This is "Horizons Middle East and Africa." I'm Abeer Abu Omar. Let's start by giving you an update on what markets are doing this morning. You're seeing a little bit of an upside movement in the futures picture. S&P and Nasdaq are higher.
The MSCI Pacific, same story, rising by 1.5%. Brent crude as well is dropping this morning, 0.6% lower. We continue to monitor the situation in the Middle East. The yield on the benchmark is now at 5.1%, a little bit of an upside on the yield movement, overall holding gains from the last session.
Now, as we have just watched, IMF Managing Director and Fed Chair have wrapped up a half-hour fireside chat at the IMF meeting in Bangkok. They discussed multiple things. No forward guidance from Warsh. He said decisions in October and December will have to be made, but he did not specify what will be made. But he said a new chapter of the Federal Reserve is now here, reiterating his stance from when he was appointed in May. He said price stability is the Fed's main mandate.
When it comes to AI, they spoke a lot about AI and the Fed task force set for November 16. Warsh said the Fed is going to come out of this period stronger, of course, referring to all that is happening when it comes to geopolitics. Those are some of the top headlines that we have been monitoring. We have Bloomberg Surveillance co-anchor with us. Lisa, good morning. Good to have you on our timeline. Can you give us an overview of what you have been listening to?
Yeah, I think it is interesting there. Thank you so much for having me. I want to start by saying that Kevin Warsh is the top-ranking U.S. official to come to Bangkok for these IMF World Bank meetings that have been taking place here, which puts him in a diplomat type of role. They see Washington people are seeking answers from him at a time he does not want to give any answers about forward guidance, and it is not his role to weigh in. Really interesting to hear him talk about the importance of international cooperation given that backdrop. Treasury Secretary Scott Bessent did not come.
With that said, I thought it was interesting about some of his comments on the Federal Reserve. If you take a broader sense of what he is saying, he is trying to endorse the international framework. He mentioned Volcker, Greenspan, and Bernanke. He said they all met the moment. The institution means the challenge. People were looking at what does a hawkish pivot mean and what the Fed is going to do in October. If you are looking for that, you're going to be disappointed. It is clear he wasn't going to give a sense of how he is going to achieve price stability, talking about how to create some sort of better backdrop for price stability, a sense of what he thinks is being accomplished. But we didn't get a lot by way of what the Fed's trajectory might be.
So we'll have to wait until the end of the month to see what the Federal Reserve does with rates. You have been at the IMF for meetings all week, covering things for us and hosting panels. Tell us a little bit about what went on there.
It's been interesting to talk to central bankers all over the world. A huge focus, not just central bankers, executives, the fate of Europe, the question of how Europe is going to attract capital at a time where increasingly people are turning to Asia. Riyadh in particular, a real... [inaudible] who is the frontrunner to take over the ECB. Some of the reforms that Europe needs to take to attract more capital. Really, the focus here is how they face a series of supply-side shocks with a limited tool of rates. That's the ongoing debate now. Artificial intelligence as well as oil prices spiking has disproportionately hurt a number of regions.
Thank you for taking time with us this morning. Let's carry on this conversation. Rates traders are looking past another hot U.S. inflation print. Are markets pricing in two Fed rate hikes by March? Here is what some of our guests have to say after prices rose at the fastest pace in more than four years.
This is a lopsided economy.
Today makes the data more alive.
The story is pretty simple. We are seeing the hotter inflation prints, but paychecks are not keeping up.
In order to finance goods most consumers need, they are having to borrow or reduce the amount that they can save, which is not a sign of great health. The data was strong. It seems like there is a reference to wait in October.
Warsh is not likely to take his clues from one set of data.
Workers are running out of patience in terms of purchasing power.
The economy hurt by higher rates, but another part of the economy, even if you raise rates again, it may not slow down at all. And how you solve seems to be a real puzzle.
Joining us to discuss all of this, the FX strategist from BNP. If you were listening to the fireside chat, what do you make of the commentary we got out of Kevin Warsh?
BNP Paribas FX Strategist
7:02 ↗
I think exactly as Lisa was saying before, it is difficult to say exactly what he is thinking about the October meeting. But I'm not sure if you were counting how many times he said 'if we just look through this window.' And to me, I think it did lean a little bit more on the hawkish side. Especially if we think that we have had hot and resilient CPI sales this week. There is not really a lot of evidence that the economy is slowing down. He talked about AI as well and seemed to think the demand pressures are starting to filter through. He talked about the global economy having good resilience outside of the United States. If anything, I would say his comments are slightly more on the hawkish side. He is one member of a several-member committee, and we heard from others that they perhaps are a little bit more on the dovish side, perhaps not wanting to move too aggressively. I think it is going to be a close call for the October meeting.
