Road, maybe that is actually not the case. Rolling overs as well. Maybe that is oil. It could just be a sentiment feeling, as well as any sort of Political Risk because of kim jonguns health uncertainty. Lets get to todays market moving news from our team in new york, as well as washington. We want to begin with this meltdown in the oil market. Wti futures plunging below zero for the first time in history yesterday as many storage tanks reached capacity. Brent for delivery in june pushing to the lowest levels since 2002. Annmarie hordern has more. Annmarie what we are really watching today is the number of contracts for wti and brent. Yesterday, the big question was is this just a big technical anomaly. I think what you are seeing today is that this is more widespread. What is showing is what traders have been saying for quite some time. Thething i want to bring up point is the june contract, trading at 16. 69. That is a contract that is not expiring. In 18dropping the most years. You can see reverberations around the other contracts down the spread, as well as brent. We just have too much oil, not enough places to put it. Storage is stacking up. Goldman is saying that cushing is going to be stacked. The worlds biggest independent storage provider say they are all but run out. That is a really good sense of where we are going with brent. Citigroup saying brent could follow wti lower if we still see these constraints. The big question now is what happens next. Fromare we going to expect russia, saudi arabia, and the United States echo the United States . President trump was potentially looking at the Strategic Petroleum reserve in the united or tariffs. Alix one senator sending a letter to him about that, arguing for import tariffs. Really appreciate that. President trump also saying he will suspend immigration to the u. S. Over virus concerns. The move announced via tweet late last night is meant to protect u. S. Jobs. Joining me for more is kevin cirilli, bloomberg chief washington correspondent. Kevin President Trump really catching his administration off guard, announcing that policy via tweet within the last 24 hours, saying hes going to be suspending immigration and bolstering the border bolstering security, rather, along the border as the nation continues to handle the coronavirus outbreak. That has significant implications on domestic politics. To piggyback off of annmaries reporting, the president saying also he will be taking a look at restricting some Oil Shipments coming into the United States, given everything that has happened with regards to the oil market. One final point on my radar this Small Business paycheck protection program. Lawmakers reportedly could vote on that 470 billion deal as early as today, and if not today, sometime between now and on thursday. This is separate from the next round of economic stimulus that is obviously something that has gotten a lot of attention from Small Businesses all around the country. Alix thanks so much. One other story we are all following this morning that could pose another risk to the markets, there is a mystery this morning surrounding the health of north koreas kim jongun. U. S. Officials got worried kim was in Critical Condition following cardiovascular surgery. Overweight and known to be a heavy smoker. He missede base holiday celebrations in kong and west week. Another wildcard in pyongyang last week. Another wildcard for the market. Coming up, what to do if you are luckock,with ben Trafigura Beheer cohead of oil trading. Travelers is lower by nearly 2 after boosting its dividend. Relatedee covid charges. After results6 were better than expected, but they see the impact to be material from covid19. This is bloomberg. Mix thisde contracts a morning. Wti june futures trading about 16 a barrel. Brent now trading below 20, the lowest since 2002. Joining me on the phone from geneva is ben luckock, trafigura cohead of oil trading. E are seeing oil just nosedive it totally resets price boundaries that we ever think we would see. What is your take . Ben it is a distressed market. You are right, i didnt think i would ever see this. It is only the last few weeks we started talking about how negative prices would work. We found out yesterday, it is a real thing. We are seeing unprecedented price moves. That is what we have to deal with at the moment. Alix you are cohead of oil trading, so if you are trying to market a barrel of oil today, what are you seeing . Ben you have to remember, not many barrels are trading at a negative number. What happened yesterday is the may wti contracts, which is expiring today, traded a deep negative number. Wti has its own set of problems. You have to take or receive physical crude oil at cushing in oklahoma in the u. S. The problem there is the tanks are full. Theres nowhere to put it. So you have this unique situation where you have to go to a negative price debt so people were incentivized to spend extra money to move that barrel away from cushing in oklahoma to another part of the u. S. , and ultimately to the coast. We spent yesterday focused on that, making sure we supplied all of our customers that we owed oil to and took oil from the ones we have bought it from, but it was a hectic day. Thats pretty much what trafigura does. We are dealing with logistics problems, and this was the ultimate Oil Logistics problem, where we had tank tops at the most important tank farm in the world. Alix did you wind up getting paid to take oil for many sellers . Ben we may have bought small amounts of negative oil yesterday. It will all settle out today. The volumes are really very small. That is what people have to remember. Everyone is excited that oil is trading negative, and how can they get involved. Ive never had more messages from longlost High School Buddies on whether they should get involved in the market. You just mentioned brent is around 20 at the moment. This is pricing around 70 of the worlds crude oil. Trying to get involved with negative crude oil is really very complicated, and really not happening so much. Wti for june is going to start trading tomorrow, still roughly at 16, which is not a big number, but it is a positive number. Not a lot of oil is trading hands at negative numbers. Some may, and that is the reality of the market. Some people need to be paid to move oil from one location to another. Alix right, and the story yesterday is it is going to be a regional dislocation. I come in this morning and youre still seeing the june contract at 16. What is to prevent what we saw yesterday from happening to the june contracts, from happening to the brent contracts, for example . Ben brent and wti are two Different Things. For wti, it is possible you have this again. We could have the same set of circumstances that yesterday. He also have a unique situation where youve got a lot of Retail Investors coming into this market. People are viewing oil is cheap and trying to get involved. I dont know whether we go up or down from here, but i would encourage any of your viewers, if they are going to start getting involved in purchasing oil, they really have to understand the contango in this market, meaning that the prompt price may be 16, but the future prices are certainly higher, and they need to take that into account when they are investing in oil etfs and other ways you can invest in the oil market. Alix and this is going to happen every month as the contract rolls through those etf products. Specifically at trafigura, are you having problems selling off any of your crude right now . Ben no, we are fortunate to have a number of vessels at our disposal. We have been taking more and more ships onto time charter. We were fortunate to see some of this negativity coming and understand it was needed to balance the market. We have not had any trouble moving the oil. We have plans for all of the oil weve bought, either to the enduser or onto a boat. The market is still functioning well, and i think operationally, everything is ok