telling us
there about, you know, why we're seeing records for oil.
And
I'm just curious as to how much you think this is going to add to the Fed's
inflation problem. Well, at the moment, I think I think at
this level the pressures are relatively contained.
We estimate that Brent crude will average around $83 a barrel, broadly in
line with last year. So while we don't expect to see the same
drag to headline inflation in the US or globally from from lower fuel prices, at
the same time, it's not going to add that much inflationary pressures.
And I think this is somet
hing that Opec+ will look at carefully.
Of course there's from their side the tightening in fundamentals, but they
will not want oil to sustainably move to a level that will destabilise the global
economy, add to inflationary pressures and reduce the chances of rate cuts from
mid to the second half of the year. So oil will play a central part.
But at the moment there are still some uncertainties, both vis a vis demand.
We're seeing support from geopolitics and this is uncertain as well.
So we ex
pect a wait and watch approach. Obviously, Opec+ is pleased with these
prices. The Joint Ministerial Committee meeting
later today expected to affirm the production cuts but not extend them or
anything like that until until June at least.
But at the same time, they're not meeting them.
So why? What could we expect from future
meetings, if you like, Monica? What will the conversation be today?
I think a lot of the conversation will be looking at individual targets,
looking at who's producing and
and the production
levels against target levels. So that will be number one critical
point. Russia adds a degree of uncertainty as
well, because, of course, we've seen those attacks on the refining
installations. But they have also come out and said
that they are going to cut production and exports to move in line with their
commitments to Opec+. So I think that will be an area of
discussion. And I think, again, the critical point
will be where are the fundamentals? We we believe that the market
, the oil
market turned into a deficit in February.
The production cuts were central to that.
And and where is the demand outlook? And as you know, OPEC forecasts for
demand are significantly stronger than the IEA.
So I think that will be another area of focus as well.
Monica, I want to make just a little bit of a hard pivot here to Egypt, because,
of course, we saw President el-Sisi sworn in and he's now going to serve
until 2030 at least. What is your outlook for that economy,
given the $50 bi
llion injection that it's presumably going to see over the
next several years? Well, really, this this injection and
starting off with the rest. I think my deal
with the injection from Abu Dhabi, this is really a game changer.
It gives significant liquidity to meet Egypt's funding requirement for the next
2 to 3 years. We've already seen a change in market
sentiment. So the access to foreign capital, the
flows into Egyptian debt that has picked up as well.
Yesterday, you could see the the the th
e impact off of the the affects inflows on
net foreign liabilities in the monetary system and how it's helped reduce the
net foreign liabilities. So I think it is significant.
What will now be critical will be the structural reforms that follow and that
is both to to reduce the current account deficits of deficit sustainably, improve
the competitiveness of the economy, and especially on the fiscal front, reduce
the the the debt levels, reduce government funding requirements and debt
costs. And c
entral to this will so will be to
increase the primary surplus. Monica, we do have to leave it there,
but we're going to continue this conversation.
So thank you so much for the context and for joining us today.
Monica malik is chief economist at Abu Dhabi Commercial Bank.
So then Egyptian President Abdel Fattah el-Sisi has been sworn in for that third
term. Expectations are building for wide
ranging changes after that international bailout warded off the country's worst
economic crisis in decad
es. As we heard Monica explain to us.
Joining us now for more context is Bloomberg's Ziad Daoud.
So what are the key challenges beyond what Monica was talking to us about?
Facing President Sisi now, what does he need to do in order to make some
changes? Well, he's got two big challenges.
He's got a security challenge and he's got an economic challenge.
On the security side, there is a civil war to the west of Egypt, in Libya, the
civil war in the south, to the south of Egypt and Sudan.
And there
's a raging war in Gaza which has been going on for the last six
months. So obviously has to deal with that.
And that's an economic challenge. President Sisi came to power, became
president 2014. Since then, the pound has lost about 84%
of its value. Inflation has, on average, been in
double digits and is currently running at 36%, and external debt has risen from
14% of GDP to around 40% of GDP. So obviously there is a big economic
challenge that needs that the president needs to address in his
new term.
