This is Bloomberg Daybreak, Middle East
and Africa. Our top stories this morning.
U.S. and European futures rise while oil
trades lower this morning amid hopes that tensions in the Middle East remain
contained. This all after the U.S.
and allies help to mostly foil the first strike on Israel from Iranian soil.
Focus now shifting to the possibility of retaliation.
The United Nations chief calling for calm at an emergency Security Council
meeting saying it's time to step back from the brink.
We are confronting a real danger of a devastating full scale conflict.
Now is the time to defuse and de-escalate.
It's just gone 8 a.m. across the Emirates.
I'm Vonnie Quinn in Dubai. And let's take a look at how markets
have started to trade across Asia and into the future session.
So as you can see, we are seeing green on the screen.
It seems the market is breathing a sigh of relief that perhaps this Saturday
night's Sunday morning attack on Israel might not get escalated, depending, of
course, on Israel's response. But we're seeing s&p futures and stoxx
50 futures higher. Now the msci asia pacific index, it's a
little different. There were down 9/10 of a percent.
We're seeing a sell off in equities in japan and Korea in particular.
The nikkei 2 to 5 down 1% dollar yen one 5369.
We didn't to note that. But you can see the calm in oil markets.
Perhaps the geopolitical risk was already built in.
Brent crude down $0.19. It is just above $90 a barrel and WTI
just above $85 a barrel. Gold rising, but well off the 20 $400
that we saw the week before it. I do want to mention how we saw the
Sunday session trade in the Middle East, because we did have the tadawul down
about 3/10 of a percent, but that was far off the 1.8% lower than it opened
at. And in Israel, the to 35 was up a
quarter of a percent by the end of the session.
We did have a couple of markets, though. That's all major sell offs, including
Qatar and Kuwait. So Iran's weekend attack on Israel with
more than 300 missiles and drones does mark a perilous turn for a fragile
region. The unprecedented attack is the first
strike on the Jewish state from Iranian soil.
Israeli Prime Minister Benjamin Netanyahu says the country will defend
itself against Iran and continue to work with its allies, including the United
States, on an appropriate response. Maybe not.
The state of Israel is strong. The IDF is strong.
The public is strong. We appreciate that U.S.
standing by Israel's side, as well as the support of Great Britain, France and
many other countries. I have set a clear principle.
Whoever strikes us, we will strike him. We will defend ourselves against every
threat, and we will do this calmly and with determination.
Meanwhile, Iran's Joint chief of staff, General Mohammad Bagheri, says any
further attack from Israel will be met with a greater military response.
I'm a alleged, as Nasrin Khatami offered us.
From our point of view, this operation is over and there's no intention to
continue the operation. But if the Zionist regime takes any
action against the Islamic Republic, whether on our soil or in places
belonging to us in Syria or elsewhere. Our next operation will be much larger.
For more, let's bring in Bloomberg's Paul Wallace.
So, Paul, lots of hawkish talk. It does seem like the ball is in
Israel's court. What is Israel likely to do factoring in
all of the different parts of the cabinet that have to be satisfied?
That is, I think, the biggest question for global markets this week.
Israel will have a range of options and I think the most bearish outcome for
four markets and the one one that the U.S.
and the U.S., European countries and Arab states two will least want is is
Israel retaliating aggressively to Iran, especially with the strike on Iranian
soil? And there is a possibility, and I think
this is one that many of Israel's allies would quite like for Israel to react
very, very softly, either not at all, or in a way that doesn't provoke further
Iranian reaction. Perhaps it could go after Iran's or
continue to go after Iran's proxies in the region, such as Hezbollah, but avoid
a direct strike on Iranian soil or its embassies around the world or any kind
of assassination. That's that's too public.
The U.S., Arab states and European countries obviously want to stop this
escalating. Essentially, they want what happened on
Saturday night with this barrage of of missiles and drones fight against Israel
to be the end of it, primarily because it didn't cause that much damage.
One thing to note is that both Iran and Israel are claiming victory.
Israel is saying that it deterred this attack completely and it showed its
military technological prowess of Iran. Iran saying that it scared Israel and
the U.S. And so therefore,
in its view, this whole issue is over. But we're going to have to wait and see
over the next few weeks exactly what Israel does.
It could be declared a win win for everybody under one circumstance.
Right. What, though, does Israel do about the
rest of its problems, including the war in Gaza and its potential invasion of
Rafah? Does that still go ahead?
Again, another very big question, because obviously Gaza hasn't gone away.
The war there continues to rage. And over the weekend, Israeli officials
haven't said too much about Rafah. But in the run up to Saturday night's
events, they were still very much sticking to their line that an assault,
a ground offensive on Rafah, had to happen.