here. But it is a market under the stress. Under distress. Alix what are you noticing in terms of storage . Where is floating storage economic, meaning that oil prices are low enough for you have to go on a tanker . How much storage do you see left in different regions . Ben onshore storage is really very limited. We spent every day trying to find more, so lets assume that that is largely full. Vessels are storing in each of the major locations. We are doing all of these locations. I dont think anywhere is immune from the requirement to store. Oil is produced and consumed in every country around the world, and therefore we are storing it all over the world. What is interesting is the different type of vessels being used. Some oil products such as distillates are being stored on seven or eight different class sizes. This i think is unprecedented, where it is economic even on some of the smaller sizes to store oil product because thats how deep the contango is and how necessary floating storage has become. Alix how long do you think that lasts . We also have to remember that once the oil market stabilizes, if production cuts really come, then we actually have to offload all of that oil. Ben we dont think the market is going to be under distress like it was yesterday for too many more months. Can we get this for june wti . Maybe. Beyond this, we need to start the long and slow process of recovering from the demand restriction demand restriction caused by this virus. I wouldnt get too excited about a price recovery anytime soon. I do think we can trade higher over time, but you cannot spike this market at any moment because theyre such a vast amount of storage ready to come into the market. We remain bullish the market. It is really into next year i think we need to be talking, simple because theres too much oil around at the moment. But the market is doing the work it needs to do now. This market was basically unsalable for april and may. Opec did their best. I think they made a valiant effort. I dont think they couldve done much more. It is an effort that is allegedly out to 2022, and that is what is going to be required to rebalance this market. I would imagine we are in the eye of the storm now, so theres hopes for optimism going forward. Alix and last question for you, less time we talked, you said funding markets were totally open to get financing. ,uropean banks are getting hit some speculating that it is because of the oil slide. Can you give me some insight into what financing is like now . Ben it is still very strong. The banks have been very supportive of us. Weve given them an update on what occurred yesterday. We got a lot of questions, so i think they are appreciative of that. Your funding requirements are lower, and we are storing oil in a number of locations, but the banks are extremely helpful and supportive in these markets. They are also welleducated investors. They understand the complex city of what we do, so we are very thankful to the Banking Community for their ongoing support. Alix thanks. Really appreciate it, ben with someth trafigura valuable advice. Coming up, we will break it down with david lebovitz, j. P. Morgan and the some Management GlobalMarket Strategist jp morgan investment Management GlobalMarket Strategist. This is bloomberg. Viviana this is bloomberg daybreak. Cocacola posting betterthanexpected profit in the first quarter, but said that global volume declined by 25 . Arns the impacts on the Second Quarter are unknown. It is saying that fullyear results cant be estimated. A shakeup at the top of German Software giant sap. At the end of the month, coceo Jennifer Morgan is leaving abruptly. Last october, morgan was appointed to the Top Executive role along with christian klein, but the coronavirus epidemic causing problems with the leadership structure. Klein will become saps sole ceo. Car buyers with subprime Credit Scores are putting their auto loans on hold. There is a sharp dropoff in payments. To get through the coronavirus pandemic, borrowers are shifting their financial priorities. That is your Bloomberg Business flash. Alix thanks so much, viviana. Earnings season underway. 85 of the companies within the s p reporting this week. Joining me for more, david lebovitz, j. P. Morgan asset Management GlobalMarket Strategists. When you have companies saying i have no idea what is going to happen, how do you put a valuation on anything . David it has certainly been challenging as weve gone through what Little Information is available, digging through some of the recent filings. The base conclusion is that they basically have no idea. What makes this such a unique environment and a unique situation, and some companies have provided guidance on this, but you are seeing both demand and supply get squeezed, not unlike what is going on in the oil market. Things are getting hit from both sides, and that is what makes this extremely challenging. You not only need to consider what the impact is on the consumer as we go through social distancing and peoples employment situations come under pressure, but more importantly, is the company able to manufacture to get to a place where the consumer can consume if they are anyplace to do so . One of the things the market is going to start latching onto over the next couple of weeks is i think we will begin to get a sense of what the contours of this recession are going to look like. I think the earnings season is going to be key to providing a little bit of clarity, although not as we might like to see. Alix i guess i wonder where you allocate because tech stocks people think will be relatively immune, but they have performed. Strong margins companies, strong Balance Sheet companies, same kind of deal. Does it create risk to win earnings do come out, and how do you still buy . David a lot of the trends that were firmly in place over the past couple of years have, to an extent, remained in place with tech leading the market. When you go belief when you go beneath the surface, you see some bifurcation between hardware and software. Allocating at the sector level is becoming increasingly challenging. We are taking a more industry by industry approach because that its us at where the underlying opportunities may be. To your point, do you want to go all in on tech . We like the fact that they are cash flow machines. We also like things like Consumer Staples and health care. When we thing about building Equity Portfolios in the current environment, we are using higherquality names, even if they have performed well, as the core of the portfolio. But from a satellite standpoint, using underweights to Fund Benchmark positions in things like financials. Despite the impact earnings on the banks last quarter, generally speaking, they remain very wellcapitalized. We want to maintain a little but of that higher octane stuff as we thing about building equities. Lower,hats a great quality with a of with a dash of cyclicality. The oil selloff doesnt technically seem dramatic. Is it Something Else you have to worry about, like the credit market bank exposure, inflation expectations, just overall Investor Sentiment . David i do think that it goes a little bit deeper than that. While i am not terribly concerned about ag exposure, i think a lot of financing in the Energy Market has come from the private sector over the past couple of years. I worry about pickup in default in this exacerbating a trend that was very much already underway in the energy space. Think what is so interesting about the way risk assets in general have performed is that there seems to be this view in the market that we are making progress on the virus and we are going to see this vshaped recovery in the economy, and that is going to prevent defaults from looking as ugly as they might in a normal environment. It is going to prevent some of these worstcase scenarios that we are entertaining a little more seriously given what is going on with energy prices. Nobody is thinking about how we get the economy