Extraordinary. The underlying reasons why is very clear. We are up to our eyeballs in oil, at that means the price goes down. We have some terrific perspective today on oil. Too much oil, not enough storage. We will have plenty more on oil and we will try to figure out whether this could happen to another part of the market, but first lets get to the first word news in new york city with viviana hurtado. Viviana we begin with speculation about the health of north koreas leader kim jongun. The u. S. Official got word that mr. Kim was in Critical Condition after cardiovascular surgery. The white house reportedly was told mr. Kim took a turn for the worse. Kim is 36. He recently missed holiday celebrations in pyongyang. Now to president donald trump, issuing an executive order temporarily suspending immigration. Late monday night, the president tweeting the move is needed to contain coronavirus. He also says it will protect american jobs. No word on how the suspension will last or who it will affect. And now to oil come as francine and tom were mentioning. It rebounded after a recordsetting day. The price of new york crude sinking below 40 a barrel. Those who take delivery of oil in the near future may not have a place to store it. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in im than 120 countries, viviana hurtado. This is bloomberg. Francine . Tom . Tom viviana, thanks so much. Lets look at equities, bonds, and as i said yesterday, oil, oil, oil. Crawlings intermediate back near zero, still a negative statistic moments ago. As francine mentioned, the june contract below 20, plummeting to a recent low of 18. 4. Emphasize awant to dampening across all Asset Classes over the next 48 hours with yields coming in, curves flattening, equities obviously off. Just one idea, the correlate over to oil. Corn having a really difficult go of it. Francine . Yeah, tom, i do think it in generalk at more broadly, explaining the difference between the may contract and the june contract. Those who take physical delivery in the near future of crude may not find storage for those barrels. Also looking at pound, we had an interesting call from some of the banks given that the u. K. And e. U. Conversations have restarted, but the u. K. Keeps saying they will not extend the transition period. We also need to look at pound. 1. 2395. Tom, let me pick it up and go to someone who has been waiting to speak on oil. Martin, it is is incredible what we saw yesterday. Tom and i were talking about it. A lot of people took a long time to explain it, but the matter of the fact is that there is too much oil and not enough storage. Does opecplus have anything to stabilize it, or is it out of their control now . Have reached a stage where this is out of the control of anybody. Matter of fact that the Global Economy has grown to a halt because of the coronavirus and increasingly, the transportation sector has been oil demand has fallen in the month of april by somewhere to 35 millionlion barrels a day. That is not just simply an unprecedented demand, but it is so far outside of any historical change in oil demand that we have seen, that i think there is no group of suppliers that can prevent this through production cuts. We will be looking at significant inventory built for a couple of weeks, a couple months to come, and with that the issue of storage will remain front and center. Francine are you worried about Financial Stability if some people in the u. S. , shale industry in the u. S. , go bust . Thats a very good question. The challenge to the industry really is that this renewed downturn is coming on the heels of the previous downturn, which is just five years ago. The 1986 oil price, or the downturn in 2015, at least it was a good 30 years where the industry could regroup and adjust. Following so hard and fast. Most of the Companies Either in europe or the u. S. Have gone through massive rounds of sufficiency gains already. That means that restoring through this crisis is all the more difficult. From that perspective, you would expect this to have a much quicker impact on production levels, on survivability of the companies. So the short answer is, yes, and i think the high yield markets is showing you precisely this. Tom artan, i want to talk about the june contract. Martin, i want to talk about the june contract. I want to talk about the greek letter theta or the time. Charta chime a time yesterday. Do you propose the june contract will show normal data and normal time decay, or is this time different, where it will act more rapidly like the may contract, the one that plunged . Nto negative territory ech there is an interesting dynamic going on with the june contract and possibly with the july contract, and that there is on the whole a somewhat popular groundswell idea that oil is therefore, when oil is at the inclined tomight be buy it. As a financial investor, the only option you have is to buy oil etfs. Seen huge inflows over the last couple of weeks. What these etfs have been doing is they are buying, mostly to june and to a certain extent july contract. These inflows have been so large that the june and july contracts have been supported tremendously. Now, it is probably the case that we are at or close to the largest part of the imbalance in the market and that over the next couple of months things will get better. But it is not obvious that the sores situation in june and july are so much better than they are inmate the storage