Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240713

Of that will be technical selling. The bond market is a little bit unusual not so much happening in yields here, but in europe you are seeing pretty strong support. The time now for the market moving news from our new york team. We want to begin with china and that historic economic slump. Ae first contraction in backdated. We have our correspondent with all of the details. Mike it was actually worse than you expected, 6. 8 decline, the worst since they started reporting quarterly in china back in 1992. The economy has not contracted the fullyear basis since 1970s. We will watch that. One reason the numbers were not worse, if you look at the second number, smaller than expected, Industrial Production of on. 1 , factories returning to work. The problem for them is with the rest of the world unlock and there is nobody to buy their stuff. Consumers are not buying. Lockdowns were lifted but people are still reluctant to go out and spend. Retail sales down 15. 8 this is important because this is the problem we are going to have even if you open up the country, will people go out and spend money . In japan meanwhile overnight the Abe Administration widening the Emergency Declaration was just around tokyo and now the Prime Minister says he is willing to toe about 926 dollars everyone in the country. Originally it was just to those who were needy. More bad news from europe, a week ago e. U. Countries reached a deal for aid to the countries that need it, but spreads in italy and spain are rising, so that means more bond sales. Market testing that promise seems to be a concern that most of the aid is going to be financed by borrowing which will add to the National Debt of countries already seeing very height National Debts. Some worry about whether all that paper can be absorbed and then this morning the french president telling the Financial Times that unless they reach some sort of deal for joint financing, the project will collapse. He is continuing to push for that. Spain is continuing to report the biggest relapse in cases and more than a week. Alix one interview talked about the debt at some point as well, and mike will be sticking with me for a few minutes. Oil continues to take a beating. Concededps are being considered, and we have my guest joining meet with more. Is this a real belief that russians and Saudi Arabians did not do enough . I think after we had the really devastating report showing the biggest consumption record, andon a then how horrifying the situation, opec probably felt the need to come out to do some sort of intervention. It is not working. Know this is also having to do with contracts, there is a lot of volatility. About,ng i want to talk First Quarter results down 4. 8 from the year prior and includes the pretax charge and it cuts the dividend. This is the big news, that cap not if. About how much, i think is the first time in 40 years berkeley says for Oil Service Companies the First Quarter really will not matter. It depends on how about the next couple of quarters will get. It will get more dire out there for them. That is want to watch. On top of that we will have , becauseon on monday schlumberger is a bit more of a consumer base, but i think this will be interesting to watch. Alix we will be aches speaking to ryan lance later on in the hour. I want to highlight pg e, the company this is there core earnings estimates but they reaffirmed the forecast. Part of this was because organic. Ales came in light, up 6 this is the guy that you will go to, you got toilet paper, paper towels, this is a gold mine for pg e. 4 stock now down by about. Also looking to pay over seven and a half billion dollars in dividends. They will buy back some stock. You do not hear very often about buybacks. We will have more of your morning trait analysis coming up right after this. This is bloomberg. Happy friday, guys. Alix time now for your bloomberg first take. Isning me for our discussion Damian Sassower and michael mckee. Happy friday. What is the most important thing you are looking at today . At thejust looking potential for a serious deleveraging cycle. Coming into the crises, world debt was at two 42 of world gdp. If you look at some of the recovery rates, they had been calling for 14 prepandemic versus the historical average of as much as 60 per you can expect that to be way lower. It could be twice the historical average of 6 so i think theres a lot more pain ahead in the credit markets and that makes sense given where we are now. Week on the flipside, this u. S. Highyield funds about 7. 66 billion, maybe the fed l not have things the market is already doing it for them. The fed probably does not have to buy anything at this point because they have accomplish their goal of a secondary market for highyield yield. The problem they face a couple of weeks ago, people were not buying, and in the secondary that she want to getu involved in that . Probably, no, that would be bad for companies that cannot borrow or have to pay more. The fed announced we could if we want to buy a little bit of highyield debt and that sent people flocking to it. They probably are off the hook at this point. It keeps them out of the concern of whether they will face losses from taking on debt that is not Investment Grade. To pivot off that in terms of what countries are doing with the rhetoric is, i want to point out that there is talk about the butomy has great resilience they want to widen domestic demand and they urge stronger macro policy to counter the impact. Will will be talking about seriously Major Chinese stimulus coming down the pipe here . I do not think we expect them to throw the kitchen sink in. Given all the u. S. Has done, i expect stimulus in the u. S. Something on the order of the percent of gdp. It china, ive got them on something of the order of 13, and they are no longer a growth or commodity story. It looks more like a Service Oriented economy today. If you look at ordinary trade, it is 58 of exports in china. 30 , assembly,at they do not really manufacture anything, and that is down considerably from 45 today. A is acting a lot more like Service Oriented economy. Rising, andare those are the issues you got to look at getting back to work in china. Alix that is a good point, particularly when that is not the thing that they have ever done before. Mike, you mentioned that in some cases that the finance minister in germany is saying that the public debt will rise and that it must be reduced again after the crisis. This feels to me like the europeans are in a debt crisis, sure, we will help you, but how does that cut at this time . It looks like we have a real problem there. You have the germans and the dutch Still Holding out against any kind of joint financing, and have the periphery country saying we need help and we do not need to increase our debt significantly we cannot do that. How can we sell more bonds to pay for all of this ourselves . And you have the germans coming to goday saying weve got back to austerity after this. That did not work very well for the rest of the countries in the European Union. It works well for germany but has not worked in other countries. Morning said if we do not come to some sort of agreement, European Union is going to collapse. He looks to be trying to step into the political void, and this will play out for some time hasr this coronavirus issue cooled down. Everybody is dealing with the disease right now but they got on the mental problems that they have papered over after the financial crisis. They will have to deal with this Going Forward. Alix i feel like you lived in greece for a few years when that was unfolding. I wonder, theres no way that the ecb can stem that dysfunction when you are in this kind of crisis. Eventually it will become sidelined. They can patch the holes and they are doing that theyll have to buy a lot of bonds. If you look at the spreads between germany and spain and italy today, they are rising again even though the ecb said they will do whatever they need to, and the you put together a package for their are people who are starting to get worried about what is going on and whether or not these countries can afford to rescue themselves. They will have to figure out something sometime soon. You can kick the can down