back online. We turn things off with a light switch, and i am not sure you can turn them back on the same way. I think you need to use more of a dimmer. Things like demand are going to gradually come back. I think investors are very focused on a slowdown in the growth of the virus, a vshaped recovery in the economy. It is not clear that is going to necessarily play out. Part of what youre going to see in the Energy Markets over the next couple of weeks is confirmation that things may not be as good in general as people thought they were. Alix interesting point. The last question is where do you go for safety. David a couple of thoughts there. On the equity side, i think we already touched on a preference for companies that have low levels of leverage and solid profit margins. Playing defense in a traditional way also still works. Owning treasuries over the course of the past few weeks has actually helped offset volatility in equity markets. The problem is youre not getting paid. You are essentially paying for that protection. What i think is emerging is a really interesting gap, which means the risk bucket in portfolios and the defense bucket in portfolios. What we see clients needing is some source of uncorrelated income. Things like direct real estate, direct infrastructure, real assets that provide diversification relative to both stocks and bonds, but yields that are more attractive than you can get in fixed income. Alix really appreciate your perspective this morning. Always great to catch up with you. David lebovitz joining me from j. P. Morgan asset management. Coming up, more on oils historic price drop on oils historic price drop. Ceo,john browne, former bp coming up. This is bloomberg. P. This is bloomberg. Alix welcome to bloomberg daybreak. Im alix steel. A quick check on the markets, decidedly risk off. You have destruction of the oil price, questions of the health of north koreas leader injecting risk into the market. Plus, normal trading ranges on days we are still trying to figure out what to do and where we will come out on the coronavirus. Banks could be concerned about exposure to the oil market, why they might be down today. I want to highlight the Canadian Dollar. Definitely a risk off field tied to the oil price. You are also seeing a strongish move into the treasury market. Looking at 57 basis points for the u. S. 10 year. Watch that is by an contents to come into the market. Crude depends on which contract you want to look at. The june contract is trading at 16 a barrel, significantly rolling over from yesterday. I want to highlight some earnings as well. Cocacola earlier. Lockheed martin is also out, maintaining their 2020 earnings outlook for the first quarter. Maintaining the 2020 earnings outlook. For the first quarter, sales were a beat. That stock climb and hire about 1. 25 in premarket trading. President trump says he wants to add as much as 75 Million Barrels of oil to the Strategic Petroleum reserve, with prices now at historic lows. Pres. Trump if we could buy it for nothing, we are going to take everything we can get. The only thing i like better than that is when they pay you to take the oil. This is a great time to buy oil, and we would Like Congress to can store it we instead of the Big Companies because i think we have 75 million gallons capacity. That is a lot. So we are going to either ask for permission to buy it or we will store it. One way or another, it will be full. Alix alix joining me now is ceo john browne, former bp and chairman of the Francis Craig institute. Real pleasure to speak with you. No one better to help me understand the politics of oil in negative prices. What did you think of President Trumps suggestion to just buy a couple Million Barrels and couple Million Barrels and call it a day . Will be full very soon, and then we have to eventually decide of course what to do with it because it is not going to stay in storage forever. Alix right. So even if you buy it, youre still going to have to release it into the market when Oil Prices Get high enough and the demand is actually there. Can you walk me through the dynamics of how Something Like that works within the oil market . John sure. First, look at supply. In history, supply has rarely been a problem. Theres always been too much oil around, and oil has been controlled by opec, and theres been plenty of it. I think with very low prices, production will drop in certain cases, but of course, people are compelled to keep production up because the cost of producing it is probably less than 10 a barrel. Nonetheless, the return on capital can be achieved at anything like that price. So i think prices will production will come down, certainly in the states, as new production is not added to the future. Long time toake a recover. It is down very heavily at the moment, around about 30 . It will come back, i think, slowly as people will be very consume the way they had been consuming as a result of the virus. Where i would be most surprised is if you look at oil prices being much lower for longer. Based on that, the Texas Railroad commission is considering prorating cuts. Could that happen based on the scenario youve laid out . When i firstcall joined the industry that the Texas Railroad commission was very active in managing production, and it may well do that, but even that combined with the cuts that have been produced by opec will dig into of oil supply, whereas we are producing probably 30 too much at the moment. Underpin thelp price a bit, but the price i think will be sluggish for a very long time. Alix you brought up opec . There is conversation that they are going to move their conversations forward, maybe even take a deeper. Saudi arabia is not really wanting to go below that, but that could happen. Thatu have bigger dents help support price even more . John i think you really have todent production a lot help the price, but in the end, that is not sustainable. That is what we saw in 1985 and 1986, when the cuts were not sustainable, people opened up the taps, and the price of oil stayed low for about 17 years after. So it depends on the rate of growth and demand, and demand i think, as i say, i cant see this growing steeply for a very long time. Could you help me understand the roadmap to stronger demand . Do gasoline inventories need to come down, then refining margins in crude, then we soak up some of the oil in the market . When we talk about demand recovery, what is the actual process of that . John it is just that. First it is underlying demand to economic activity. Bear in mind that the rate of growth of gdp in terms of the growth of oil, very slowly. We are getting more efficient at using oil. Every year we use 1. 5 less oil for every increase in gdp. But gdp has to come up, inventories have to be consumed, and people really want to consume oil. , aaviation, transportation variety of things like that. I do think, however, theres a much bigger overlay on this today that has caused great concern about climate and the use of hydrocarbons, which generate both methane and Carbon Dioxide into the atmosphere, and increase Global Climate change. I believe this is something that , and in terms of behavior, i think people are beginning to reflect on virus is creating health problems, creating lung problems on one hand, and secondly, on natural coming tolike viruses do things which are far more powerful than president s or Prime Ministers can do to human beings. Climate change will be one of those things. It wouldnt surprise me that , climatediumterm change will remain a very important dampener on the consumption of crude oil. Alix and obviously, winter shall dea is doing a lot on that as well. You are former bp ceo, so put on that ceo had for me. If you are looking at the pricing and demand issue and the longer term, what kind of decisions are you making today . John i would probably much more balance into natural gas, which is exactly what that company has done. About 70 of production is natural gas. I