Okay. On the back of that, I was taking a look at your notes earlier. You mentioned that holding in October by the Federal Reserve risks the Fed's credibility on inflation. Does that then mean we might see more than two rate hikes leading into March, perhaps one this month as well?
BNP Paribas FX Strategist
8:24 ↗
I think it is quite possible. Our base case is there would be a minimum of three total. We were calling for a September hike. Our base case is we see further hikes in December and January. Given the data set that we had, absolutely there is a risk that we could see an additional hike, whether that comes in October or perhaps another one down the line. So yes, we certainly will stay on the more hawkish end of the scale.
The oil shock, has it started to become a bond market problem rather than an energy market problem, leading to everything we were seeing when it comes to the CPI print that Kevin Warsh was alluding to? Where does it hit next?
BNP Paribas FX Strategist
9:15 ↗
Certainly there is some spillover effects happening in the bond market. AI-related, the theme is weakness in equities this week. KOSPI, also in the U.S. I think that is becoming a bit of a concern where weak equities are translating into lower bond yields. And so actually off the back of this, while we have only had a couple of instances of this price action, we think it is attractive to start adding a hedge to our portfolio that is a little more highly beta positioned. Yesterday we put out a trade idea going short dollar-swiss here. The risk if we see further wobbles in AI sentiment, we could see this on the dollar, particularly against safe-haven currencies like the Swiss franc.
What about Treasuries? We're seeing Treasuries rally even after the CPI print that we saw. Do you think they are pricing in the shock that could come from AI, or is it the other way around?
Ultimately we do still think the path is going to be for higher yields. We still don't think fiscal risks are being fully priced in. That can keep the back end supported. This week we have taken profit on our short Treasury positions. We have seen a bit of a rally here. I think we can see high yields. We had a bit of an episode where there has been some equity pullback and the markets have had to adjust.
Okay. Thank you as always for your time. We appreciate it. Strategist at BNP Paribas. Kevin Warsh's bullish comments on Asian markets are giving a further lift to Asian tech stocks that are looking to recover from yesterday's rout. Indonesia facing a global rejection after MSCI said it no longer merits emerging market status. Turkey also under similar review. We are joined by Anthony Stephens in Hong Kong to tell us what's happening in those moves. Quite a busy day for MSCI. What are the likes when it comes to Asia particularly?
Asia is looking to navigate a bounce from yesterday's tech rout. We did get some optimism out of the U.S. price action, especially from Jensen Huang trying to talk down the concerns. We came in with some positive leads. The mood was fading a little bit. Kevin's speech, he was bullish about AI in the long run. He said it would be a bumpy ride, but in the end it would be unmitigated positive for the U.S. The U.S. is going through an investment boom in AI. That drew a line under the sentiment. That went into a program trading hard. Big change in sentiment as he finished up his comments here. We're looking like we're going to close on the highs, and that fundamental long-term underpinning is important for investors to be hearing, given the short-term worries that people have been overextended in lending to AI companies and that we might see a slowdown in the AI investment cycle.
Okay. I was referring to the moves by MSCI. Looking at Indonesian stocks, they're suffering their biggest fall since 1998. MSCI has a new category. Let's talk about Indonesia and Turkey as well. What does the MSCI warning on both countries have in common?
Both countries are getting warned that market manipulation is too common, too difficult for foreigners to understand where the prices are in each market, and there is a lack of enforcement. Indonesia, that has been one before. MSCI is at the stage and is going to put Indonesia particularly on a standalone market basis along with Lebanon and Palestine. That is causing stress for foreign investors. You're seeing a lot of stocks that are foreign-owned down. It is weakening the currency. You're seeing the currency go through 18,000 on the rupiah. The market is scrambling to have a risk. They are going to review, but it is really interesting to see the strong optimistic statement around enforcement. This holds a warning for Turkey. They get a warning. It is a problem in both markets. Turkey has also been struggling with its own, cracking down on those companies. We saw big moves to the downside in Turkey after the government and the regulator... So it is a very live situation as both markets look to reform under fire.
Yeah. I'm looking at Indonesian stocks dropping around 11% as of now. Thank you so much for giving us that update on everything that's happening on markets this morning. Let's shift gears and talk about trade. Bloomberg has learned that the European Union is reviewing trade powers. They may shut off access to its single market, part of a push to cut the deficit with China. Joining us is Mimi. She has more details about what to expect there. Good morning. Good to have you on. Can you walk us through the specifics that we know so far about the trade measures that the E.U. is mulling?