It was just a question of when, not if, the U.S.
is still applying pressure on Israel to essentially back away from that plan.
We'll have to see whether the weekend's events with Iran's attack change
anything with regards to Rafah and and and Gaza overall.
And but as far as Israel is saying publicly, the the offensive on Rafah is
still going to happen at some stage. All right.
A lot to mull over. And of course, we will be getting more
statements, I'm sure, throughout the day.
That's Bloomberg's Paul Wallace. Thank you so much.
Oil traders have so far shrugged off Iran's unprecedented attack on Israel
with gains held in check by signs the conflict will remain contained.
Bloomberg's Anthony Palo joins us now for more.
Anthony, was there already this kind of geopolitical risk built into the oil
market? I hadn't thought so.
Good morning, Vonnie. Yeah, well, we we do see very little
reaction in the market at all today, but we did see kind of a run up on on
Friday, kind of in expectation that something was going to happen.
Some traders are already taking bets that that there would be some reaction
and being a little bit nervous. A lot of the analysts that we're hearing
from over the weekend had been saying that there was about a 5 to $10 risk
premium in prices already. And we did see a run up to the nineties
so far this month. So there has been some risk premium put
into oil, some discounting for the fact that there would be something happening
in some kind of reaction after that. That initial Israeli attack at the start
of the month on that Iranian embassy compound in Syria.
So there was some expectation there. There's also a lot of fundamental basis
for stronger oil in terms of some demand that's higher than expected.
On the flipside of that, we do have a good amount of supply in the market, and
that's one of those things that's keeping a lid on prices today.
I think, Vonnie, the fact that there is that additional supply in the market
until that's really affected, we're not going to see that run up in prices yet,
vonnie. It's interesting, though, isn't it,
Anthony? Because with Saturday night, Sunday
mornings attack, Iran did take this war out of the shadows.
Does that make it more likely that we'll see volatility and the potential for,
you know, tit for tat in the future, maybe not immediately, but in the future
or less likely, because now if it returns this war to the shadows, well,
then it's gone away for a while. Yeah.
I mean, these are two instances that are big escalations.
When we see Israel and Iran taking direct action against one another, that
is moving it beyond that kind of proxy war that we've seen so far, where Iran
was using other groups like Hamas, Hezbollah, the Houthis militias in
Syria, Iraq and and Israel and in some cases even the U.S.
what were hitting those groups. So this is that first direct
confrontation, which is a big geopolitical escalation, however, with
the Iranians saying they think it's completed with the Israelis declaring
victory and with the Western countries, yes, backing Israel, but not backing
Israel to really retaliate in any significant way.
All the parties are seeming to try to put out draw a line under this and put a
stop to it. And again, the real risk there is if we
do see something impacting our oil flows out of the Persian Gulf through the
Strait of Hormuz, that's an area that would affect Saudi exports, but we're
also affecting Iranian exports. So there is a limited willingness so far
to go down that road. But if Iran feels that its back is up
against the wall, it could take that step.
And that's what traders are really watching.
And that's the sign that the traders are really looking for in the market before
they start to see that run up in prices and to take those higher bets on.
Definitely not seeing that yet anyway, which is good news.
Bloomberg's Anthony DePaulo, thank you so much.
Let's turn now to Brett McGonigle, CEO at Capital Inc, who joins me in the
Dubai studio. Brett, what does all of the weekend's
activities and, you know, into this weekend?
We're waiting on statements. We're waiting on more statements.
What does it mean for volatility in markets, not just equity markets, but
beyond? Yeah, So listen, I think that, you know,
both the guests that were on before talking about things calming down a
little bit. So whenever you have these tensions at
such high levels, there's a great you know, there's some real the challenge is
to calm the markets and to calm everybody's positioning right now.
I think that Iran is very clear about that.
This was a one time thing and that Israel keeps levels where they are.
I think we can reach that calm oil, certainly telling us that we're there.
I mean, oil would be trading much higher if the markets thought that this was
going to get further along. I think one of the interesting points to
bring in here maybe is that you used the war in the shadows, bring Iran bringing
this to the head right now. Maybe it's what this conflict needs for
everyone to take another look at it and say, what are we doing here?
And take a step back and maybe we can have calmer heads prevail in an even,
you know, in Gaza and Israel? Well, that sort of depends on what
happens next in terms of any new kind of invasion of Rafah and how the Arab world
reacts to that as well. Right.
Brent, would you change your positioning here in any way, given that the market
has been pretty sanguine about geopolitical risk?
You know, many commentators say that, and yet geopolitical risk is clearly a
daily thing. Yeah.
So it's here to stay. I think everybody, you know, there's a
certain dose of it and everything that everyone's looking at.