think natural gas will be a laggard and being hit by climate change, provided it is used properly, primarily to produce electricity along with renewables, and oil to make sure that you basically use it as a cash cow. I think not invest too much, but make sure you run it very efficiently, that you extract what you can while you can, but not to grow it and norma sleep for the future. I believe that is the right thing. Er all, i think most of is byf all, production states companies, and it has always been the case, and they will provide for the future. Alix do we ever see 60 oil again . John never say never. Its always too early to tell, of course, and it would be foolish to predict. But i think on balance, the price will be lower rather than higher. I would be surprised to see 60 in the short term for sure. Maybe one day sometime in the future. Who knows . Alix exactly. Who knows . Lord john browne, i really appreciate your perspective today. Thank you very much. We do want to give you an update now on what is making headlines outside the Business World. Heres Viviana Hurtado with your first word news. Viviana in washington, President Trump planning to issue an executive order temporarily suspending immigration. Late monday night, the president tweeted the movies needed to contain the coronavirus. He also said it will protect american jobs. No word on how long suspension will last or who it will affect. The u. S. Senate may vote today on the next emergency stimulus package. Tos one could be worth up 500 billion. Dd funds to the depleted Small Business loan program and provide supplies for hospitals and testing. In italy, Prime MinisterGiuseppe Conte indicating that the reopening will take time to avert the risk that Coronavirus Spread again. It was the center of europes virus outbreak. After the u. S. , it has suffered the most deaths. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im Viviana Hurtado. This is bloomberg. Alix thanks so much. Coming up, risk strategies. We are going to take a look at some opportunities in the market with mike ruhle, msr investments founder and ceo. Plus, if you have a bloomberg terminal, check out tv. Click on our charts and graphics, rewatch anything you may have missed. This is bloomberg. Issed. This is bloomberg. Viviana this is bloomberg daybreak. Johng up later today, murphy, cocacola cfo. This is bloomberg daybreak. Virgin australia became asias First Airline to fail after the coronavirus outbreak. Administrators at deloitte taking control of the carrier. They plan to restructure the business and find new owners. Virgin australia is almost entirely owned by foreign airlines. Now to the ceo of marriott. He says the coronavirus will change the experience of staying in hotels. He says there will be more rigorous cleaning and more ways to keep people apart. He says the travel industry will not bounce back quickly. The question really is how long does it take to get from here to there. I think when this started, we were hoping that we could flip a switch and suddenly, everybody would be back to things the way it was a few months ago. My guess is it is going to take a little longer than that for people to get comfortable. World, around the marriott has closed roughly 1 4 of its hotels. Another hurdle for ibm in its transition to cloud computing, pulling its profit forecast for the year because of the coronavirus pandemic. Ibm also reporting a drop in firstquarter revenue. The Company Expects in the near , firms will postpone projects. Alix things so much. Oil touching negative territory yesterday, and the markets already hurt by the fallout from the pandemic. We see steve weve seen steep sotango before years ago, our oil funds and oil indices set for the same fate . Joining me now is mike rulle, msr investments founder and ceo. Uses teachers as Building Blocks to create portfolios uses futures as Building Blocks to create portfolios. Youve been doing this for a long time. You saw oil go negative yesterday, what is going to happen to the funds . What is the result of this . The first thing i did the situation. But we will see. , i think it is just what appears like. Traders, the long commodity index, the big , the big commodity etfs, they were already in the june contract. Everybody who is a standard in all trader engages futures markets, oil included. Theyve already switched to the next oil contracts. So why were people still in this may contract . Im assuming the people that were in the may contract are those that were willing to accept delivery. The wti contract is a deliverable contract, versus a branch. Prices were 20 or whatever they then literally went to markets to get storage prices, etc. , and capacity, and they found documents that either the prices were so high or there was nothing even available. And a lot of these particular traders, not the standard futures traders, basically were trying to hedge themselves and byrted a whole sequence shorting the contract. That is really what created that downdraft. Very few trades happened below zero. So i dont know who those folks are. I am guessing they are the usual trading desk actual Oil Producing companies, actual real oil traders. Im assuming that. Concern because its the slowing ofof the economy. 40 morey today is than the amount used today. Ahead. Rprised me go alix based on that, and your experience in the industry and the jobs you do now, it all comes down to risk management. If you were a fund, it was overleveraged. If you were trying to be cutesy with the etf heads for oil and it didnt work. It just all speaks to prudent risk management. What kind of strategies in this environment when such underproductive of things can happen work now . Such unpredictable things can happen work now . Mike i will not link the event of yesterday was typical trading stresses because right now, the trend following strategies are probably going to do the best because we are going to see a continuation of reflection and prices being a function of declining demand. It doesnt look like we are very soon. T that certainly in futuresbased the strategies that have been the best so far this year are trend following, style strategies, background strategies that have a little bit of trend following associated with them. And while, of course, we have seen the equity markets do great, but that is in anticipation that we are going to get out of this sooner rather than later, and the prices are that is volatile that not a good prediction necessarily because theres still huge volatility still, even though its declined. Alix and individual as to yesterday. So what are you telling your clients . What is the biggest question youre getting from them . Like people to look at their core portfolios. , theyy large institutions are heavily weighted in equities 70 the tune of literally of their portfolio. We, if you look at the global of all market, about 65 . Ublicly traded security there those who have at least attempted to go a little in that direction over the last several years have been better so we like a little more balance and look at more traditional theory right centerpiece, but now, dispersion is high, which high, andelations are this is the time for active management. Having an overlay of active management relative to a core portfolio, which i think should be more balanced toward fixed income. I know that is not popular these days. It hasnt been that popular for years. But thats my sense of how people should be, looking at things. Alix we have to leave it there. Love to get you back to drill more into these strategies. Thank you very much. 20 and centralof banks slashing policy rates this year. We will take a look at todays first take. This is bloomberg. Alix time for traders take. Joining me is Damian Sassower of bloomberg intelligence. What have you got for me today . Damian good morning. 