the road, but eventually the road hits the dead end. Alix exactly. China ned this, but as well as rate cuts. Question, Td Securities had a note out on capital flows saying they see tremendous pressure of outflows already putting pressure on countries that have currency issues, reserves are doing doing dwindling as well. How does that shake out . Thats whats everybody is actually this isike mentioned not lead to an increase in the money multiplier [indiscernible] of this money supply, we are throwing at the issue, does not mean an increase in lending to those who need it. Just in terms of emergingmarket , we are seeing a little bit of flows back into the asset class, which is different this time around is that the pace of downgrades, it is so much quicker. Agencies are on the front but this time. Back in that financial crisis, they were reactive. That changes the feel for a lot of emerging rockets operating within this space. Anything that can be said or done to change any of this . , there will bern a handsoff approach to all of this stimulus, let domestic economies decide how the money gets allocated. I am not convinced that is the right approach. Nevertheless, that seems to be there belief and that to me can be a concern. I am just saying emerging markets do not have the tools and the systems to get that money to those who need it most. They can use some assistance. To take a handsoff approach may not be the best thing. Alix developed rockets are even having a hard time doing that. Have not talked about the potential guidelines if the states would like to choose to use that to reopen the economy. If that is being credited for the risk rally and i equities, but you heard what a lot of official said yesterday, it does not feel like they match up. You have a situation for the president would love to take credit for the economy reopening. Run on a strong economy, which we will not have in november. He has this planned that he says the states can use, no evidence that states are necessarily going to follow his guidelines. They will develop their own and they have divided into sort of regional packs because they do not want to open statebystate. They want to make sure that if workers are crossing lines, that they are not at this point bringing the disease with them. Epidemiologists have weighed in on the plan and heres the bottom line for whatever plan you are looking at, whether it is from the president or for individual governors, testing, testing, testing. Predicated on their dad that you can test people. Right now there are not enough tests and it takes too long to get the results. Until they can do that, theres no way you can safely open the economy. That will be the issue could how soon can the tests get to the hands of the people who need them . That will be even more of a question. What position would you want to be taking in the middle of the risk on sale at equities where Everything Else is more cautious . I could speak about my book in emerging markets. Universal debt, i would rather play em dollars in local currency debt. That is safer at this point. 20 of that universe is now paying a yield of over 7 . Just think about that. Billion, and 500 many of this is in double digit territory. If you are looking for income, for carrie, i think that em does offer that. We need to see a fundamental turn for the better before guys really start to pile in. What is the one thing you want to be looking at here, mike . I am personally now focused on the european debt and also taking a look at the threat of protectionism that seems to be ramping up. Youll see a lot of potential problems on the rise. Said today, if we do not do something, the populists. Ill win i think it comes back to the curve. In this case its the disease curve heard i heard last night someone say, and i think this is correct, the economy is the disease and the disease is the economy and that pretty much sums it up. Until we get better news on the progress of the disease especially in the places that will havet hit, we this go on and on. The market can go up and down, but nobody will really be able to trade or do anything with confidence until we know that the odds of going out the door and getting sick have fallen. Alix right. Really appreciate the conversation. It was a great way to round up the week. Thanks so much. I just want to recap the china political ise excluding rrr as well as rate cuts and they are now into white domestic demand. Is that enough to boost the growth where they need it . Now rts we use this is bloomberg. You are watching bloomberg daybreak. Risingof juliet are after a report saying the that ishas a drug working for coronavirus. A trial is being conducted and one researcher says most patients using the drug have been this trooijen and only two died. The Financial Services firm run by this man will cut hundreds of employees since the coronavirus outbreak began. Reductions are the deepest in the industry. Other banks have pledged this year to hold off on dismissals. That is your Bloomberg Business lash. Onx i want to update you pg e. Forecastreaffirm their , and their organic growth just came in at 6 . We were looking at a percent, so that is a little bit light and that sales came in a little bit like because of that. That stock is now up over 2 in premarkets. One other store that caught my eye is just how big the Federal Reserve role is, and weve been talking about the monetization of debt. Monthlyone chart, treasury purposes purchases never issue would now the fed is on track to buy double the amount of net issuance. Meanwhile the stimulus plan is ballooning the deficit come and the short wise the shortfall will rise. Coming up, investor reaction to. Lans to reopen america this is bloomberg. Because you cant get to the theater, were bringing the theater home to you, with xfinity movie premiere. Theres a world full of other trolls. How different can they be . Our brandnew service that lets you watch all the latest movie releases from the comfort of home. Trolls world tour available now. I will protect you no matter what, pinky promise. Just say xfinity movie premiere into your voice remote to bring the theater to you. Inx lets get your check the markets on this friday morning pretty we could be looking at two weeks of gains for the s p. That u. S. ,ry here in triple dip in china i will just put that out there for everyone to think about. The underperformance feels like it is risk on the equity market and it is risk on in europe with money coming in as yields continue to go down. On the flipside, you wind up having a lot of pressure, talking about debt. Just to highlight what is happening in the crude market, we are down, with a contract rollover that puts pressure on the may contract. The june contract is performing a little bit better. You are still looking at crude around 20 a barrel. The president lays at his proposal on how to reopen the u. S. Economy in may. There are some difficult decisions. Joining me now is Jeffrey Kleintop from charles schwab. I feellook at the s p, like we have seen some recovery, and we still do not know when well be able to fully reopen. How do you put those two together . The market has gone from pricing in an economic freefall with no signed of ending with maybe aching about the timing of a rebound on the reopening. But that was the easy part. The hard part still lies ahead, what does the recovery look like . This isnt about a politician declaring it is over. It is about means of people and thousands of businesses deciding when they feel safe again. I think it will be tougher from here for the markets. It will be weeks before we know how the reopenings are going in austria and denmark and other places. All we have to gauge them is shapednd that has been v so far. The key will be to watch some data points like jobless claims, we can box office numbers, rushhour traffic, to see how this is going. That puts the market in a difficult place between maybe not heading right back to retest the load but not exactly charging up to new highs until we get a better sense of what it will look like. It begs the question, do you need to be playing reopening trades and if so what are those or do you need to look for that really beaten up ones for the longer terms like small caps . I think as we start to see the turnaround, i think the