I would say that continued geopolitical tensions unfortunately revert back to
the safety trade. And the safety trade seems to be money
into Mega-cap U.S. names.
You see, Asia is trading off today, Japan's trading off regionally.
You probably get some calm, but whenever there's conflict, people look to the
safe names and the safety net seems to continue to be the big cap names in the
U.S. I think everyone would like to see that
change a little bit and see that the rally broaden out and go back into Asia,
into Europe. I just don't think it's happening right
now. Before all of this happened, we had a
very strange week in the US stocks last week and trading.
We got an inflation data that was hotter than anticipated.
We got, you know, maybe signs that the Fed can't move as early as it would have
in other circumstances. And then, of course, we also had some
bank earnings that really threw the market off on Friday.
How would you respond to all of that this week if we hadn't had everything
that's happened to Bitcoin? So let's will make the decision pre
Friday. So all the stuff that's happening pre
Friday you know you and I were talking before we went on you know I think
that's actually gotten kind of silly and I'm using the word silly with the Fed
because they're using words like silly they're using sticky they're using for
longer. These are not institutional words.
They're not words that analysts use. I think the Fed has gotten very
emotional and the Fed has proven that they're always behind the curve.
Sticky inflation is a thing, though, right?
It is. People talk about it.
It's a, you know, economist. Yeah, but let's remember where we
started. It was transitory for a long period
time. Transitory is a little bit more
institutional, I think, than sticky. The my my thought is, is that it's
emotional. We're going into the we're going to the
election. The Fed should be getting what they need
to get done now. Now they shouldn't be pushing it out
into September. You have the election in November.
It gets highly politicized at that point.
I just don't see why they can't see and read some of the tea leaves that this is
the time to be acting. China's helicopter money.
Again, there's no way the two biggest economies have conflicting monetary.
But you're saying the Fed should just cut and get started, but the data
doesn't back that up. The labor market is extraordinarily
strong and it might just feed more inflation.
Yes. So I think you're I mean, they are data
driven to a point, but I think they're slow to react.
If you look at what they did prior to raising all the rates they should have
been raising earlier. So I just you know, they're they have
this course of action that's like threading the needle.
And I just don't understand what the benefit of that is.
They need to cut rates. If you look at the two largest economies
being China and the U.S., they are on diametrically opposing monetary
policies. How long can that happen?
How long do they stay in those wait? There's no way that the two largest
economies in the world are that different and not co-dependent, given
how you feel that using policy is, you know, incorrect in the United States
right now, what does that make you do with your money?
Are you all cut? No, I mean, look, it's all in Megacap.
That's where the money hides right now, because it's a great proxy.
You know, you're getting global growth. You know, they're these these names are
everywhere. They're easy to get in and out of.
There's huge liquidity pools, but that trade is defensive in nature.
So like I said, I'd love to see the the this rally broaden out and have some new
names. Brought to the fold and get more into
Asia, spill over into the Middle East and into Europe.
It's just not happening right now because people are confused and
uncertainty breeds this defensive behavior.
And that's what we're seeing from from money managers.
Thank you so much for joining us in studio today.
That is Brett McGonigal, CEO at Capital Link.
And still ahead, as tensions with Iran rise, we'll get the view of risk
intelligence platform rain. That's coming up later this hour.
This is the breaking. Welcome back to DAYBREAK.
Middle East and Africa. I'm Vonnie Quinn in Dubai.
The world is now watching for Israel's response to Iran's unprecedented attack.
President Biden has reaffirmed America's ironclad commitment to the security of
Israel in a phone call with Prime Minister Benjamin Netanyahu.
But his administration has stressed they are not looking for a war with Iran.
All the Israelis will respond. That's going to be up to them.
We understand that and respect that. But the president's been very clear.
We don't seek a war with Iran. We we're not looking for escalation
here. We will continue to help Israel defend
itself. Let's get more now on the diplomatic
response from Bloomberg's Saudi Arabia bureau chief, Christine Barak.
So, Christine, walk us through the latest developments, comments,
statements and so on. Well, the first thing that I will say is
while market reaction has been muted and it does seem that there's a kind of a
widespread feeling out there that this conflict may not worsen, we are far away
from saying that is the case. This is an unprecedented attack by Iran
on Israel, and it is the first time we've seen Iran
attack Israel from within its soil. Traditionally, it has attacked from its
militant proxy groups, including Hezbollah and Hamas.
So this latest escalation just suggests that Iran may be willing to kind of step
out of the shadows going forward and confront Israel more directly.
Already we have seen that there's been widespread concern among the
international community. The G7 met yesterday.
Leaders condemned the attack on Israel. They also have said that they are
looking at the possibility of more sanctions on Iran.
But at the same time, they have advised all parties involved to exercise maximum
restraint in order for this to not escalate further.