situation in june and july are so much better than they are in may. The issue is still very much alive for the next two contracts, and they have just had an almighty level of support from etf inflows. So from that perspective, theres quite a bit of risk to the negative contracts. Tom how do the etfs unwind if they have a wall of retail money coming in . How do they unwind that tension in the june and july contract . Wetin that is a question are all asking ourselves, and this has become not a small problem. The uso, which is the largest , as ofthe United States yesterday morning, owned about a inrter of the open interest wti. This is one etf alone that is absolutely huge. Thate normal procedure is a day or two or three before the contract expired, the administrator of the etf fell from their futures and take the proceeds and with those futures and buy the next contract. But when the etf gets so large, then of course they can have a somewhat of a distorted effect for a short period on price discovery and in the oil futures market. The role of these etfs itself is becoming an issue that shortterm traders will need to take into account. Francine how will it change . Will the role of etfs with the physical contracts they cannot hold, so how will he change the industry as a whole . Do they need to merge . Will it actually change the physical Oil Companies . Look, the fiscal price realized by Oil Companies themselves is not necessarily come as far as i can see at least, that much impacted. But there is a real question about the falling. Of these oil one etfs over the idea that it cannot get any worse, we are at peak oversupply, the oil price is at the bottom, and you then invest in one of these etfs this month, next month, the month thereafter, they may contract into june contract, and the june contract into july contract, but at the same time the curve is significantly upward sloping, and therefore when the etf administrators rolled through the next month, effectively they are selling low and buying high. You have a huge headwind to your returns. Roles, that perhaps within a couple of months people who have bought into these etfs will find returns a little disappointing. Sure, the front month wti price will be higher at some point in the second half of the year, but the return from etfs might be close to zero, may even be negative. It is likely to be somewhat disappointing, i would imagine, that perhaps than the popularity of these etfs weighing significantly, that the inflows we are now seeing our questionin, one more if we could. This has been a wonderful clinic on all the dynamics of american, of pushing oklahoma oil. Linkage with the global price . Is the price dynamic and the data upset with west texas intermediate does that drag over into the effects of brent crude . Martin coke to a certain extent it does, and it should in the sense that it drives home the message that you started this conversation with. We have a lot of oil at the moment, and that becomes all the much easier to appreciate you see wti turn to a negative. It is really something that sticks in peoples psyche. There is one important thing to remember when you are comparing wti to brent. Landlocked crude, and brent is a seaport crude. They are openly much more there are openly much more Storage Options available for crudes like brent, and that means the price dynamic that you saw yesterday in double uti, which is related to the fact that oil is landlocked in certain areas, it cannot go much beyond pushing, and there is only 75 million to 80 Million Barrels of storage available, period. That dynamic is not quite as severe for brent, which can go many places. Tom right. This has been wonderful. Artan rats, thank you for kicking off this hour of martin rats, thank you for kicking off this hour. 16. 47 on the june contract. Down three dollars since mr. Rats started speaking this morning. We are going to continue. We have lots more coming up. Next we are going to look at fixed income which has been dampened, yields lower, over the last 48 hours. I guess joins us from Deutsche Bank. Stay with us. From london, from new york, this is bloomberg. Francine this is bloomberg surveillance. Tom and francine working from home, from london and new york. We had a great conversation on oil dynamics, trying to figure out exact it would yesterday. I from the may contract inching up a touch, the june contract at 16 and peanuts. Jim reid is the Deutsche Bank head of fundamental credit strategies. Thank you for joining us on bloomberg surveillance. I dont know when you look at the world what you worry about the most and what that spurs you to buy in the credit space . Worry think i probably most about the exit strategies and how the world will handle going back to work once countries decide that it is quite clear from the messages we are hearing from countries that although they are spreading a little bit carefully, they want to get countries back to work at some point in may. I think that is the thing i worry about most. What does it mean for italian yields . I dont know if you look at the spreads from italian and some dislocation between italy, or if you look at treasuries. Jim i think the italian yields is a different picture. That is all about how close the solidarity between the you and can get. Get as with all things european summit related, i think there will be a lot of constructive applicability around it, and you will have to get through the details to