leadership may shift a little bit. I think some of the value stocks that have been underperforming may be a place to look at as the Economic Cycle maybe begins to turn around. We were just talking about the challenges of the banks in europe, but if we start to get a , that isield curve really good news for the banks and where they are. That could work out. Beyond that,u look oil is up today, and that is something that could be reassessed. We could see a shift in leadership after the nasdaq has leadin a lot of the heavy lifting lately. Alix does not mean that it is the right time to buy it . Jeffrey i think its time to have a balance in your portfolio. Im not saying only those stocks, but i think and we go through difficult times investors tend to look back at what had been performing the best. The problem is when we go through these times, we can look back at everyone of these global recessions, when we started to see the bottom, new leadership emerged. Many investors will miss that if they do not begin to rebalance their pope folios. There portfolios. Earnings are a tough thing to gather any particular insight from. How businesses are weathering these downturns, the decisions that some are talking about in terms of creating better redundancies in their operations and supply chains, important from a cost perspective. As far as the outlook, they do not have any kind of guidance they can offer. I think that is why it is more important to watch highfrequency data that i mentioned earlier for that will be more important to drive for earnings are headed more so than what ceos can tell us today. Alix six month ago i feel like if you asked someone where they wanted to be longerterm, it is dividend growers. The more this goes on, the more conversation you hear about cutting dividends for all industries. How do you look at the dividend story and youre trying to make allocations . Think youve got to look at the companies that have a lot of cash. Theres a lot of debt and i understand with revenues being what they are, they are conserving their cash flow, if this is a brief recession, most should have enough cash to get through and continue to make the dividend payments. Might do is this will cycle and be less damaging to the payoffs than what we saw looking back theugh 2000 and 2002 and downturn then. While companies are bracing a low bit, i think they will come through this a lot better than we are expecting. Question, i know you said earnings are tough to look through, but we have seen a lot of rollover for this quarter. When do you feel comfortable calling in earnings trough . Jeffrey as we get into may we should start to see data beginning to improve. Articularly industrial data as we start to see these economies begin to reopen, we should start to see supply chains restocked and that could mean a rise in the pmi index and other things that feed into earnings. If we start to see that in may indicating the bottoming of industrial activity, that could be a sign that we have gotten to the low end there. Analyst may still need to revise, but that might be a turning point. Alix really great to catch up with you. Jeff klein top of charles schwab. Coming up it is the crude slip pain, conocophillips slashing production, and i will speak exclusively to the ceo. This is bloomberg. Conocophillips slashing production and halting all fracking. [standby] you are looking at the principal this is me being confused working from home. Conocophillips is currently slashing production and helping all u. S. Franking fracking. Joining me now is the ceo, ryan lance. It is always good to check up with you. Yesterday was a tough day for the company and all of the cuts you did. I want to get a sense on the production that you cut and the steps that you are taking on what oil forecast is that based on . Ryan it was some difficult decisions, but the market has been pretty difficult and inventories have grown as you have seen at record rates. That is delivering low prices and you cannot just look at the marker price you also have to look at the net prices that companies are receiving. We just looked at that and said those are too low for us. We are more value driven and we will elect to store the oil in the reservoirs so we can produce it later. Youve talked about what is happening to the back end of this curve and we just think though the prices that we are seeing today are unacceptable for the reason we can do this is because we have a strong Balance Sheet could we entered this downturn with over 8 billion in cash so we can forgo some of these cash flows in order to make these decisions. We refused to sell it at these kinds of prices. Yesterday there was talk about you could talk about cutting output further. Under what conditions would you do that . Ryan we continue to look at the next marketing month so next week we will think about june volumes and Start Marketing them. Our expectation is we see a softer market then ella tipped to the announcement that we made in may. We expect we will be curtailing more production when we had june just given the early indications that we see on prices for that trading month. Alix do you think overall the industry in the u. S. Has done enough or do you feel like there are more cuts to come . Do you feel it will be voluntary . We will see both. I think involuntary cuts are coming. Storage will be full. It does not matter if you can produce on land or get to the water. Local him and tories will be full. Everybody is probably going to be expensing some cuts across the portfolio. Those that have a strong Balance Sheet and do not need just that one dollar a barrel cash flow will probably rethink and be making voluntary cuts also. Similar to what we intend to do until we get except go until cprices fortable our crude. We are making monthtomonth decisions, and we have a framework that we use within the company. We think about that and we will make those decisions on a monthtomonth basis across the probe for lil across the portfolio daily. Alix is in of your production currently making positive Free Cash Flow as prices at 20 dollars a barrel . Ryan all that makes positive cash flow, maybe except for some of the canadian crudes today because we feel like we will be covering our variable costs associated with that production. Everywhere else is making positive cash flow. It is a value determination for us. We believe in the next few months we will be able to sell this for a lot more than what is on offer from our customers in may and june today. Sense, comparing and contrasting what you did in canada versus u. S. , will any of these cuts wind up being permanent . Ryan we do not believe they will be permanent. We have taken the canadian production down to the lowest level possible without doing any damage to the reservoir. Our intention is, when the markets improve, which we believe it will, when the supply oncestart taking hold, that starts to take hold, we expect the back end up this curve to start coming back up. As the demand starts to return, we expect the prices to recover, at which time we will be able to restart production. We are not doing anything that causes us longterm damage. We can restart all of these and get back to where we were before we curtailed production. Alix something that some players were able to do in the last selloff was cut costs. How many more cuts do you think you can bring out now versus say what you had to do back in 2015 and 2016 . Deflation and the the structural costs we took out laste system in 2015, our downturn, so i would not say there is as much of that available. There is technology and animation that will continue to lower the cost of supply across the business. We made a, yesterday that we will take about 10 of the cost structure out of the business for this year. We can continue that, and that is something that we can do as we move forward. A lot of that is not structural, but there is coming in our business like across the industry, more innovation that will continue to drive down the cost of supply. I think the industry will have to continue to do that to be competitive globally. One more question, for the u. S. , prices are trading in single digits, it is really brutal. Do you think a situation like that can ever recover . Ryan i think it will. People will curtail production or they will have to accept