So I think the key question now is where Israel is at in this whole thing and how
it's going to respond. Well, certainly the war cabinet met
Sunday. What do we know about where Israel
stands at the moment? I think the one thing that we can say
for sure is that Prime Minister Benjamin Netanyahu is feeling the pressure on all
sides. So there were statements made by some
Israeli officials yesterday encouraging Israel to respond aggressively.
There were also some comments by people saying that Iran did indeed actually try
to inflict more damage on Israel, that it did.
And so, for sure, we know that Netanyahu is feeling pressure from hardliners
within his government. On the flipside of that, though, we know
very clearly that President Biden does not want to see an escalation in this
complex. Sources have also told Bloomberg that G7
leaders have agreed to use all of their channels of influence to try to prevent
Israel from taking any aggressive action.
So we will certainly be trying to answer the question of where Israel is going to
take things as it considers the pressure that it's facing from multiple sides.
Christine, what is the latest for Israel in Gaza after this?
Well, it's hard to say at this particular moment in time.
We heard from Israel yesterday that Hamas has rejected the latest cease fire
proposal that was tabled by mediators. Israel did not say for sure.
What was behind that move, but it did comment saying that Hamas is, quote,
continuing to exploit tension with Iran and does not want a humanitarian deal
and return of hostages. So as of now, there are questions
remaining around the status of any potential cease fire.
And also we're questioning where Israel is at in terms of moving ahead with a
ground invasion or a ground operation in Rafah.
So much going on. Christina, thank you so much for joining
us. Bloomberg Saudi Arabia bureau chief
Christine Barak. Plenty more still ahead.
This is Bloomberg, Middle East and Africa. Welcome back to Bloomberg Daybreak
middle East and Africa. I'm Vonnie Quinn in Dubai.
Goldman Sachs sees Nigeria's Nairobi extending gains that have already made
it the best performing currency in the world this month.
Meanwhile, Bloomberg Economics says data out today should show inflation slowing
in March helped by a stronger an IRA. Let's bring in Bloomberg's on the Euro
or Ganga in Kigali for more on this. So, Andrew, walk us through the
turnaround of the naira from depreciation to suddenly appreciation.
I mean, Vonnie, let's circle back to where it
all began. In May of 2023, President Bola Ahmed
Tinubu came into power and with him a raft of reforms, including
liberalisation of the market and also a convergence of both the official and the
parrot rate. This decisions led to a depreciation of
the naira by 71% in a period of six months and in quarter one of 2024, we've
seen the central bank step in. In the last two monetary policy
committee meetings, they had to rate by 600 basis points, but they took it a
step further and also cleared Efcc's backlog of $7 billion.
And the market has been responding very positively to this development.
We are seeing the naira in the month of March appreciated by 14% and so far in
April it has appreciated by 12%, trading at about 1118 the official rate.
And that's where Goldman Sachs is coming from, saying that the naira is supposed
to appreciate about a thousand to the dollar and then circle back to about
1200 by the end of the year. Wow.
So high numbers on their own. What can we expect inflation data out
today to tell us? If we just go back to the point that I
had made earlier about a strong currency, because the NRA is gaining
momentum by the day. Inflation, annual inflation is expected
to rise up slowly. That that's 2.7% in March from 31.7% in
February. And inflation in quarter one is expected
to peak at about 35% before it begins a gradual descent and close to year 30%.
In terms of the central bank, we're likely to see two more interest rate
hikes closing a media at about 28% from the current 24.75, depending on where
the currency is and how inflation patterns then the central bank might
choose to hold before they begin their gradual descent.
Bloomberg's On Zero, Ganga in Kigali. Thank you so much for that update.
Let's have a look at how Middle East markets traded in the Sunday session.
Of course, trading hasn't started in the Monday session yet, but we did get a bit
of a reaction to Sunday night's Sunday, early morning Saturday night's
events. And also, of course, we're coming off
the Eid holiday week. The tadawul was down 3/10 of a percent
by the end of the session, although it did open 1.8% lower.
In Israel, we saw the Tar 35 up about a quarter of a percent.
The broader market was up even more than that.
But we're still talking fractions here and there was a lot of volatility in the
session. Qatar, Kuwait, they were both markets
that saw big drops after the Eid holiday and after Saturday night's events.
And then in Egypt, we saw a nice gain. We were speaking about Egypt in just a
few moments, up one of the quarter percent for the benchmark there. This is Bloomberg Daybreak, Middle East
and Africa. Our top stories this morning.
U.S. and European futures rise while oil
trades lower this morning amid hopes that tensions in the Middle East remain
contained. This after the United States and allies
helped to mostly foil the first strike on Israel from Iranian soil.