Well, there is this infusion now of $50 billion from various sources, 35 billion
from this region. What should he do with that money in
order to get the most efficiency out of this?
Well, there's a few things, right, so that more than $50 billion of support to
Egypt is enough to ease a lot of the dollar shortages in the short term.
But there are long term challenges in order to avoid another crisis in Egypt.
And I think there are four things that Egypt needs to do in order to not repea
t
the crisis just come through. First thing, it needs to reduce this
reliance on hot money that could come in very quickly, but could also lead very
quickly. The second thing, it needs to stop
building infrastructure and capital that doesn't have an economic return doesn't
make sense to borrow money from abroad to build stuff that doesn't generate
economic return. The third thing, which the IMF has
emphasized actually in its latest statement, is to reduce the role of the
army in the economy. And
the fourth thing is to allow for a
flexible exchange rate, because a fixed exchange rate covers all over all of
these cracks. Some of these things are easier to do
than others. So let's see if they can be there.
And you need a good team around you as well.
Now, let foreign assets into Egypt's banking system spiked in February.
What was behind that said? Well, let's just take a step back.
So what is happening is the banking system in Egypt, which includes the
banks and the central bank, have few
er dollars and they owe dollars.
And that gap was so large in January, it reached $29 billion, which is probably
the largest historically. And then in February, that number
dropped to -22 billion. So that was an improvement of $7
billion, which suggests that the injection of money into Egypt is
actually going to cover this gap. And it's important to cover this gap
because if you have a currency depreciation and you have a banking
system that actually has more dollar liabilities than dollar asset
s, the
depreciation would actually create a gap in the banks balance sheet to create
losses. And it's important to cover these
losses. So we've seen an element of that that
happened in February. And that should also probably continue.
The next time we get the numbers for March.
Ziad, thank you so much. That is Bloomberg's Ziad Daoud joining
us there on Egypt. Plenty more still ahead as you continue
to stay with us on Bloomberg, Middle East and Africa. Welcome back to Bloomberg Daybreak
Middle Ea
st and Africa. I'm Vonnie Quinn in Dubai,
so we have a new president in Senegal. The new president becomes Africa's
youngest elected president less than three weeks after being released from
prison to run in last month's election. For more, let's bring in on the euro
Ganga now, who joins us from Kigali. So, president phase economic policies
are quite different from former presidents cells.
What can investors expect on zero? Investors can expect to have a president
in pursuit of high ever since e
lections were finished and it was declared that
he had won the elections, he's almost adopted a presidential tone.
We're seeing him speak more as a leader instead of people in the opposition, he
says he wants to continue the working relations that Senegal has with its
foreign partners and also deepen those foreign relations.
He will continue with his agenda because he wants the best for Senegal.
But he also understands that partly renegotiating those contracts is not
what's good for Senegal, bec
ause most of these oil and gas projects have already
delayed and going back to the renegotiation table then delays it even
further. What they're going to do is they're
going to look at these contracts individually and try and find
opportunities where the country can make more revenue, because the goal is to
ensure that Senegal's resources yield more revenue for the people.
Investors Optimistic Cost. Kosmos is hoping to have a business
friendly environment in Senegal. And we also have BP who say
they're
hoping to build a conducive relationship with the president as they did with the
former president. For sure.
And then as President five begins his term old era.
What would be top of mind for the local Senegalese people?
For the young people who rallied in their masses to vote for him.
All they want is jobs. There's a serious unemployment problem
in Senegal. 20% could be higher and many are risking
their lives traveling the oceans and the deserts to go to Spain to look for jobs.
And these
are tax free graduates. So what they want, top of mind is, one,
the government needs to create jobs and a conducive environment so that the
private sector can thrive. What they'll also be looking for is
infrastructure development. They want hospitals, they want schools,
but also the government has to work towards getting the oil and gas projects
off the ground because, as IMF had predicted, this will catapult economic
growth of about 8.3%. They're also looking towards a reduced
cost of living.
The cost of food and fuel is on the rise
and many in Dakar, Senegal, have expressed their discomfort.
So this is some of the issues that the people of Senegal will be looking to
Bassil fight to do in his first term in office.