those kinds of prices relative to their cost structure i think once this covid driven demand reduction works through the system, we get back to work, we will seek net tax rise as well, unconventional reservoirs, they come back with some plush production as long as you have spare facility opacity to produce. We do, which is why we are making the decisions we are making. Others will follow that same pathway over the course of the next couple of months. You talked a lot about when the demand picks back up. Hugewould be a kludge a boom for the industry. How long will it take to get to this inventory . N as you will note as you well know, you can come down in the rigs, but the first thing that will happen will refineries will pick up the run rates, from the 60s and 70s they are today and get back up to the historic high 80s and low 90s kind of run rates. Then we will start to run off the inventory in place around the world today. It is going to take some time to get back to what you might could say were five year averages. That will take some time to work off. The activity reductions in the supply side will not return quickly until we run off some of that inventory. Alix what is some time . Do have a model for what that looks like . Ryan we do. When you look at the last couple of downturns, it is probably more than 12 months. It will take a year or two for us to run off the inventory levels that weve got depending on where they end up and how fast the demand comes back. There are variables going into that, but it is not something that will happen in weeks or months. It will take some time just like it did in 2015 to get back down to five year averages on the inventory. Here if we just go broader , coordinated action cuts from u. S. Players, would you support that . Ryan we have said all along that we think the market will work predict Government Intervention at the state level like this is probably not necessary. You are seeing the markets start to work. There curtailing, and activity level from industry is coming down dramatically. That will take some time to work through into the volume side of the equation. It is working. If we get to a National Level where we jeopardizing national security, there may be federal actions required. We just do not think doing that at this level is not really the right thing to do. Certainly now is not the right time to do that. The markets will work. They will take care of the oversupply in the business given the demand destruction that we have seen. Alix would you advocate basically a huge call off on the government . This is essentially what you are already doing, do you want to get paid for that by the government . Ryan we do not believe we should be pay for that. I have seen that announcement over the last couple of days, that idea out there appeared we have not looked at it that howard. It would be kind to him hard to figure out how to deploy that, how to decide which oil do you want to shut in first . Is it the high cost . Is that fair to the low cost producers . Theres a lot of uncertainty. I understand the Agricultural Industry has been doing that maybe for a couple of decades now. It is hard to envision how that might work with the oil industry. The markets are working. The markets will do that already. Createoes any of this Good Opportunity for you . I think the Industry Needs to consolidate. Cost ofreally too much supply down to compete against our competitors. Theres too many names for investors to invest in these days. These assets need to be run more rationally. They need to be run for improved financial returns and Better Capital allocations. I think there is room for consolidation in this business. I imagine today the conversations inside the boardrooms all about what do we do tomorrow do not think about long term. I do not think anything happens quickly, but structurally something needs to happen here. Maybe,an i read that as just not today for conoco . Ryan we look at all the options. We look at it very closely, and we have set the company up coming out of the last downturn to be in a position of strength and to be in a position to play in this game if it opens up and is available. Lastst question come question, can you assure investors that ryan that is our perspective today could we have restructured the company pretty dramatically over the course of the last for five years we have set the dividend at a place we believe is affordable for the cycle, and that combined with a strong Balance Sheet puts us in a position that is unique. Weve got a lot of capital flexibility. We announced some reductions down in the capital down to billion dollars. Shouldshould be in feel comfortable about the dividend. Alix it was great to catch up with you. Its great to get your perspective. Conocophillips, ceo. This is bloomberg. Alix holding onto the risk unseen that we are seeing today, the dollar now a big decline in the g10 space. I do want to highlight some movers, schlumberger cutting their dividends, part of the story and then Procter Gamble actually beating on sales, reaffirming their forecast, delivering a dividend. , that is one of the comforters really highly averaged to test and for treatment that was the headline overnight. Markets open, if youre willing to pay for it. Coming up, Lori Calvasina head of u. S. Equity strategy, will be joining us. This is bloomberg. Alix welcome to bloomberg daybreak on friday, april 17. Im alix steel. Heres everything you need to know at this hour. I think the biggest difficulty domestically speaking is about helping the companies. Chinas economy fell into its first contraction decades in the First Quarter, dragging retail sales and investment demand with it. It was as bad, actually worse than you expected. 6. 8 decline is the worst performance since they started reporting quarterly g. D. P. In china back in 1992. Expect a contraction in Industrial Production in march of 11st as factories return to work. We are not opening all at once but one careful step at a time. President trump outlines his plans for reopening the u. S. Economy. Leaving the bulk of the decision to the states. Some states an employer being encouraged to abandon restrictions within the next four weeks. The white house has been eager to lift curbs and let the country return to work after a total of 22 Million People filed for unemployment aid. U. K. Extends its lockdown by three more weeks and lays out five criteria before restrictions are lifted. We should be openminded about continuing to look for areas issue of mortgages, mortgage servicers. Something thats under a lot of stress. Fed officials warn of weak growth and high unemployment as layoffs pile up. Big banks like Morgan Stanley and citigroup pledge to hold. What kind of world will when when we have immunity from it . The right testing . There are so many unknowns back in 2008 it was a fundamental collapse of the whole financial system. Uncertainty weighs on earnings Procter Gamble as reporting season ramped up. Alix lets look at where markets are stacking up. The risk continues on equity markets as well as in europe. Little selling in the buy market. Here in the u. S. Starting to seem yields now decline in europe. Some buying happening over there. Oil taking on the chin here in the u. S. I should point out the majority of the hit w. T. I. Is going to be a contract rollover tuesday it switches to june from may thats causing a lot of the selling. You look at the june contract, you seeing more stability within the market. Those u. S. Futures in some ways are rising on signs that the us suss trying to get ready to reopen its economies. Guidelines, governors could use laid out yesterday by the white house. Shawn golhar bar clays head of u. S. Policy research joins me now. Always great to check up with you. We have a v shape recovery in the equity market as we are waiting for the economy to reopen. What we heard yesterday going to be good enough . Yeah. I think what youre going to see as the data rolls in you are going to see these rolling peaks of hospital demand and use around the country. Subsequently rolling opens for the economy. This is something i think we have all been waiting to see. We are happy to see that certain areas will hit their peak. Without widespread testing that risk of a second outbreak is there. I can understand why some