work out how close to the Northern Country it is. Tom jim, it is tuesday. It already feels like thursday or maybe even friday as well, the news flow is so extraordinary. Most of the news flow screams disinflation if not outright price decline, clearly influenced i the plunge in oil. What are you seeing in the makeup of the yield right now . Does it scream disinflation and even price deflation . Term, think in the short we would be hardpressed to not see this as inflationary. And i think bond markets are to some degree pricing that. Bond markets are also pricing that already in the six weeks of this crisis, we are seeing an extraordinary amount of money printing and bond buying. But, you know, breaking into the sector suggesting that people are pricing a distant fun if sherry a disinflationary impact shortterm. Havingsche bank we are analyst on both sides of the camp. It can be inflationary shortterm and disinflationary longerterm. Important,s really folks, and it is good that jim reid showed a good debate in any house over inflation and disinflation. If that is the case, somebody shows up today needing yield, where do you find comfort today . Where can you find yield with some form of price protection . Think in the credit it, which is kind of my think you probably want to follow the fed at the moment, the fed are going to be most active in the one to five year era of credit. I think you will start in fixed income markets, and i think there is more to go on this to pricing where the Central Banks buy and where they will not be. And i think being a part of the u. S. Iv market is where the fed are going to be most aggressive, clearly. Will continue, jim reid of Deutsche Bank. As he mentions credit, we will look to the credit markets. Much more coming up, terrific news flow, including latenight washington meuse. Washington news. Kevin cirilli will join us on the invisible enemy. Please stay with us. From london, from new york, this is bloomberg. Viviana you are watching bloomberg surveillance. We begin with virgin australia. It has become asias First Airline to fail after the coronavirus outbreak. A big plan to restructure the business and find new owners within months. Virgin australia is almost entirely owned by foreign airlines. And another hurdle for ibm in its transition to Cloud Computing the company pulling it forecast for the year because of pandemic. 19 ibm also reporting a drop in First Quarter revenue. The Company Expects in the near clients will postpone projects. That is your Bloomberg Business flash. Francine . Tom . Viviana, thanks so much. The data is extraordinary. Lows, an too many year note on commodities across america. The oil we are watching not the may contract negative, but the new june contract front and center, plunging from 19 to 16 a barrel in the last 20 minutes. Across the board, francine, we see lower yields. Stillne yes, oil definitely in focus. If you look at the s p 500 futures, they are surrendering early games. Early gains. U. K. Government keeps saying they do not want to extend. If you look at futures here as well, futures in the u. S. , they and euro0. 4 , declining as well, tom. Tom we may get legislation from the president , from the house. Senator grassley, later on bloomberg. Good morning. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Welcome back to bloomberg surveillance. If you look at the markets, there is a lot going on, a lot of chatter about where the mark the oil price goes. Curves, easing singapore cases topping 1000. President trump is issuing an executive order temporarily suspending immigration as the country tries to contain this bed spread. We are talking about credit. What happens to highyield . Do you worry about companies having to go bust if they do not have access to loan guarantees and is there a specific sector we should be worrying about . Coupleat the fed did a of weeks ago when they extended into the highyield market was more of a signal, so on our estimates they are only likely billion 10 billion to 20 billion of highyield. A 1. 3 billion highyield market is not a huge amount. Markets worry about being short because of the signals and the fed could do more in the future. My gut feeling is the ingressive meant dutch investmentgrade market is better protected than highyield. If this pandemic comes more extended, airlines, oil, hospitality, they probably will struggle to survive if they are highyield. Highyield is more vulnerable than Investment Grade with the caveat that the fed could do more down the line. Netnet, highyield not as protected. Francine is there a central bank that cannot do more . I dont know if you have completely ruled out a financial crisis given what we have seen so far. Think it depends on your definition of a financial crisis. It seems the banks are far better capitalized going into this and as you have seen from different regulators, they are falling over themselves to make inas easy for banks to be ok extending loans as they possibly can. Gets are an easy conduit to emergency money from governments to companies and individuals, so i thinks banks should be seen differently in this crisis than many maybe 10 years ago. Tom what about dividends and Dividend Growth . Asont mean oil stocks, just a general statement, do you look at Dividend Growth as a yield alternative . Dividends and policy are completely up in the air at the moment, so being forced to scrap dividends, you are at a stage of the pandemic where some investors