Focus now shifting to the possibility of Israeli retaliation.
The U.N. chief calling for calm at an emergency
Security Council meeting saying it's time to step back from the brink.
It's just gone. 8:30 a.m.
across the Emirates. I'm Vonnie Quinn in Dubai, and some of
the analysts notes that I've been receiving this morning escalation,
unlikely sigh of relief. This is the tone in markets and you can
see it as they are trading. U.S.
and European futures both pointed higher.
As you can see, both NASDAQ 100 Dow and S&P 500 futures.
This, of course, after a very down day on Friday as well, it must be said.
But the events of the weekend are definitely getting priced into some
markets, just perhaps maybe not as much geopolitical risk as we would have
thought. Now that Iran has come out and done its
thing, it says its one and done. Let's move on because we have other
markets to look at. We are seeing a down day across Asia
with the Nikkei. 2 to 5 lower was down almost 2% at one
point. We have the Hang Seng lower.
We also had the Amex AP, broadly lower, but different story in China, I should
point out. China's trading higher on a regulatory
crackdown that seems to be putting some enthusiasm into investors into that
market. Look at the yen trading very close to
154 at this point. It's just getting weaker and weaker and
weaker as we enter earnings season as well, it should be noted.
So a stronger dollar raises the end by 4/10 of a percent.
And then let's look at the commodity markets, because this is where we were
focused after those missiles and drones were sent very late Saturday night into
the early hours of Sunday morning. Already we have oil markets pricing out
the risk of escalation, Brent trading at $90, 24 New York crude, 8537, gold up
slightly, but it had backed off its record anyway.
So that's one to watch. But it is worth bearing in mind that
unless there is some kind of an escalation that involves probably the
Strait of Hormuz, as we heard earlier from Anthony and Paula, then the oil
market might be okay. For now, we're back to that
unprecedented attack on Israel by our next guest says the first thing to be
watching for Israel's retaliation, which could take place as soon as today.
Let's bring him in now. Ryan Bold joins us.
He's senior Middle East and North Africa analyst at Rein.
So, Ryan, all signs point to this de-escalating.
The market is saying it's multinational groups are saying it's supranational
groups are calling on Israel in particular at this point not to
retaliate. After all, the Iran attack was a
retaliation and itself. What does Israel decide to do?
Well, Israel has to respond to this attack directly on its soil.
How it decides to attack is very much up in the air.
Certainly, we have passed the moment of unplanned escalation.
Israel is now deliberately planning its retaliatory strike in a way that is
supposed to escalate, to deescalate. Essentially what Israel needs to figure
out is how to get back to deterrence with the Iranians.
With the Iranians don't feel like a door has been opened for them to regularly
strike Israel's own territory from their own.
Ryan, why does Israel have to respond? Why does it have to retaliate?
It was an attack on its soil, but it in itself was a retaliation.
And it's heard from the Iranians that it's one and done.
Well, if they don't respond to the Iranians, then there is that precedent
that set from Tehran's perspective, as well as some other regional rivals, that
countries like Iran can attack Israeli soil without any sort of military
response that would embolden them in future escalation scenarios and would
complicate things. For example, if Israel ever does invade
southern Lebanon to try to clear out Hezbollah from from those areas, that
could create a scenario in which Iran feels emboldened to strike Israel
earlier or more often, Or it could end up in a scenario in which any time Iran
wants to signal its displeasure to Israel or to force them to change
policies, they could also resume these similar kind of attacks.
And Israel simply doesn't want to live in a world in which Iran feels like it
can strike Israel more or less on Tehran's calendar or to end on Tehran's
political calculus. I know, but, I mean, anyone can strike
anyone at any point, right? It's up to the individual actors if they
want to strike. There's no reason for Iran to strike
Israel unprovoked if Israel doesn't perhaps retaliate now.
And after all, it was pretty much a win in the sense that there were no
casualties. One little girl obviously very badly
injured, but no casualties. Well, certainly.
But Israel has no intention of abandoning its shadow war against Iran.
Israel's preference is to get the war back into the shadows, get back to
covert escalation. That's where Israel is the most
comfortable. That's where it believes it's starting
to have some sort of impact on Iranian policy.
You know, for example, by changing the way that Iran deploys some of its front
line officers from that strike on the consulate in Damascus.
So that's where Israel wants to get, but they can't get back to that place if
they believe that every time they carry out covert action against the Iranians,
it results in a barrage of attacks against Israel itself.
And then they're not always sure that all of their allies, like Jordan and the
United States, will necessarily be there for every one of these escalations, and
that at some point Israel could be left on their own.
It's the first time in a while, though, that Israel has felt cooperation from an
international community. Israel must be pretty pleased about that
and feel a little bit safer as well because of that.