19 of 20 major emerging market Central Banks have slashed rates by a cumulative 145 basis points. What this means is it is driving shortterm local currency Interest Rates closer to the zero lower bound, and alongside meansve real yields, it em Central Banks will need to broaden their arsenal when attending to inject liquidity into local markets. I have seen eight of those 20 Central Banks have actually launched quant easing programs. The one major catch to this is quant easing fundamentally means that markets are increasing their Monetary Base and lowering the cost of money. Are absently paramount to attracting overseas investors, and this is what we are focused on this morning. Alix good stuff. Thanks a lot, bloomberg intelligences Damian Sassower. Coming up, mark connors, Credit Suisse global head of risk advisory. This is bloomberg. Alix welcome to bloomberg daybreak on this tuesday, april 21. Im alix steel. Lets take it right from the top. Pres. Trump if we can buy it for nothing, we are going to take everything we can get. The only thing i like better than that is when they pay you to take the oil. Alix President Trump wants to add as much a 75 Million Barrels of oil to the asians strategic to the nations Strategic Oil reserves. Pres. Trump we would like to have congress approve it. The metaphor weve used is that this is the kind of price that focuses buying in oilproducing nations. They are probably telekinetic at this point. Alix the Texas Railroad commission will meet today to weigh curtailing crude production. Everyone is going to be taking signals from what is happening. Extending,ontracts and volume is light. Markets are still bearing oversupply, and most think that tank tops will be reached at cushing in the next couple of weeks. Annmarie yesterday, the question was is this just a technical alumni. A technical anomaly. What is happening is this is more widespread. Alix Goldman Sachs says price volatility will stay high as the market is forced into a violent rebalancing. May may be a transition month into a better economy. Alix larry kudlow says talks on more stimulus are proceeding nicely as Small Businesses await more funds. The Small Business paycheck protection program, lawmakers reportedly could vote billion as early as today. Alix the senate has scheduled a Late Afternoon session for tuesday. In the markets, youre still looking relatively risk off. Futures around the lows of the session. Maybe some issues in conversation around the north Korean Leader and his health. Maybe it is also oil. Maybe just bouncing around as we head into earnings. One thing we do see is what is happening to the 10 year yield, 56 basis points. The closing low, 54 basis points, so we are almost going to breach that lowlevel. Theres lots of things to choose from in the company oil market. I chose brent for this one because it is rolling over as well. Unbelievable decline. Not negative like yesterdays may contract in the u. S. , but still a huge move lower. 20 me for more on the Ripple Effect of the oil selloff and potential bankruptcies is james west, evercore isi senior managing director and partner, who i can tell from my inbox has been crazy busy talking to per to much everyone on the ground when it comes to companies. The great to see you. Broad macro question first. Producers go home, shut in production, and come back in a few months . James it is a question of the economics. The oil price is bidding down to a level where economics dont make sense. Nt a lot of Oil Producers have the Major Economic consequences from at someng production of these facilities. The process is happening on the ground in the u. S. Today with the marginal wells, and it will happen globally shortly as brimge is filling to the or already spoken for. Alix can you walk me through the economics of how expensive it can be to shut down a well, or if you shut it down, you may never be able to restart it again . In some places in the u. S. , it is just better to keep producing even if we are looking at 16 prices. Ces, 4 may , there are positive. Odest costs barrel or a shale well probably the same cost, but because the pressure dynamics, it is a little unclear what that looks like six to 12 months after its been shut in. The associated work with that will cost you somewhere between 200,000 and 300,000. Alix thats pretty substantial. And i also have to wonder, we talk about shale that you switch. A is that accurate, or does a lot more going on if you end up seeing and Oil Price Recovery . A littlee switch is misunderstood and probably overused. You can bring wells back on any matter of weeks. However, because of the lack of and the carnage happening to this industry, it is not like we have 500 Service Crews sitting next to wells waiting for somebody to say turned back on. Technically it is not that difficult, but it takes a lot longer than one would expect. Alix sorry, i just had a technical difficult either. My apologies technical difficulty there. My apologies. Walk me through bankruptcies, restructuring, m a. You guys are really busy right now. What are we realistically going to see . Ares you are correct, we extremely busy, but primarily on of thetructuring Side Business because what you are going to see is a series of filing 11s, more stage for bankruptcy, and also Chapter Sevens. A Chapter Seven is where you leave the assets in the bank to dispose of. Companies have already drawn theere revolver revolving credit to try to get a better deal. Is, and thisnomy time, hit with the one to punch plus thevid19 virus stress of an oil price war. We think that as far as m a goes , if you are a good Balance Sheet company and you have targets, you are likely to wait for them to restructure and wipe getbt out before you go pushed out by a quarter or two because of the situation. But if you see a trucking cycle where you have 10 to 15 Different Companies that dissipate at are probably going to consolidate down to five companies, so we come out the other side of this with a stronger, healthier oil service industry, with much better consolidation. E psan create some can create some discipline through consolidation. Are you seeing some give up and walk away from the oilfield . James i think we will see that where they are forced to shut in all production. What we are hearing on the ground right now is basically completion activities for active wells is almost at zero. , once you getlls done. P, youre basically, the Second Quarter is going to be a wipe out the is going toy be a wipeout for the service industry. Alix james, really appreciate it. Always good to catch up with you. James west of evercore isi, thank you very much. We want to take a look at the energy industry. They just got rid of 51,000 drilling and refining jobs in a, a nine points in 9. 6 cut back. The coronavirus crippling demand and the price war by russia and saudi arabia sending prices plummeting. Coming up, mark connors, Credit Suisse global head of risk advisory, joins us. We are talking to hedge funds about how they are investing in market risk. This is bloomberg. Alix u. S. Equity futures retreating along with stocks in europe. Joining me with more is mark connors, Credit Suisse global head of risk advisory. I want to start with oil. What do you do if you are trading oil, holding oil in the market . What are your clients talking about . Mark good morning. Obviously, it is something that very few would have entertained to have that type of price action that kept going through zero into negative territory. From our positioning, the majority of speculative or relative value clients macro funds have had a recession trade on. But we want to talk about particulars and drilling to that front month contract that is expiring. It is a light contract, meaning that there isnt a whole lot of volume in it. People have rolled out already prior to that move. It doesnt mean that people werent caught unawares or profiting. The intel we gathered from our client basis, ocular traders were client bases, speculative traders were on that. You folks have a good call on what the rest of the curve is doing, and what is brent doing. That is going similar trajectory , right . Alix