would probably thank companies for reducing their dividends just to keep some powder for things to go. ,he headline dividend number and get much comfort. Previously if dividend is anything a Company Might pay in the future, it is very opaque what is going on with dividend policy. Tom i am sorry, i look at where we are in yields and i look at where we are going to be in six months. You have got to convince me i am not going to see price erosion. How do you do that, how do you pull off capturing yield without seeing price go down given these many crises we face . Jim are you talking specifically about credit crisis or Government Bond crisis . Tom credit in general. I could take full faith and credit but i will take credit. The yields as they are set now, there seems to be a cavalier tone as to what the price will do over the next six months. Jim if you look at credit spreads, they are probably halfway between the tights of the year before covid and the wides before the fed went bought. Ers and on investmentgrade you will get average 2 2. 5 from governments and six to seven basis points above governments. If the authorities step in and save everything, investors probably see those as a reasonable yield in this environment. It depends on if this is a short shot that we will get back to normal by june, july, august, or we will be in a rolling loss of activity for several months and this extend throughout the year. If this pandemic extends for the whole of the year, i am not convinced the Central Banks will be able to bail out everyone. It depends on the length of the crisis. Tom jim reid, thank you so much. Mystery about the health of north koreas leader kim jongun, a u. S. Official saying they learned he was in Critical Condition last week after cardiovascular surgery. The trump is managed administration is trying to find out more. Last week in pyongyang, he missed a holiday celebration. Donald trump will temporarily suspend emigration to the u. S. , wanting to immigration to the u. S. , wanting to stop the spread of the coronavirus. No word on how long the suspension will last. Todays. Senate may vote on the next emergency stimulus package that could be worth up to 500 billion dollars and would add funds to the depleted Small Business aid program and provide money for overwhelmed hospitals and coronavirus testing. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine thank you so much. We will look at dollar dynamics and we have a couple of calls on at your dollars and also pound, all of that coming up with james foley. This is bloomberg. Good morning, everyone, bloomberg surveillance, from my home on the edge of central park in new york city, a little bit more relaxed during a very difficult pandemic. Francine lacqua in london, the same idea as here but with better statistics. Worldwide, singapore greatly challenged and russia, in the last number of days. I want to bring you uptodate on oil. I can do that off the phenomenal terminal and the 11 the june contract is down 11 from yesterday afternoon and that history was made with the may contract going to a negative rate, 14. 00 on the june contract. There is no sign of a bid. Yesterday was extraordinary in part of that is the litmus paper of the global system. You may think it is oil, but it is foreignexchange. There is a number of people on and a number of people have been dollars strong. James foley joins us. A weaku capitulated to and is the price of the dollars still exorbitant . Jane it is, but i dont think the risk at the site is where Risk Appetite is where it should be. Safet think the dollars haven strength will disappear entirely until we have investors confident enough to move back into emerging markets with significant volume, and that may not come for a long time. One thing about this crisis that i think is beginning to unfold as the demandside aspect. If we look at various countries around the world, and we think about the unemployment rate, these will be sticky for some time. Morning about rba growth in that countrys and increase in unemployment. That aspect of the crisis will play out for a long time, and i think the dollar will remain quite firm for some time. Tom this morning we see euroyen, stronger yen breaking down. Euroswissie, jp morgan, one of your partners in onme went through a 102 swiss franc, euroswiss which was extraordinary. Is euroswissie and strong swiss still the ultimate safe haven indicator . Jane it depends at the risk you are looking at. Perhaps on the back of the headlines about the north korean Leaders Health euroswiss tells the story about europe and the events that would lead to a weaker swissie would likely be a goldilocks scenario for the eurozone, and that is not what we have now. Have a meeting between european leaders. They will discuss this difficult ande about corona bonds utilizing a debt for the region, and if they fail to come to some kind of compromise that is acceptable, there is the risk that we have another rise in populism. We already have antie. U. Sentiment in italy and other countries, and this is what the markets are worried about. Than 10 crisis of less years ago, the markets are worried about the political issues that could appear after this crisis. This is what i think has been reflected in euroswiss. It hit around about a five year low and if the european leaders get it wrong and theres more pressure on the euro, certainly the euro could go lower. Francine what do you do with currencies linked to