So in your estimation, what is the correct amount of retaliation?
So the Israelis have a series of options.
They've got force. They can go into the proxy theaters,
third party countries like Syria, Lebanon, where they're currently already
active. They can up the ante there, attack more
Iranian assets in those countries. They could even strike some of the
Iranian embassies in those countries again, if that's what they decided to
retaliate against. But that may not be enough because this
attack came directly from Iran itself. And perhaps one of the least escalatory
and yet still strategically important or strategically significant attacks would
be on the origin points of some of these launch sites within Iran itself, where
the attacks themselves may not cause a whole lot of damage, may not cause a lot
of outrage within Iran, but would still allow Israel to demonstrate that they
would respond directly against origin points of attack from Iranian soil.
Has Israel, the military manpower and the stamina, frankly, after six months
of war to do all of what you just said, as well as continue its operation in
Gaza, which apparently involves another attack on Rafah.
Well, certainly, no. The Israelis do not have the ability to
carry out an extended campaign against Iran, which is why they need to
calculate that whatever their counterattack is going to be is also a
one and done situation. If Iran decides to reply with further
attacks on Israel and we start to see the Iran Israel relationship sort of
move into something analogous to what we see in Yemen between the U.S.
and the Houthies, where it's more or less open ended of firing back and forth
intermittently. That's something that Israel can't
really afford to do and that it will lose international support rather
quickly if that's the scenario that we end up in.
All right, Ryan, thank you. We have to leave it there.
We will await Israel's response. Ryan Boller, senior Middle East and
North Africa analyst at Rhein. Airlines are weighing an ever narrowing
set of options to fly between Europe and Asia.
That's after they deal with airspace shutdowns in the wake of the Iranian
attack on Israel. Let's get more now from Bloomberg's
Donnie Lee, who's been keeping track. So, Danny, several airspace was closed
in the early hours of Sunday morning. Some of them did reopen, including
Israel's at 730 local time on Sunday morning.
Fluffed airspaces are open and closed right now.
Can you give us an update? Yeah, I think basically, based on what
had happened over the weekend, everything's pretty much got back to a
level of normality, particularly around the airspace zones of Iran and Iraq,
which are critical kind of air highways between Europe, the Middle East and and
kind of southern Asia in particular. So now, as you said at the bottom of the
hour, I think it's important to see that the markets expect a de-escalation and
that would be welcome news to the airline industry.
And because these these particularly these these air highways are critical of
airlines are still factoring in, there is potentially risk out there.
So we've seen a number of airlines who have made alternative plans to avoid
overflying, for example, Iran or Iraq, and will be factoring in diverting
flights or going around so there'll be longer journeys, etc..
So I think the airlines are still going to be cautious to see how this plays
out. But I think overall, there is a
sense of normality at the moment, given what we saw play out over the weekend.
Danny, I mean, will there be airspaces that are just non traversable in the
near future? I mean, there are so many airlines, you
know, from, you know, Arab airlines to Chinese airlines to European airlines
that all use parts of the space and they can't continually change their routes.
Right. So what would you do if you were an
airline? Yeah, I think for the airline industry,
sometimes their hands might be forced. You know, when you when you operate a
plane, when you fly over certain routes, you are given insurance coverage.
And if that insurance coverage is pulled, then clearly airlines will have
to think of alternatives. We have actually seen airlines factor in
flying across Saudi Arabia through Egypt as one way around and particularly over
Central Asia. So they don't have to then fly over some
of these more sensitive areas, in particular, particularly where we did
see this kind of sudden disruption, although well telegraphed.
So I think for the airline industry, they are already factoring in that.
We are seeing the airlines returning back to these highways, particularly the
Middle Eastern carriers flying over Iran and Iraq.
But clearly, add ons are well prepared for all kinds of airspace disruptions,
particularly what we saw in the aftermath of the Russia Ukraine war
crisis, which particularly blocked a huge part of the airspace for a lot of
major carriers. Danny, thank you so much.
That is Bloomberg. Stunningly, they are keeping track of
airspace, their flights and much, much more for us.
Plenty more is still ahead. Do stay with us on Bloomberg.
Middle East and Africa. Welcome back to Bloomberg Daybreak
middle East and Africa. I'm Vonnie Quinn in Dubai.
Back to our top story and the unprecedented attack by iran on israel.
Bloomberg economics says it's more about symbolism with minimum damage from war
analysis. Let's bring in Bloomberg's chief
emerging markets economist, Ziad Daoud. So how do you interpret this week's
weekend's events? Minimal damage, yes, but perhaps only
because of the help of allies such as the u.s.
and jordan. But also there's a lot of
predictability. And that, vonnie we a lot of us went
into the weekend thinking that something like this was going to happen.