investors are getting excited about the possibilities. We are still cautious about how this looks over the summer into the fall. Alix what are the rollout of reopening look like from how youre modeling it . What we think about it is, and the president outlining his federal guidelines are important. If you recall, he did not issue a federal lockdown. There was no federal mandatory social distancing measures. Rather he allowed states to do so. Youre seeing that on the we have been saying this at bar clays for some time, on the reopening youll see that as well. Governors of california and others have already outlined their plans on what they look like about a reopening. From that point of view, if we are really flattening the curve at this point, and we are looking to move forward, are you still going to see some level of social distancing probably in the summer and into the fall. Anecdotally from bar clays. Talk to the colleagues in asia about this and what it looks like. Social distancing consists of limited time in the office. Potentially restaurants opening every other table being seated. You talked about airlines, where the middle seats are opened. Those are things for the u. S. Well have to think about going into the fall. Of course well have an impact on the economy. One thing to keep in mind from a congressional point of view they are trying to get this phase 3. 5 focused on the Small Business administration. We do expect them to pass something probably next week. And there is a lot of work being done towards this larger what we call phase four. If we start to reopen the economy in parts of the country and people feel like things are coming back, it will impact that discussion most notably on phase four. Im still fairly confident congress will need to pass some level of stimulus. Alix what is the phase four shaping up to look like in your opinion . I think a lot of it might be focused on a couple things. One, individual rebate checks. I think that was a popular part of the phase three program. It was something i think that really took hold for people. So long as the money is distributed on an efficient basis, timely basis which they have just begun doing. I think something you could see going into a phase four. Maybe its one to even two months of it. I think in addition to that you are going to see aid for state and local governments. Municipal governments are in a really important financial position right now where they are under a lot of stress. Not only are revenues down from everything thats going on and Tax Collections will be delayed, but their expenses have gone up considerably. Frontline expenses, hospital expenses. State and local governments are under a lot of pressure. I think phase four will offer a lot of aid to them as well. Alix speaking of aid, the Protection Program hit its limit yesterday. We are waiting for additional money out of congress. How close are we to a deal . What is it going to look like . A lot of political pressure right now on congress to get that done. 22 million claims in the last month. Unemployment rate is going to be at well over 10 . You talk about just before contraction in china. There is a lot of pressure right now on all u. S. Policymakers to get something done. On this everybody sees Small Business as the lifeblood of the American Economy and incredibly important. I think what it comes down to is do you include other provisions in addition to the 200 billion to 250 billion of supplemental funding for the p. P. P. Program . Other provisions being state andlogical being like p. P. E. For hospitals and state and local government level. Community health septemberers. I think thats where some of the disagreements are right now. Note one thing is that the ink is just dry on that phase three program. When they signed it, they thought it was probably two or 2. 1 trillion. It ended up being slightly higher. The c. B. O. Yesterday released its longterm budget impact on that. For some members of congress they are nervous to keep passing these bills so quickly. That all being said i think the pressure is so high i expect congress probably next week to get this Small Business package through. Alix the c. B. O. Estimate was huge for issuance. Lets get the final thoughts here on the hold in the package. Businesses owned by p. P. E. Firms, hedge funds, airlines not willing to take the restriction that is go with it. Where are we in the company that eedsslash needs wants to get the money . They should get it. Its more of a policy discussion. At the end of the day they want to make sure individuals are not left over the firms. We have this continue employment Going Forward and helping as many Small Businesses as possible. Obviously for some folks in washington, there is a concern and optic issue about this as well. For everybody, truthfully, going into november, they are going to be worried that the b word, bailout word, will be applied to whats happening right now. Theyll be cautious in what they vote for. If they get this done by unanimous consent, not only does that speed up the process, it shows bipartisanship. It also protects members that can say, well, look, we all went for this. Thats what leadership is hoping to get. It also helps prevent members from having to fly back to washington to pass this legislation. Alix appreciate catching up with you. Coming up on the program, u. S. Equity markets are more likely than not to actually retest new lows. Lori calvasina, r. B. C. Capital markets head of u. S. Equity strategy. Continuing to look for pockets of the economy that have been overlooked in what we are doing. Through no fault of their own are under press strest. So i would say my own mindset would be we should be openminded about continuing to look for areas whether its nonprofits would be a good example. The issue of mortgages, mortgage servicers something thats under a lot of stress. Alix president Robert Kaplan speaking on Bloomberg Television yesterday. Here for more Michael Mckey and Lori Calvasina. The conversation i wanted to get at was you see this v. Shape recovery in equities. You hear from fed officials and looking at the data, we are like nowhere near a v conversation. How do you as an equity strategist square those things . A few weeks ago we did a survey and we actually asked Equity Investors when do you think we are going to get a v, u, w, or Something Else . It wasnt half, 41 or so, but the plurality thought we would see a w. Two vs backtoback. That echos what i think ive got in my own head which is i think this will be a bumpy ride around the bottom at best. I still dont rule out the possibility we retest march 23rd lows, if im wrong i think that w answer is the right one. Alix mike, we had a lot of fed officials speak over the last few days. Do they have any broad consensus of a letter recovery . Not really. What you see is a number of people saying its going to take a while. We are not going to be starting up in may. We may be getting somewhere near that area in june and july. And then they diverge, the fed officials. Some think we will not i dont think anybody sees the v shape, but something well start to grow slowly in the third and fourth quarters. And others say not until next year. At this point nobody really knows. Its going to be interesting not a whole lot more they can do. It will be interesting to see the minutes of their discussions at their meetings. We have one on april 29. Alix its a good point. I know the equities are supposed to be forwardlooking, but in this case it looks like they are forward looking a lot. Where do you need to allocate, where do you sell on rallies . What we have told people is keep a balance and buy the best of the defensive and cyclicals. On dips, when im in recovery mode and thinking about that rebound, i still really like the industrial sector at this point in time. Its just as cheap as Something Like financial. You dont rates to be higher longer term to work. We are going to get the economy back at some point. E. S. G. Invetors like it. We heard chatter this week that those flows are coming into the market. The dividends were safe there duringt financial crisis. Thats kind of our buy on dips rebound opportunity. For days when we are feeling more skittish, we like the utility sector and health care sector. Alix days we feel skittish. Perfect way