Will accept junk, recent fallen angels as collateral. Time now for todays market moving news from brussels in new york. We want to begin in europe, where the pandemic drove the economy to a record slump in april. Pmi Area Services completely decimated, falling to 11. 7. Manufacturing also dropped to 33. 6. Bloombergs maria tadeo joins me from brussels. Maria what you are seeing is that the Coronavirus Crisis is going to do a lot of damage to the european economy. [indiscernible] brussels tell us they do anticipate a contraction for the entire euro area. This is potentially huge. Youre seeing again the European Central bank stepping in to try to shield some of those markets, in particular in countries like. Taly ,he other side of the equation what exactly are european leaders going to do to help the ecb, to put more money on the table and also protect their own economies . There has been a lot of backandforth. Perhaps a 2 trillion euro package. But all of this is still very much in the air. Political divisions still going on, and even if we do get a plan going on today, it would take weeks if not months for this to be signed off and get going. Maria tadeo, thank you very much. Its recoveryding from mondays plunge below zero, now climbing to 15 a barrel. Ahead of some Big Oil Earnings next week. Walk us through destabilization Annmarie Hordern joins us now. Walk me through the stabilization. Annmarie i dont think wti in the teens is a recovery, but we are stabilizing compared to the chaos on monday. Goodnk jeff currie made a point speaking to tom and francine, that if the fundamentals dont change, we could potentially see negative prices again on wti. Storage is exhausted. He said we could see storage around the globe hit. We see a lot of creativity going on in the oil market in terms of being able to get your hands on this storage. Off the coast of california, about 20 Million Barrels of oil laying idle in what is now floating storage. Another thing happening in the market, youre seeing this had everyone, not just the industry, but also retail investors. America monday, when this contract expired, those prices came under zero, so a lot of money for the retail. Nvestors a harbinger for big oil. Alix thank you very much. One other story i am watching this mornings Credit Suisse, kicking off earnings season for europes biggest bank and taking an upfront hit from the virus. The lenders taking more than 1 billion in writedowns and provisions for bad loans. Credit suisse says it may have to make further allowances in the future. Ceo thomasnew gottstein. I did not expect that when i took the role on february 14, thingsess than a month have changed. Alix that is a really rough two months for the new ceo. Hes the first suisse ceo in almost two decades. Blackstone is cutting its share. D to . 39 per blackstone taking a hit on the dividend. Eli lilly now sees the fullyear. Djusted earnings forecast coming up on the markets, much more of your morning trade and analysis in todays first take. This is bloomberg. Alix time now for Bloomberg Joining me from our inhouse team of wall street veterans and insiders, Michael Mckee, economics and policy correspondent, and Damian Sassower come up big intelligence emerging credit strategist. Still surprised when things are actually really bad. Michael my favorite headline of the morning from the folks at bannockburn, Marc Chandler announced this morning dollar firm as Global Economy falls off cliff, which sums up the whole thing this morning. The only thing is, we kind of knew that. The cac 40 this morning is trading higher as we saw a dramatic drop in french many Factoring Services and composite pmi. The problem is these things measure the breadth of how Many Companies are reporting worse news. The depth is going to be really bad. You cant really put a number on it because it is really hard to model. Models dont account for this kind of fall. So you just go on your way and look at what you might want to buy or sell rather than think about exactly what these numbers mean at this point. Alix totally fair. In light of that, as the data gets worse, what do you look at today . Damian i always look at funding stress and liquidity concerns. For me, it is about the reduced collateral requirements out of europe on the back of the ecb meeting. The fact that they will accept junk graded debt is no surprise. As well as moodys review coming in may. Fact of the matter is the attractiveness of borrowing in euro and swapping into u. S. Dollar has been a trade that a lot of institutions have taken advantage of, just given where levels are. Whether or not this gets libor be to compress remains to seen, but i expect a borrowing basis to kind of come off here in the u. K. And europe on the back of this news. Alix im glad you mentioned that because it is still pushing its way higher, and questions as to whether that will be fixed. The u. S. , you wind up having , and bets on libor going into negative. What does all of that tell you . Damian what it means is that a lot of people have been really taking advantage of cross currency basis swaps. The tightening of the eurodollar borrowing. It is no big secret that that is secure stabley to income and then her term across most institutions. Councile the governing in the ecb discuss the further loosening of collaterals, whether enough whether or not this relieves pressure remains to be seen. But if you look at some of the , an article and italian economist penned an article. I think we need to see more fiscal stimulus, and that is a concern Going Forward. Alix we need that from europe as well. Why shouldays other states wind up paying when they have a better budget deficit . It is kind of the same argument when it comes to these bailouts. Michael mcconnell wasnt really talking about the pensions aspect. He was talking up the holes being created in states and cities budgests cities because of the virus crisis. Said all of a sudden, we are suddenly concerned about debt. Weve got 4 trillion we just spent, and now we are going to worry about it . No, we should let states go bankrupt instead. The problem is states cant go bankrupt under the constitution, so they would have to change the law. Theres questions about whether they could even constitutionally do that because of certain provisions in the document. It doesnt look like some thing that is going to happen, but it is going to provoke a big fight, it appears, on capitol hill over phase four or phase five, wherever we are come on the aide to the states. As far as pensions and stuff, they