An attack, direct attack from iran to israel was about to happen and indeed it
did happen overnight saturday to sunday and i think it was done by design.
So Iran designed it in such a way that it causes maximum symbolism, but minimal
damage. Symbolism in the sense this the first
time attacks Israel from its own soil. Symbolism in the sense that sent
actually a lot of missiles and Iran 300 and symbolisms and says she has sirens
and alarms going around Israel. But it also because of the heads up,
because of the well telegraphed attack, it caused minimal damage and no
casualties in Israel. It was fascinating because before even
some of the missiles would have got there, the U.N.
was told that it was a mission complete. Right.
So that was really interesting, I thought.
What is the impact, though, on the global economy?
Well, for the global economy, because the last six months, the war in the
Middle East has been devastating on a human level, but it had limited impact
in the global economy. So global growth has actually improved.
Global inflation and global interest rates have not been affected by the
conflict, and all oil has continued to float.
And if this of the attacks on the weekend don't lead to an escalation and
a spiral of response and a counter response, then the impact of the global
economy would be limited. But we've seen something unprecedented
on the weekend. And if we end up in a spiral of of
violence between the two countries, then and we have sort of a disruption to flow
to oil prices and oil supplies, then that could have a significant impact on
the global economy and may even lead to a global recession.
Looking at how markets are responding to the events of the weekend, there's very
limited information, limited impact in the moment on oil.
So they think probably the status quo will be maintained.
It's interesting, though, because if you had to game out what an Iranian attack
would look like, that's where the terror is, right?
You don't know what an Iranian to attack on a country like Israel is going to be.
But now we've seen what it's going to be.
It's going to be a telegraphed attack with maybe a lot of missiles, but also a
very calculated and telegraphed attack. Well, in this case, that was part of the
aim. And the part of the aim is not to cause
significant damage. And that's why it was well telegraphed.
But let's also remember that we had previous attacks from Iran, other parts
of the region. Aramco 2019 was a clear example in
which, again, we woke up and we saw half of Saudi oil supply basically offline in
an instant. That wasn't well telegraphed.
That was a precise attack and that took a lot of oil supply to the market.
And we had the response in terms of oil prices.
So I think there's a difference between the most telegraphed attack and the
surprising one. All right, Ziad, thank you so much.
Fantastic context there from Bloomberg's chief emerging markets economist, Ziad
Daoud. Joining us now is Mohammed Abdel
Magubane. He's Middle East and North Africa,
economist at BNP Paribas. If we can just stay on the attack first,
Mohammed, I want to ask you what you know, the immediate impact is, given
that we're not really seeing any reaction in oil markets in particular
for the same reasons that Ziad just outlined, which is that, you know,
really this was not an attack that saw any damage.
And also we're not seeing any impact on the Strait of Hormuz or anywhere else.
Yes. So first off, in terms of the flow of
physical oil, nothing has changed actually since the attacks that happened
over the weekend. It's also important to mention that
where oil price is trading right now, and that's quite an elevated level of
oil prices. We're talking about the market closing
above $90 per barrel on on Friday. And if you compare that with previous
instances where we've had geopolitical volatility in the Middle East, I mean,
you take, for example, 1996, and we had some major upswings between said and
April of that year. Oil had a knee kneejerk reaction to the
geopolitical events in the region, about 20% overnight.
However, oil was trading around 40 at $45.
So the base effect also matters at the moment from $90.
Is there room for oil to rally? Yes, there is, but it probably won't be
as significant as oil trading. Much lower.
Our columnist Javier Blas was talking about 9999 oil, you know, cent less than
$100 a barrel. Is that what you know, opec+ countries
are looking for in the sense that, you know, they have the option to prolong
those supply costs into the second half of the
year. Yeah.
I mean, look, I think in any case, we're probably heading towards a stronger oil
performance in the second half of the year for a number of reasons.
Yes, there is the geopolitical risk premium that could develop once again
into oil prices, but you also have oil meeting a weaker dollar, a structurally
weaker dollar, and the prospect of developed market central banks also
embarking on the cutting cycle. So that is going to support oil demand
in the second half of the year. You've also got the global refinery runs
peaking in September. So I think there's a number of factors
that would support stronger oil in the second half of the year.
Whether we go to 90 or not, I don't have a strong conviction there.
But, you know, I think in the mid to a mid to high eighties, I think that's a
fair assumption. Is there a gap between market sentiment
and geopolitical risk right now? It does feel like, you know, the
geopolitical risk premium is slowly coming out of this market.
Look, yesterday, the Saudis said today will open and close, actually 1% lower
than or less than 1%, actually 0.3% compared to the level of close that
before it. So there is a very clear signal, in my
opinion, that the market is of the mood, you know, stay calm and keep trading.