On. Darrell, thank you so much.
Thereabouts. Rufai sworn in now Senegal's new
president. That's Bloomberg's oduro Ganga in
Kigali. Thank you.
And this Friday, Africa amplified takes a deeper dive into the historic rise in
cocoa prices and why the same factors are impacting
others the commodities on
the continent. Don't miss that.
That's at 930 Dubai Time, 6:30 a.m. Johannesburg time.
This is Bloomberg, Middle East and Africa. Welcome back to Bloomberg Daybreak
middle east and Africa. I'm Vonnie Quinn in Dubai.
U.S. treasury secretary janet yellen heads to
china this week, aiming to press Beijing on what she says is a buildup of
industrial overcapacity that's distorting global prices and production
patterns. But those claims are not all backed up
by the data. For m
ore, let's bring in China economy
editor James Mega. Yellow will have to have a very
diplomatic tone if that's what she's trying to bring as a message, James.
But what do the facts actually suggest? It depends on which sector you really
look at, whether there is whether the data is actually showing there is
overcapacity in China's industrial industries.
You know, obviously, if you look at the housing sector, things like cement or
production of rebar, you know, windows, paint, fridges, you know,
all the things
that go into building a house, there's massive overcapacity.
You know, cement production seems to be running about 30% cap capital capacity
utilization last month, which just shows how much of
a slump there has been in housing construction and overall construction in
China. And it's a similar story with with steel
and all the other things that go into building houses.
But, you know, not a lot of that actually is exported.
I mean, cement is not even a really a tradable good.
Mostly
it's produced locally and used locally in a country.
And so, you know, even if there's massive overcapacity in Chinese cement
demand or in rebar, it's not that's that doesn't get shipped overseas and
undermined prices and jobs in other countries.
It's a bit of a different story. If you look at other parts of the
economy, though, obviously, the big one that everyone talks about now with the
EU there, their investigation into Chinese subsidies is EVs.
But again, the data doesn't really show there
's massive overcapacity in EVs
right now. Most of the EVs at China producers are
still sold here, and it's a small but growing portion of the EVs that are
being exported. But those are actually being exported
and sold at much higher prices than they got sold domestically.
There is real overcapacity at sea, it looks like, in traditional cars, petrol
and diesel cars. But at the moment at least a lot of that
is being exported to Russia and that's replacing exports from Western
countries, all from J
apan and South Korea, who are no longer willing to
export cars to the EU, to Russia because of the war in Ukraine.
So, you know, depending on which sector you want to look at, there is there is
issues. Obviously, steel and aluminium have for
years been the sectors in which China, other countries just complain about
China and you are seeing a bit of a pickup in Chinese steel exports.
So there are you know, there are things that John Allen can point to and say
that China has these problems, But, y
ou know, massive overcapacity across the
whole of the industrial sector is just not backed up by the data that we're
seeing. Yeah, absolutely.
I mean, Beijing has said it wants to curb overcapacity, too, So she won't be
bringing a message that Beijing doesn't already know about it that it isn't
aware of. James, thank you so much.
Much appreciated. That's China economy editor James Mega
in Beijing. I want to give you an update on that
Taiwan earthquake that hit just a couple of hours ago, 7.4 mag
nitude on the
Richter scale as measured by the USGS. It is the worst earthquake in Taiwan in
25 years and has leveled at least 26 buildings.
We also know from the fire services that at least four people have died.
Earlier, we heard that at least 56 people were injured.
Assessment, of course, continues. But it has disrupted some manufacturing,
obviously, as well, happening in the early hours of the morning.
We have seen the likes of TSMC pull away their workers from some factories.
It did happen
on the east of the island, though, and many of the factories are on
the west. So we will continue to watch for some of
the fallout, as it were, from this
earthquake. There had been a tsunami warning as
well, but also issued for Japan. That was revoked as Japan is no longer
under a tsunami warning. And we are waiting to hear from Chinese
and Taiwanese officials on the worst earthquake in 25 years.
Plenty more still ahead. Do stay with us.
This is Bloomberg taking you through the European Open in
the next hour.
Comments