Already, they are providing a set of powerful tools that can cut off access to the entire E.U. market. It is sort of a kill switch that would allow them to eject any Chinese firms when the E.U. economy is under attack. And no surprise, this is likely targeting China, of course, as we got those data this week showing yet another record high when it comes to the E.U.'s trade deficit with China in September, hitting 35 billion. This comes on the heels of those China trade talks. They agreed to put a cap on China's EV hybrid cars, and it looks like E.U. officials are considering how to replicate this in other sectors. So they are going to study tariffs and assess the surge in exports and look at chemicals as their next potential sectors that they will target. And on top of that, the E.U. is expected to come up with a solidarity mechanism to compensate countries hurt by Chinese retaliation, as well as some sort of diversification tool to compel countries to diversify their supply chains. All of this, the E.U. Commission is expecting to come up with those proposals in mid-December when the leaders are set to meet again.
That's the case from the E.U. side. But China, the potential response there, what could it be? Could we see something similar to the fronts the U.S., for example?
Well, we will have to wait and see what the Chinese Commerce Ministry says. But if you look at the state media coverage, there was a lot of praise for the fact that the E.U. and China came together. The state media hinted this concession was a one-off concession to show the E.U. that China was willing to listen and is aware the automobile administration is very important to the E.U. and that it doesn't need to shop against China. Here you can see this is a post by a state-media-linked account on a Chinese media platform. It introduces new tricks while the negotiations are ongoing. China is not going to take... Here is another one from Global Times: 'E.U. is talking while fighting.' On one hand having dialogue with China but preparing these measures, it is going to promote costs. Safe to say China is probably... if the E.U. escalates measures even further.
Okay. Mimi, excellent reporting. Mimi joining me. The two-state solution is the correct path to resolving the Palestinian issue. Fully open access channels into Gaza, adding that Israel should stop and reverse its forced establishment of settlements in the West Bank. U.S. President Trump declined to rule out using a weapon known as the mother of all bombs on Iran after the U.S. midterm elections. Trump told Newsmax the weapon is not nuclear and said the U.S. is weighing a future strike against Iran. The U.S. president previously ruled out striking Iran before the elections on November 3, which will decide control of Congress. Yemen-based Houthis have attacked the presidential palace. State media reports the missile killed and injured a number of security personnel, but government officials were unharmed. Yemen's cabinet said the strike will not impact its strikes against Houthis. The E.U. and Gulf Cooperation Council have postponed their summit as host Saudi Arabia continues to come under attack from Yemen's Houthis. The summit scheduled for October 24 in Riyadh is the latest high-profile event to be disrupted by the conflict. They said in separate statements they will reschedule the event on a date to be agreed to later.
A look at where equity benchmarks sit. S&P and Nasdaq 0.2% higher. Dow Jones tilts higher just a little bit less. Euro Stoxx futures 0.8% higher. Energy prices, Brent crude, as the conflict in the Middle East... somewhat. Coming up, central banks are faced with economic uncertainty. We will discuss the approach to monetary policy. That conversation is coming up next. This is Bloomberg.
Good morning. This is "Horizons Middle East and Africa." Our top stories this morning. Global economy resilience. Fed Chairman Kevin Warsh said the global policy tightening is seeing a positive. He tells IMF meeting in Bangkok, 'We're going to come out of this period stronger.' The Fed Chairman says AI will change the conduct of monetary policy.
The advent of this new technology is probably the most sequential change to the economy. I take it seriously, but as a central banker, soberly, responsibly, I would say it is going to do several things. First, it is obviously hitting the demand side of the economy before it is going to hit the supply side of the economy.
Asian stocks see a cautious rebound as buyers return to buy chip shares, with Korea leading the recovery. Indonesia is on the risk of losing its EM status. Treasuries holding much of the haven rally. We will speak with South Africa's Reserve Bank Governor about how he is charting a path through economic uncertainty. I'm Abeer Abu Omar in Dubai. Let's start you out with a quick look at what markets are doing. You're seeing a slight rebound in the picture of futures out of the United States. Yesterday we saw an underwhelming performance. The S&P snapped three days of losses, but overall not much of a gain. We're seeing S&P futures 0.2% higher. Nasdaq 0.7% higher. Perhaps this is dip buying. We saw a rout led by chips. The rout in chips that is seemingly reversing in the wider Asia picture. 1.8% higher. Led by, no surprise there, South Korea's KOSPI. Has the edging higher this morning. Brent crude prices, although they are still at $105 per barrel, are dropping this morning, about 0.6% lower. The attacks by the Yemen-based Houthis continue, not just in Saudi Arabia but in attacks against internationally recognized government. Long-term, that does have the ability to create more upside in energy prices, but for the time being, the plateau, if you were to call it that, is creating a downside movement on Brent crude. The yield on 10-year notes, 5%. Kevin Warsh in that meeting with the IMF did not provide any forward-looking guidance. Perhaps that is not a surprise at all for the market. We'll have to wait and see what he does for October and certainly for December. Now the expectation is still two rate hikes until March. For a wider look into what's happening in Asia this morning and some of the positivity that we're seeing in the wider gauge, we have Anthony Stephens standing by for us in Hong Kong. What do you have for us?