of phrasing it. In terms of growth, we talked about this yesterday. Do fed officials or economists have an idea when we stop seeing bad numbers . They actually level off so we can bathe and get reality how that will go . Its probably going to be some months before we get accurate data. Weve got a backup in jobless claims filings. And we do have some companies that are still laying people off. Now you are going to run into a situation where ive tried to keep my company opened. This is taking so long and its just not worth it, im going to close t then more people go on. Then you have the Small Business loans out there, the paycheck Protection Program, some people who were out of work and filed for unemployment may go back on somebodys payroll at least until the end of june. It will be really hard this flow back and forth to tell exactly how many people are out of work. We know a lot of people will be. Numbers that are just going to be staggering. To get an accurate representation of when the flows have settled out, we know where we are, is going to take time. Alix lori, it begs the question when looking at the market. What sectors are you looking for those second round effects that mike was talking about . I know a lot of people want to buy consumer stories in the discretionary area on rebounds. I just look at the secondary affect issue and think how long is it really going to be before we get back to normal . My same survey i referenced most investors thought we would get back to normal in 2 q and 3 q. I dont think thats realistic. I would not be chasing areas like restaurants, leisure that stuff on rebound even though we see short recovering rallies. I do think the consumer has been changed. I think its going to take time to understand what those changing Consumer Habits are. Thats where i would probably tread very, very carefully. Alix good point. Also what does this mean for margins in cap x . Even if youre restaurant and reopen, you probably have to restructure our your wait staff and customers and kitchen cooks to abide by certain guidelines. Thats not dethat. Car companies, anyone in the supply chain. How do you scare that with a margin outlook . Its a great point. What we have told people as we come up our guess at this mats on earnings, i qual them guess timates, but we want to be realistic, the single biggest problem we have in pugget our model together is figuring out how big is the hit going to be on margins . We have baked in now are the worst days of the financial crisis. We have those types of impacts. It could be worse. It could be better. We just dont know. Thats why i think this reporting season is so crucial. There are so many people saying it doesnt matter. We know one q is terrible. Its about the future. I disagree with that. I need to understand what the margin impacts have been so far to really understand how bad they are going to get. Thats the biggest thing im listening for. Alix do you feel like economists are also agreeing with lori . Are we getting on the same page or no . Im not sure. Economists are much more honest than investors about not knowing. Investors are taking things on faith at this point. Or their belief. They are generally saying we dont have the data so we cant really give you a good forecast. We are seeing a lot of Companies Get rid of their earnings forecast for the year, which is a good thing. They have no visibility. The question i would ask in terms many soft sectors she wants to buy, coy make a case for utilities because we are home. Its going to get hot. Well need air conditioning. Industrials and things like that, the companies could come back. But to the customers come back . That will be the issue. Boeing wants to bring 27,000 workers back next month. Who is going to buy their airplanes at this point . I think thats a good point. Alix go ahead. Sorry. I think thats a great point on the aerospace and defense side. When i put i think thats a special situation when we put that aside. I do think that we will have construction. I do think that infrastructure is coming back up into the discussions again. I also feel like one of the legacies of this crisis is understanding that we need to reinvigorate the domestic Manufacturing Sector at home. We have sort of understood through this crisis there is a value to producing more things here. So thats something that keeps me calm about the industrial sector. I feel like that sector will come back more and sooner than the consumer sector. I would say on health care, which is another area we like, one of the things that we have liked about that space is that we havent quite seen as Many Companies withdrawing guidance. We have seen downward revisions are less severe in that sector than what we have seen in other sectors. We have seen some of those companies sort of support their dividends in here recently. All that is telling me that this is a sector that is better off. You probably are going to get resiliency there. They are not going to go totally unkansas citied. That resiliency factor will continue to show up. Alix great conversation. Thanks a lot. Lori calvasina will be sticking with me. Exclusive interviewed with cleveland president. Alix youre watching bloomberg daybreak. m vimbiana. Sean cutting its dividend for the first time. The Biggest Oil Field Service Provider looking through the wreckage of the oil collapse. Job cuts and furloughs around the world. Its cutting salaries. Shares of drugmaker arriving a report in the medical publication says the companys coronavirus drug is working. A trial is being conducted at the university of chicago. A research every says most patients using the drug have been discharged only two died. Alix thanks so much. Lori calvasina, still with me. What do you do with small caps . We put out a piece the other day and said it really depends on where you think the markets going from here. We are sticking with our neutral view. They have been decimated this year. Nice move since mid march. They have been in this relative performance trading range over the lack week or so. Its not clear what they want to do if you are looking at the stocks. If you are a shortterm investor, need to preserve capital, your relative returns in the store term, it could be a dicey area. We are not convinced we are out of the woods on this market yet. That being said, if you really are a longer term investor, if you can just ride through any nearterm storms add exposure to these areas. We looked at past recovery trades around recessions. Small caps always bottom well before the rescission is over. They outperform the large caps before the recession is over. In the six month period after you get that mid recession, they are strong and consistent. Its a clear and obvious recovery if you can be long term. Alix i wanted to ask that for the winners and losers. Small Companies Overall this crisis have been hammered where the large caps, especially large cap tech, has outperformed. Do you expect that to continue . Is a very that large important signal. I see it continuing to work a little bit in the short term. Longer term but more neutral on large cap tech. Generally when large cap tech is doing well, we should not view it as a risk on signal. What it is signifying is people want to put money into stocks and the market, but they want to do it with safe household names. They want to do it with secular growers. In the past that big cap tech space has been one that underperformed on recession and outperformed on wait up. Aim not sure we get that because its turned into a resiliency defensive trade this time and cycle. I look at the performance of some of these names recently and it tells me there is a defensive undercurrent to this market. Alix i wonder if that creates a premium thats justified. Like netflix, bigger market cap than disney. Thats one of the reasons we have been sort of market weight. The broader tech space. We do think i think about software in particular as being sort of one of the areas of the market thats really getting the economy, getting the Business Community through this crisis. The fundamentals there are good. They are really proving their worth. They are crowded, expensive, they deserve to be there. You dont want to be overweight from here. Its hard to argue for an underwait at this point in time. Alix always good to catch up