right. It sort of begs the question, when you have outsized events like yesterday, but then see things start to spread, would you have vol coming down, emergingmarket ethics emergingmarket fx vol coming down, are we appropriately priced for the things we could see in this market . Mark that is what we are trying to pill up trying to pull up with clients. You see gdp estimates being cut down into as much as 30 , 40 , and earnings estimates that are lagging. Twoou have basically different markets. The real economy is basically what oil showed yesterday, and the financial economy is at a 19 times earnings, which doesnt really make sense right now. Basically,that is what youre saying is that oil is being discounted as a technical issue. Oversupply as a demand stock is causing technical issues, but it is going to roll into other markets. It is all about the time function of when we resume. You and i stop working from our homes and have background noise. [laughter] on my end. That is basically what is going to dictate when we stop having these technical issues, which to withdraw their risk appetite. That is not expected to have a 37 price. So then you look at Interest Rates, as you said. Why are we at 56 basis points . Alix exactly the point. I feel like you can even see it before what happened yesterday and oil. The data, i feel like we havent veached the peak of any u or or whatever letter as reflected by the rates. How do you talk to your clients about how to manage that risk . If the pain trade is still going to be higher equities, they cant miss out either. Dolonc short funds in particular have been position for this. Inthe long short funds particular have been positioned for this. That has led us for the past 12 months. There have been bouts of this where youalue moves higher, butler caps if you want to look at it pretty therful, brent up 32 in s p, but there is a sixmonth move in the middle between second and Third Quarter when it was only up about 5. 5 . Was led byt period the cyclicals, not by the sector loans. So the thesis is you can have higher unless oil you have those longs. So they tend to participate. You just have to watch the vicious Short Covering rallies that have pocked the last two to three weeks with losses for them. Alix is the right kind of strategy diversifying risk into other areas, either asset class wise or the equity market . Or is it creating interesting structures around the stuff you need to stay long in . Question is more towards the professional . Lets stick there. First of all, they are staying low to ground. Look at oil yesterday. Theres already leverage in the market in terms of outside volatility. So there positioning is very light. You are low to ground when you get these type of movements. They are not anomalies. Whenthey are leaning long they get these. They are long gold, short energy and metals on the macro side. Quant funds took down their exposure in march. Ofy rely on a steady stream liquid markets and data. D where the data is not continuous in this marketplace. Look at the spreads of gdp, look at will. Look at oil. So when you have that, staying low to ground and keeping those names that you know and the assets you like closer to you, that has been the strategy. Alix you guys were the first people to talk about that spread on btp, and it was a great way to encompass what we are seeing within the market. Where are hedge funds and institutional clients short right now . Mark the cyclical names. If you want to look at transports, any of the consumer sensitive names. That is not a secret. That is out there in filings and in the short data. Theyve made money on it. But here is something that i think is a technical element that might be worth volunteering. The destruction in the prices of some of those areas have been so large that clients have had to reload and actively trade those positions. Lets take the broad index. I think it was down as much as in in a three week period march, and it rallied in two days, went back down again, and went back up. You have these moves causing knock on effects by having people chase it to balance out a long short portfolio. So you have a mismatch sometimes, so that goes back to our point. Keep your leverage like because the markets are very whippy. Alix mark, always great to catch up with you. Mark connors is Credit Suisses global head of risk advisory. This is bloomberg. Viviana you are watching bloomberg daybreak. Defense contractor Lockheed Martin posted firstquarter estimates,at beat saying it is starting to feel the impact of the coronavirus pandemic. In part, that has to do with the delays from suppliers. Lockheed maintaining its fullyear forecast. Cocacola posted better than in the first quarter, but says global volume declined by 25 . Coke warns the impact on the Second Quarter will be material. It also says fullyear results cant be estimated. Buyers with some prime with subprime Credit Scores are putting their loans on hold. There has been a sharp dropoff in payments. To get through the pandemic, borrowers are shifting their financial priorities. That is your Bloomberg Business flash. Alix thanks so much. Lets stay on the economy for a second because we are looking at record debt. Congress already approved 2. 3 trillion in emergency spending in just a few weeks, and more is certain to be on the way. The u. S. Budget deficit may triple this year to push the federal debt to an estimated 107 of gdp. That would beat the previous record set during world war ii. Even deficit hawks are hard to find today now that the coronavirus has shut down large chunks of the economy. All that means more treasury issuance, more fed buying. We will be discussing that throughout the next few weeks for sure. Breaking here, senator Chuck Schumer says there is a deal for democrats and republicans and the white house that they think they will pass today to extend aid to Small Businesses and ramp up aid for other areas as well. Coming up, we talked to one area of the Business World getting particularly hit by the virus, and that his insurance companies, and how they respond to the pandemic. I will speak with teresa white, president of aflac u. S. Lets take a look at some of these moves in the market. On one hand, you have earnings like cocacola solid. However, the company says Sales Volumes have declined 25 globally since the start of april. The Company ReportedQuarterly Results today. A bit of a mixed bag. Taking a look at companies hit, occidental down, schlumberger and exxon down almost 4 . You get a snapshot they are of the big oil services in the u. S. Enps getting hit hardest, as well. This is bloomberg. Nowadays you do more from home than ever before. The xfinity my account app puts you in control with Digital Tools to give you the help you need when you need it. Get fast and easy answers with personalized help 24 hours a day, 7 days a week. Change your wifi password to a phrase thats easy to remember. Even troubleshoot your services on your own. Were working to make things a little easier for everyone. Download the xfinity my account app today. Alix welcome back to bloomberg daybreak. Im alix steel. Chuck schumer says there has been a deal on interim stimulus. They will top off the Payroll Protection Program as well as additional funds. S p futures off the lows but still down 1. 