The extent of selling also across the index was much less broad based than it
was on the first day of trading after the 7th of October attacks.
So and that in itself is indicative that the market doesn't necessarily see a
systemic geopolitical risk event taking place.
So I think there is a gap indeed between
where the events are in the Middle East and where the market is is headed.
Mohammed, before you go, I do want to ask you a little bit about your most
recent work, which is on Egypt. And obviously other events have sort of
taken precedence in the last few days and weeks.
But before that, Egypt got this massive bailout and it looked things were
looking up for Egypt. How do you see that economy faring over
the next 6 to 12 months? Look, I mean, Egypt fundamentally has
two problems or have two problems going into the IMF bailout and the funds that
came from the UAE, it had a liquidity problem and it had a structural problem.
I think the liquidity part has been addressed more or less or at the very
least contained. The structural problems remain.
So if you're asking me about the time horizon, I think that's a very important
question. If you're talking about the next 6 to 12
months, liquidity problems are contained.
I think the market will continue to remain supported by the IMF bailout, by
the UAE funds that will continue to flow, including another tranche in early
May. Hopefully
beyond that, I think we need to see a clear signal from the government that it
is serious this time about structural reforms, especially with regards to
improving the level of public investments, participation from private
sector as well as the export potential for the country.
All right. We have to leave it there.
But Mohamad, thank you so much for your time today.
That's Mohamed Abdel Majid. His Middle East and North Africa senior
economist at BNP Paribas. Plenty more still ahead.
Stay with us. I'm Bloomberg Daybreak, Middle East and
Africa. Welcome back to Bloomberg Daybreak
middle East and Africa. I'm Vonnie Quinn in Dubai.
It's another big week for u.s. bank earnings with Goldman Sachs, Bank
of America, Morgan Stanley, all due to report, among others.
And that's after net interest income missed analyst estimates for peers,
including Jp morgan and Wells Fargo. Although Citi's profit topped
expectations and that was on Friday, would you believe?
Let's bring in Bloomberg reporter Charlie Wells.
Charlie, it seems like forever ago with everything that's happened in between,
but markets, particularly in the U.S., are certainly going to be focused on
things like Goldman Sachs earnings after Jp morgan.
What was it, down six and a half percent in the Friday session?
What details are emerging about Wall Street bank performance?
Yeah, well, look, there is a sense of normalization in a lot of these big
earnings. And we really are sort of in the eye of
earnings season for the bank so far. And the thing that really stuck out from
some of these majors on Friday was just that sort of pressure of net interest
income. And that has been such a boon for some
of these banks. But it seems like it's coming under
pressure. We had that miss on net interest income
from Jp morgan, a mess up Wells Fargo. And of course, as you mentioned,
Citigroup did manage to meet expectations.
But really, you know, this is the major way that these large banks bring in
revenue. And so the pressure that they are under
on this metric really is important. And it's one that Jamie Dimon, the CEO
of Jp morgan, spoke about. He talked about normalization of the
pressure that they're facing as they need to pay out more to depositors over
time. Goldman Sachs in a few hours.
What should we expect from David Solomon et al?
Yeah, so difficult. 2023.
We remember that was one of the executions Solomon talked about.
But look, there is hope that the increased capital market activity that
we've seen over the past few months could benefit this bank.
And expectations are relatively high here in some of these fees.
So for equity underwriting, the expectation in that first quarter is
growth of 20% for debt underwriting excuse me, 30% for debt underwriting.
The expectation is a growth of about 20%.
So a lot of focus there. Let's see if they can beat it.
Charlie, I think you have to leave it there, but looking forward to seeing
what happens we get later on today Goldman Sachs, Schwab and N.A.
Bank among the banks reporting today. That's Bloomberg's Charlie Wells there
in London for us. I do want to take you out with some
markets checks, though, because we are still monitoring the impact of late
Saturday night, Sunday morning attack by Iran on Israel.
And so far and this is also including everything that's going on at the
Federal Reserve and as earnings season starting up and so on, we are seeing
futures higher after a very down day on Friday.
S&P futures, nasdaq futures, dow futures and Euro Stoxx 50 futures higher.
Let's move to treasuries because we might see more of a geopolitical
reaction there. So far, not so much.
We're not seeing a huge amount of reaction a couple of basis points higher
on the two year couple of basis points higher on the five and ten year as well.
And the 30 year. We'll see, though, later on in the day
what other reaction we get out of Israel.
We are still waiting on some kind of an official response from Israel.
Do stay with us here on Bloomberg. There is a lot more to be passed
through. You've been watching bloomberg, middle
east and africa into Europe next with Tom Mackenzie.