with you. Lori calvasina, good to chat. K. K. R. Says keep calm and carry on. How its allocating assets. Exclusive interview with henry mcvey k. K. R. Head of global Asset Allocation next on bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Alix welcome to bloomberg daybreak. S p futures hanging on. Have european equities up 3 to 4 . Two straight weeks of gains for the s p if we close out at these levels. Solid earnings out of Procter Gamble. On the flipside, Companies Like schlumberger cutting their dividends as well as. The dollar is the under performer in the g10 space. You are seeing selling in the back end of the curve. In europe, still solid buying from the court to the periphery. I also want to highlight what is happening with oil. Youre getting wti hit. Nonetheless, youre still looking at oil prices 20 a barrel. Not want to head over to Erik Schatzker for an exclusive interview with henry mcvey. Is with us from richmond, virginia. Your head of global macro and Asset Allocation and you run kkrs Balance Sheet. You have thought about the implications of this pandemic. The stock market is telling us recovery will the be almost as powerful and swift as the collapse. What do you think . Do we have you . It appears we have just lost henry. These technical difficulties largely a result of having to work from home. I am not at home but you are in so many of our colleagues. Headed back to you for the moment and i hope we can reach henry again and get back to that conversation. Alix no problem. This happens a lot. Thanks for rolling with patients. You are seeing risk on in the equity market. I want to highlight individual names. Gilead is one of the out performers. Part of that is because one of their drugs may be working to treat the coronavirus. You are taking a look at boeing, that stock is popping. They might plan to reopen some of their plants as well. Youre also looking at Procter Gamble, up. 8 . If we take a quick check in on earnings, they are looking at fullyear organic sales of 4 to 5 and they wound up beating estimates and it reaffirmed their forecast. I think we now have henry mcvey. I will hand it back over to you. Mcvey, heads henry of global and macro allocation at kkr. The question i was asking is this. The stock market is telling us the economic recovery is going to be just as powerful and swift as the collapse. What do you think . There are a couple of things to keep in mind. One is we have an extraordinary amount of stimulus if you add up stimulus, itfiscal is 37 . That is an extraordinary number. The markets right to respond to that. I think we will transition from monetary and fiscal stimulus headlines to leading Economic Indicators and earnings. That is probably not as positive in the near term. As we look out on the equity side, things are probably around fair value. On credit we see a lot of value. Divide what are you trying to achieve . When we look out towards 22 and we we see a lot of value and see secular winners around ecommerce, around value concepts, people trade down. We think there will be a big theme towards nesting with people doing more working from home or similar behavior patterns, what we saw post9 11. This will not be a straight line. The vix is at 40 for recent and it is telling you there is still a lot of uncertainty. You and i have talked about this recently. There is a massive Human Element to this. The u. S. Just had 22 Million People on the unemployment tally in the last four weeks, which is extraordinary by any measure. Itll be a different recovery by country and region. We are seeing attractive shoots out of china. I do not think china is the playbook for all countries. You can say there will be a recovery, it is coming, but it will come from a big hole. Erik what did the chinese Economic Data overnight tell us . Henry two important things. One is that the industrial hung in there well because they are still getting decent demand out of the west. Thesaw the consumer data, retail sales down 17 yearoveryear. That is more reflective of what we would expect. We track the data for your viewers. We have 175 companies globally. China cases peaked around february 4. The Economic Data could start at the bottom around february 16. We have seen pickup into things like household products, jewelry, even seeing autos come back. It is a different consumer. One of the things we outline that folks can take a look at his we think this is an inflection point. We think there are themes that will change the playbook of what people were doing for the last couple years. You will have to addressed the lens through which you look at the world. Back to your point on the recovery, remember there are two things people have not talked about and written about enough. We came into this 10 years ago, a recovery where we now had peak corporate margins and peak corporate leverage. We have seen that through people doing buybacks and things like that. This is a combination of the blue shock like we saw from 9 11 , but coupled with an event like 1987. Typically when you get a crash you get a big bounce up, and this market did the right thing. We had the most significant drop since the Great Recession ahead of the recession. The market was telling you the right thing. We had a much more dramatic response. Think about it this way. The fed has done more in the last two weeks, 85 more in terms of buying, than what it did the two weeks after the Lehman Brothers bankruptcy in 2008. Our hats are off to the fed and the treasury for how theyre trying to work from a monetary standpoint and a physical standpoint. Is we have a much higher Unemployment Rate. See very little unemployment in asia and china. In europe we think unemployment has moved from 7 to 11 . In the u. S. , that number could move from where we are today up towards 15 to 20 . Erik can we talk about what the and othere treasury governments around the world are doing . Correct me if i am wrong, but partridge really what the fed is doing is providing liquidity and providing credit, and the treasury to a certain degree is providing some demand replacement. It certainly cannot fill the hole we are going to see created over the course of the Second Quarter. Help us sort through what the fed and the treasury can and cannot do in terms of economic support and how that should be reflected in asset pricing. Henry lets start with the fed. The fed is trying to put money into the system to keep financial conditions at adequate levels so businesses and individuals can transact. You had james gorman talking about how he had have operations working. Morgan stanley needs to be in business. You have to have bank of america and j. P. Morgan, all of those private equity firms. The fed is trying to create good financial conditions. They are doing that by buying treasuries, mortgages, and they started to move into Investment Grade. The second thing is once you calm financial conditions, which they have done a significant job of doing, you need to have a fiscal response. Unemployment benefits average out to 28 per hour. That is what the middle Income America makes per hour. They are creating a bridge during this uncertain period. Kudos to the treasury for doing that. Ultimately when you look at the plan, it is threepronged. The Investment Grade program is for the big companies. Small Business Loans are to the very small companies, and then you have the main street in the middle, which is trying to help those. It is not going to work perfectly overnight. That is why you see the Unemployment Rate spike so high, but the intentions are pure. What we are trying to do is , create foam on the road so it is smooth, but we know there is a massive pothole. We are talking about a peak to which isp of 12 , three times what we saw during the great financial crisis. We are optimistic we will get to the other side. The news you heard overnight from gilead, our view is the economy will open up, but it will open up and a rolling format. Unfortunately, what youve seen look at what is going on in hong kong and singapore. Cases have picked up in the united states. This is not going to be a perfect science. The peak number of cases in china and south korea took about three weeks to go from peak cases to less than 100. If you look at other countries, you can use italy as an example, we are still seven weeks in and we