6 . Definitely a risk off mood. I wanted to highlight european banks. Prices cratered, the exposure to the Banking Sector coming front and center. The commodity exposed currencies will get hit. Australian dollar, Canadian Dollar getting hit. You are seeing moves within the treasury market. The 10 year yield down five basis points. One basis point away from the record closing low. 20 basis points away from the intraday low. Oil still gets taken out. June contract is that what you are seeing. Still 16, but really rolled over on a day when we mightve thought it wouldve been more insulated from the virus in the issues we saw with the contracts. I want to wrap in earnings. Coming in with earnings down 13 year on year on an adjusted basis. Like most every other company, they are also withdrawing their outlook due to the covid19 issue. They are the largest forprofit hospital in the United States and clearly impacted by the rampup in scale and the massive decrease in elective surgeries. Lets stay on the virus and the impact on certain industries, hitting insurance companies. Claims are skyrocketing, all in effort to create safety. Aflac is working to support policyholders. Joining me is the ceo, teresa aflacs covid19 task force. A lot to go through. The basic question for me is how exposed is aflac in terms of the insurance payouts you may have to make in the middle of a virus . Teresa thank you. Irst of all, i will say this we have a group of people who are working a playbook for our capital and liquidity. We came out of 2019 wellcapitalized. We are working to preserve our assets. We are drawing off of various models and pandemic scenarios to anticipate claims risk to our Capital Position and we are modeling our premium scenarios so we feel that we have the adequate stress testing. At this point, we are preparing for what we believe will be coming our way, which is an increase in clients. In terms of supplemental policies, if people seek less medical care to avoid coming into contact with the virus, how do you see demand playing out . If i do not get treatment for something, what does that mean for what i do with aflac and your bottom line . Teresa one of the things we know is that unlike other industries, from a health care perspective, you have people who are delaying seeking treatment. The delay of seeking treatment only exacerbates acute illness. Is as peoplee have delay getting treatment because they are afraid to get to the hospitals for fear of the covid19 virus, they will then have more acute symptoms and have to present to the hospitals in other ways. Claims willhat our start coming in as people start to get more comfortable with going to the hospitals and have those acute situations. On the flipside, we are seeing mass unemployment. Already claims that 22 Million People filed for initial jobless claims. Are you preparing for cases where people cannot pay their premiums . Teresa absolutely. One of the things weve done from a policy perspective is go out and make sure they understand what their benefits are. Andave hospital plans shortterm disability plans. Ourry to make sure policyholders understand what they purchased. The other thing is we are providing telemedicine. We are making sure telemedicine is utilized in the same way an in person visit to the doctor or Health Care Provider is looked at. One of the things we try to do is make sure our policyholders understand their coverage and that we can ensure they have to dealy need in order with their specific circumstances. That how do you deal with in terms of looking at the losses you may have to take the payouts you will have to make . You will have to model a business. How do you do that when you do not know what kind of premiums will not get paid . Teresa we model various scenarios. The thing with our insurance is we make sure we are putting up the appropriate reserve and we expect we will pay those benefits. The other thing we are doing just outside of what we do with our product is we are also giving to humanitarian , those people who do not have insurance. Direct relief is a 70 is a 72yearold humanitarian mission that provides 230 million patients at risk in various underserved can that provides patients at risk in various underserved communities. One and seven ethnic minorities are served, one in nine children. 68 are at or below the poverty level. What we are trying to do at aflac is make sure we are serving our policyholders and after service to our employees. Alix to pick up on one thing, in terms of reserve, can you give me some insight into how much you increase your reserve and what you expect that buildup to be . Teresa we have a normal process of increasing reserves. In particular right now we are in a quiet period so i do not want to respond to that question specifically, other than to say we will continue to make sure we are focusing on preserving our vested assets, preserving our Credit Ratings and maintaining our strong regulatory position. Our interest is ensuring we are able to pay any claim that comes in the door. That is what we are preparing for from a financial perspective and operationally as well. , it was great to catch up with you. I would love to get you back. Maybe after your quiet period we can delve more into the business. Teresa white, president of aflac. Thank you so much. For more, stay with us for interview with john murphy, cocacola cfo coming up at 11 00 new york time. I want to give you an update on what is making headlines outside the Business World. Viviana we begin with breaking news. Chuck schumer saying there is an agreement on the next stimulus package. That could clear the way for a vote today. Tos one could be worth up 500 billion. The measure would add funds to the depleted Small Business eight program and provide money for overwhelmed hospitals and coronavirus testing. Now to speculation about the health of kim jongun. He. Officials getting word was in Critical Condition after cardiovascular surgery. The white house was told kim jongun took a turn for the worst. He is 36. He also missed recent holiday celebrations in pyongyang. President trump plans to issue an executive order temporarily suspending and immigration. Late monday night the president tweeted the move is needed to contain the coronavirus and said it will protect american jobs. No word on how long the suspension will last or who it will affect. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im Viviana Hurtado. This is bloomberg. Alix . Alix breaking news when it comes to opec. What we are learning right now is the saudi cabinet discussed efforts to achieve oil market stability, also they have been discussing the market issue but not seeing a lot of movement in the oil price. Still trading around 15 a barrel for june. If you see deeper cuts or faster to 8. 5ven saudi goes billion barrels of oil for the day. Coming up, we will break down the pandemic and try to find improving sectors. Earnings. Set to give we will preview with michael pachter, wedbush ceo. And browse the features if you missed anything, check it out. This is bloomberg. Viviana i am for b r hurtado and youre looking at the principal room. Balance, republican senator Chuck Grassley of iowa. Viviana youre watching bloomberg daybreak. Im Viviana Hurtado with your Bloomberg Business flash. We begin with another hurdle for ibm. The company pulling its profit forecast because of the year because of the coronavirus pandemic. Ibm also reporting a drop in firstquarter revenue. The Company Expects in the near term clients will postpone projects. Germanup at the top of Software Giant sap. Coceo Jennifer Morgan is leaving abruptly. Last october she was appointed to the Top Executive role along with christian klein. The prana virus epidemic causing problems with the leadership structure. Klein will become the sole ceo. Virgin australia becoming asias First Airline to fail after the coronavirus outbreak. Administration is taking control of the carrier. Within months they plan to restructure the business and find new owners. Virgin australia is entirely owned by foreign airlines. I am Viviana Hurtado and that is your bloomberg is this flash. Businessloomberg flash. Alix time for bottom line. We look at sectors and Companies Worth watching. One of them is netflix. Set to earnings after the bell. Joining me is michael pachter, Wedbush Securities analyst. He has an underperform rating for netflix. This has been if you will play a virus proof stop, play netflix. What you expect out of earnings today . Michael i think they will crush the subscriber numbers, and the revenues will be fine. The Silver Lining for them as they are spending a lot less on content because they cannot produce