petrodollars . They were fairly robust given the huge move in the price of Oil Yesterday into negative territory. What does that tell us . View,looking at a oneday it is the weakest currency overnight. It is like one of the em currencies of the g10 and can be sensitive to Risk Appetite. The new Zealand Dollar also lower overnight. There were specific factors. New zealand were talking about more stimulus potentially. Australia, this is an interesting currency because although australia is not a big oil exporter, they export liquid natural gas and that makes them vulnerable to the oil price. However, if we look at the australian headlines for coronavirus, there is some relief. They have flattened the curve far better and earlier than and thenticipated, economy will be susceptible to slow down, there is good news coming from the fact that only 13 new cases of covid19 in the country, a little good news that should help moderate some of the bad news from the commodities aspect. What is your take on pound . The u. K. Government keeps saying they do not want an extended transition period if there is no extension and no deal, what happens to sterling . Wee from sterlings policy, have to look at it from the investors because sterling has a massive deficit that needs to be financed. Uncertainty will add to the unease among investors. Foley, thank you so much. Tom very good. Thank you so much, great perspective particularly on the weaker swiss franc. We have something really special coming up next, a gentleman completely focused on the salvation for oriole afloat, oil afloat, what the tankers are doing. The june concert well below 15. This is bloomberg. This is bloomberg surveillance, tom and francine from london and new york. A different angle when it comes to the price of crude and what we saw yesterday, negative for wti for the may contract and the june contract currently at 11 point something. Joining us is the chief executive officer of a belgian shipping company, the largest n. Y. C. Listed crude oil tanker in the world. What does it mean for your tankers . How many do you have at sea, and are they impacted longerterm by the price of wti going negative . Thank you for inviting me. Yes indeed, it is an interesting time, because tankers are being used for transportation between production and the refineries of the world, but also and more and more so as storage space. Storage is being filled very quick and yesterday with wti going negative with 10 billion barrels left of space. People are renting ships to store oil and they are usually between 83 and nine month contract, and on average usually between a three and nine month contract, and on average six. Francine how long are you storing oil . The world we live in right now, do you think anything could be possible when it comes to oil . Hugo this is the first time that oil has gone negative so you are absolutely right. We could see anything. Recharged we charge 100 we are charged 160,000 a day and our breakeven is 128,000 a day so you can see. We dont think it will stop. It will go higher and higher, simply because more ships are being taken out of the fleet for storage purposes. Those available for transportation are diminishing by the day. Month, the mark has about 80 ships which represents about 10 of the worlds fleet and they were painting paying on average 80,000 a day for the rest of the sixmonth contract. We believe it will be more expensive tomorrow than yesterday because demand will go up and the market will go up and with their sixmonth contracts because what they can get from the market, so it is a vicious circle. You are viscerally attached to this crisis. If you drive from singapore to kuala lumpur you will get to a harbor where you will park a long. Four ballfields what is the elasticity of that oil . How do you expect the oil to sit there, and for how long . Is it months and months . The market looks to clear in weeks. Will it be much longer . Hugo yes, definitively. Oil does not deteriorate when it is stored on board a ship. There is very little maintenance that needs be done. It can sit on land storage for months or even years, if that is what people want to have. We are not directing the duration of those contracts. People looking at the oil price currently and looking at future contracts, they see that oil is cheap. If you are it trader if you are a trader, you can lock in that profit. Foronly problem they have the moment is at the end of the contract, if it is a wti nymex,t which is set for at the end of the contract you will have to deliver the oil which is not the same in other parts of the world. Brent contracts are not wellsettled physically. It is a financial thing. Tom we are going to have to leave it there, a beautiful window into tankers. He is in euro and we greatly appreciate his attendance. The june oil contract plummeting, kevin book will join us next. This is bloomberg. Tom this morning, the invisible enemy has attacked america and President Trump will stop it. He is stopping immigration. Nurses areors and american immigrants. Oil, it is amazing the plunge in oil we have seen. Bottom, now they are giving it away. There are no bid. Selective good news on the california andn massachusetts the invisible enemy still grows. This is bloomberg surveillance. With all the news flow, lets touch on it right now, conflicting reports out of north korea overnight. I think the consensus is a very
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