have not bent the curve. Theres a lot of discussion about bending the curve on the way up. What needs to happen now is you need to bend the curve on the way down. Our view is that social distancing, even if the drug coming out of gilead a successful, it does not fix the social distancing issue. The economy will look different. Our view is you will see a lot of transfer of economic value creation. You are seeing this in real estate, in traditional retail, to ecommerce. That is a clear theme. You will see changes in education. Changes in behavior patterns around the way people think about value concepts and the way they think about health and wellness. Think about esg and what kkr does there. We have been doing lots around food safety. You will also have safety around health care. Those types of things are efforts we are working on. It is happening against a backdrop where nationalism is surging. In some of our prior interviews, we talked about technology being a strategic priority for the united states. Sector has just expanded in areas such as health care and other areas. I think we are in for a recovery. We can complement the government and the fed for the work they have done. There is always a transition. In a big big shop down move back up and then you have a sawtooth pattern where the economic reality pulls you back down. The upside is you will get a cure and get liquidity and physical response. We have moved and fiscal response. One,ve moved from phase where we were very aggressive around deploying into the downturn on the higher quality. Now we are moving into phase two. This will be a look rolling dislocation and we have been forming capital around that and speaking to using our lands across asia and europe to find things where we can partner with topanies to deal ever delever where ultimately they want to grow. It is a two pronged attack. Phase two is partnered with secular winners, you think you will come out. The second is to partner with companies that need to deleverage because what i talked about, which as we enter the downturn with peak margins and peak leverage. Globally today, when you look at total debt as a percentage of global gdp, it is 250 . It was 210 . That theme of deleveraging will be with us for years, not days. Erik great perspective drawn from 100 75 Portfolio Companies kkr has around the world. That is henry mcvey, head of global macro and Asset Allocations at kkr. He wrote the Balance Sheet. His report, keep calm and carry on can be found at kkr. Alix i appreciate that. The coronavirus and supply interruptions. We will look at the health of the global Agricultural Sector through equipment traffic maker. The ceo Martin Richenhagen will be joining us. Bloomberg users come interact with any charts we used throughout the few hours on gtv. This is gtv this is bloomberg. Viviana im Viviana Hurtado and youre looking at the principal room. Coming up, an exclusive interview with Loretta Mester, cleveland fed president. Alix time for bottom line. We take a look at companies and sectors worth watching. Today we will take a look at your food supply. Farmers in central workers are needed to ensure our food security. Martin richenhagen, ceo of adco is the leading provider of agricultural equipment. You have such an array you have a huge perspective of where we are seeing problems. In the u. S. , what food is secure and what food is at risk . I can share with you that all farmers are working. The food at risk are these foods which need workers from outside the country in harvesting. , in europe it is asparagus. Things like that. Mentioned last month you had some disruptions to your european facilities. Does that mean you do not see disruptions like that in your north american facilities . Martin in our factories in the u. S. , our factories are working at capacity. The masseye have ferguson factory in france. We have a factory in bavaria which is closed, but might open very soon, and we have our combine factory, where we do all combine for europe in italy which is closed. A lot of our suppliers do not work, so that means when you ramp up and start production sure, you need to make your suppliers are all aligned, which is difficult, but we are optimistic this will happen soon. Alix you have an idea of any impact on your First Quarter sales . News, i cannotd go much into detail, but the good news are that the First Quarter was still pretty strong. To coverhe opportunity all of the requirements because we also have inventory. The First Quarter will be ok. The Second Quarter is the question. You have any insight into how much worse . Can you give me any sort of quantification . Martin no. It is difficult to predict. It is not influenced by us. It is not influenced by the manufacturers. Politiciansnced by and administrations. We rely on whether we are allowed to work or not, so that makes things unpredictable. Upefully we can catch because normally we close down , and right now people have plenty of time to do what they want to do. That we do not have to shut down. Demand is still there. Farmers farm and use their equipment. Airlines,fferent from where nobody is flying and therefore the equipment is not used. In our case, farmers are ceding, farmers are planting good Farm Equipment is used. You can see that from the parts business. That is ok. We just need to be in a position to produce. Alix at what point do you think you will have to furlough workers or lay off workers or reduce salaries . How long does the economic disruption go on before you have to make those decisions . The factory in europe are on short time. And germany that means our people get 60 of their wages paid by the insurance. 20 . Cided to add another we did that in order to motivate our people. We want tot make sure they are doing well, and so far we only have a few coming from people being infected while working so they basically were infected went skiing are going on vacation, and things like that. Alix martin, good to catch up with you. Would love to do so around earnings for more of your insight. Martin richenhagen, ceo of agco. Coming up, if the trend holds, new highs for gold should only be a matter of time. We will break that down in technically speaking. This is bloomberg. Alix breaking news. Fort polin neri net loss for the First Quarter will be about two built fords preliminary net loss for the First Quarter will be about 2 billion. Mike mcglone joins us now. Golds new top . What will we see . See newld will likely highs in terms of dollar denominated gold. A good way to watch for guidance is euro denominated gold. 1600 euros. Gold leached gold reached a 12 year high. Hovering around 1700 resistance, but it seems a matter of time it should pick up the old high around 1900 and get to 2000. Alix if you have that, you have an equity market, no . Mike that is what kicked in gold. Gold bottomed when the fed first started tightening. Volatility ine is the stock market around 2018. That is what kicked gold in on the rally. The new thing it is rhyming completely with 2007 before the crisis. That is what we show in our next chart. The average 200 day average of s p volatility picking up and the gold versus s p 500 ratio is catching up. At some point should get back to that average ratio of the s p 500, the average since 1971. Alix appreciate you sending is up for this friday. Mike mcglone, Bloomberg Intelligence commodity strategist. That does it for me. Coming up on the open, with jonathan ferro, Loretta Mester will be joining us talking about her view with the economy. This is bloomberg. From new york city for our audience worldwide, good morning, good morning. The countdown to the open starts right now. 30 minutes away from the opening bell, friday morning price action taking shape as follows. Equity futures elevated. We are on course for our first backtoback weekly gain since the selloff started on the s p 500. It is a snooze in the bond market. The price action that has everyones attention, the contact on wti coming down 10. 5 . We have a 17 handle on wti crude. Your price is 17. 80. We will find time to talk about that later in the program. Lets begin with the big issue. The spread between hope about the future and the brutal reality in the present. ,he hope about the future having a conversation about reopening the conversation. The fact we are having