content so cash flow should improve. The bottom line is what happens six months from now when they are not producing content and they start to run out of new stuff for their giant install base to consume . Runup the stock price does not reflect the health of the company. Right now they are super healthy , nobody is quitting. It is the people who are already subscribers to netflix are not spending more money. It is like staying at the buffet for an extra dish. You cannot pay more, you consume more. In six months we will have a bunch of fat consumers who have gorge themselves at the netflix trough and there will not be new shows in september and october. Isx i guess the question people might be watching more netflix, it does not mean they are paying more for netflix. How do we square content and user usage versus netflix making more money off of that . Sure, if you are consuming more you are less likely to quit. Stay at home probably means engagement is up 20 . Were watching netflix for 10 hours a week before, you are watching 12 hours now. Higher consumption means you will not quit. If youre using the service, you have no intention of quitting. Net subscriber addition is the sum of their gross new subscribers minus the people who turn out. Almost nobody is turning out. They will hit their numbers. I just think big churn is looming in the fall, especially as Services Like peacock, hulu, disney plus deliver content people have not seen before. Alix what about competition. Now you have Disney Streaming and you can also make the argument that if im Binge Watching every show ever, i will go to disney plus instead. Is there the stomach for all of the services or will we see that churn shorterterm . Michael the biggest potential loser is conventional linear television, the cable tv guys have the most to lose because if consumers who find themselves unemployed with Nothing Better to do want to consume a lot of content, the easiest bill to cut out is the cable bill. Wealthy people who remain employed have no problem adding a bunch of services. Recently unemployed or poor people will have trouble managing multiple subscriptions. If they finish netflix, and i am saying that is a joke, but if they are done consuming everything they have thought of on netflix, of course they will shift to lower price to disney plus, hulu, and peacock. Alix what about what is actually baked into the stock . Netflix is very owned by investors. We have not seen a leadership shift. What is priced in . Michael is a 200 billion enterprise value, which at a conservative valuation tells you investors expected to generate 10 billion positive Free Cash Flow in perpetuity. That is a 5 yield. To get to positive 10 billion, they need to grow by about 1. 5 billion of improvement for the next 10 years. I think that is exceedingly optimistic. Onestors have baked in no will watch any television at all. Everyone will cut the cord and netflix will be the last man standing. They are treating this company like his amazon, like you will put all other retailers out of business. I do not see netflix putting disney out of business anytime soon. Question is if you want to play this trend, but as you said the expectations are exceedingly optimistic, how do you play it now . Mobile video games. They are free to play. Increased engagement costs you nothing. The people who spend money will spend more in correlation to their engagement. If you have a person spending 10 a week and playing five hours and they Start Playing six hours, they will spend 12 a week. We are seeing that with all of the mobile game publishers. The two pure plays are zynga and glue, both of those stocks are doing well and i think they have not finished going up. I think theyre probably positioned to hit alltime highs. Michael,nks so much always great to catch up with you. Michael pachter of Wedbush Securities. Coming up, more on oil with mark rossano. This is bloomberg. Alix wti june futures shrinking more than 20 . Nt brading at 20 a barrel brent trading at 20 a barrel. Mark, i doubt you slept in the last 24 hours. If you see this contagion from the may contract entering the june contract, what are you doing . June andm press a starting to look at pressing july. We are staring at a glut that is not going away. If anything, it will only get worse, specifically in the u. S. As we have more clued more crude coming our way from saudi arabia. If that can be sold somewhere else to find spare capacity, at this point i think a lot of the refiners will want to take delivery because this is the stuff they need versus some of the u. S. Shale currently in the market. Alix if we will see sustainable crude rally, and im not talking 30, im talking a few dollars, what is the process we need to see in the market to get there . , saudihe big focus arabia keeps talking about opecplus doing Different Things , they will sit and meet. It is not production that matters, it is there exports. We need to see a significant amount of oil come out of the floating market. Right now we are at 120 Million Barrels a day sitting in boats. You need to see some of that oil get work through. The only way to see that is with more refiners coming online with some of the lockdown starting to loosen up. We are so far away from that that you need to see opecplus start opening start focusing which comes from production, but theres so much local demand destruction based on curfews and local refinery demand and russia has their own lockdown, there is a lot of demand destruction locally that is going into the markets. You need to see that come out. Alix that is a good point. What would it take you to stop pressing on the june contract . The rollover for may is now in june, but june will rollover too. For some, the rollover is at the beginning of may. Can you describe to me how that works . Mark at this point, they need to see the u. S. Starting to respond. I think you need to see shut in start to increase. People will say shutins are dangerous, we will not sure what will happen on the geology, but at the same time we have an understanding and know what is down there. We need to start seeing shutins. Completions have gone through the floor. The work i do with primary vision, we have seen completion coming down. In terms of frack spread they are a crew that completes the well we will see that go right through 100, probably 40 to 50. We also need to see shutins going we need to see these uneconomic wells putting out too much product start to, and that will make opecplus feel comfortable we are starting to respond as well. Low . What would be the i feel like that is a weird question, but nonetheless . Mark if you wouldve told me the may contract would go that negative, i would have told you you were crazy. I am comfortable telling you june will easily go into the low single digits. I think it could go negative giving how bad cushion is at this moment and there is no export market for u. S. Crude. I know europe had a big spike, but i think that was more of a oneoff as they tried to rejigger their system and prepare for reopening. I think you will get pressure across all of our storage and you could get june going negative. Alix mark, thanks a lot. Mark rossano. He calls me crazy all of the time. That does it for us. Coming up, matt hornbach, Morgan Stanley head of global strategy will be joining him. Happy tuesday. This is bloomberg. Jonathan 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 with equity futures at session lows. 56now we are down 56 point and down 2 . Risk aversion bleeding through the market. Yields lower, much lower. In the fx market, the commodity currency underperforming. In the commodity market, crude lower. The may contract is yesterdays news. It is about june and the volume going through it, sending crude down 14. 84. The story right now is this bleeds through the crude curve out from may into june and Goes International as well as the brent contract gets sucked lower as well. That is your top story. The story that has played ou