will have to deal with that themselves. I think the corollary i was trying to make is that we are still working for phase two for europe, and that is the same conversation. They all want the money, but how are you going to wind up paying for it when germany is ,ncreasing its budget deficit but they did all the right stuff to get there . Michael theres two arguments there. In europe, the more important question is who is going to pay for it, the periphery countries that are in the most financial trouble want everybody to pay. They want the United States model, where wyoming and alabama help pay for new york and california because we are one country, whereas the germans and the dutch particularly say if we do that, we are going to end up footing the bill, and we are all going to have to pay higher Interest Rates because we are going to get stuck with your credit rating. That is a standoff they are going to have to figure out over the longer term how to solve. That may get while, but they have some existential questions they are going to have to solve. Feel like thend i kicking the can thing has been happening for eight or nine years. That leads me to emerging markets because typically, emerging markets like to deal with external shocks by weaker currencies. But then you wind up having the stronger dollar the puts even more pressure. It is not like they can necessarily do the same kind of stimulus that developed markets can do. Damian i dont know if they like all that. But the fact remains that emergingmarket Central Banks are really resorting to novel stimulus to basically try and jumpstart liquidity in their theomies, buying bonds in secondary market. I dont many Central Banks understand the risk of going down this path because what it subject certain parts of their local yield curves to a gray area where basically, certain locals know more about the trading in those portions of the yield curve than others. That deters Foreign Investors for moving into those markets. That is the real risk of quant easing. I am not saying it wont work in the near term, but you must be very mindful that centralbank credibility is absolutely key to a successful easing program, and emerging markets, there are some where the credibility may be subject. Alix Goldman Sachs emergingmarkets are undervalued. How do you model if that is true based on the scenario you laid out here . Damian i dont know how you can possibly model the impact of covid on emerging markets, but kudos to goldman. They are far smarter than i am. Div urgency youre seeing between highyield and estmentgrade, this has the divergence you are seeing between highyield and what that is doing is driving up highyield spreads. Emerging markets are following suit. Em highyield at levels we havent seen in years. Alix that is such a good point. So there is a trickledown from oil to emerging markets. If you take a look at the 10 year breakeven expectations, at one point they were below 1 . Are you hearing talk of deflation . , particularlyah in the short run. Look at the breakevens for two years, Something Like 63 basis points. We are looking at short run deflation. The question is how long does it last, and what impact does it really have on the markets . Everybody is expecting it at this point. What you look at is where do we think this is going to go from here . People think we are going to get inflation again. It is just going to be very low, which, anyway is good news because it suggests is a lot of policy room. The fed can keep Interest Rates lower for much longer, and we are not going to have to react to a burst of inflation, and given the oil price outlook, it looks like we will see this for a bit longer than the virus hanging around. Alix no kidding. That also begs the question, does that help make monetization easier . The fed can just keep on buying treasury bonds. I was also struck by in the u. K. , a huge amount of issuance for may and june. To be anit is going interesting question. The fed is engaged in a lot of qe over the last couple of weeks in order to keep the treasury markets functioning well. We are going to get to a point where the virus is starting to trail off, and we do open the economy and we do want people to go spend again, but does the fed really have any ammunition to get that to happen beyond what they have done . What you do with qe is you are lowering the longterm Interest Rate, but they are around 50 basis points on average now. That is not going to be an issue for people. The question is creating demand to go outside, to go to the mall and to go shopping. The fed may not have to ramp up or do much more in terms of qe to get anywhere on this. They may have to come up with some other idea to try to stimulate spending. Alix alix we are to leave it there, but really great to catch up with you. Always helpful to get the lay of the land. Damian sassower Michael Mckee a bloomberg. Any charts we use throughout the program, gtv on your terminal. Check it out. Credit suisse putting aside 1 billion in loans. This is bloomberg. Viviana you are watching bloomberg daybreak. The top u. S. Aluminum producer is cutting cost and output. Alcoa will suspend production at one of its plants. Aluminum has been among the worst performing commodities during the pandemic. Credit suisses new ceo agrees it was a baptism of fire. Thomas gottsteins first earning report seeing the bank take more than 1 billion in writedowns and provisions for bad loans, saying things are likely to get worse. We clearly assumed a significant reduction in gdp the Second Quarter of roughly 20 in the u. S. , and in the high Single Digits in europe and switzerland , and for the full year, we expect recessions not only in the u. S. , but also in europe, and to a lesser extent in switzerland, but also for switzerland. Viviana there is a bright spot for Credit Suisse. Trading business to better than expected is your Bloomberg Business flash. Alix thanks so much. For more on Credit Suisse, i am joined by alison williams, Bloomberg Intelligence senior banks analyst. At 1 billion to cover the impact of the virus, how does that compare to the u. S. Banks so far . Billion is really loan 600 million franc loss provision, and then theres the valuation marks. I think what is important to note with Credit Suisse is, first of all, the size of the marks this time around does support the fact that they have really shifted their strategy , evenhe very long term since the last pocket of 2005 sorry,e 2015, 2016. They have cut risk. If you look at the provision, it much more than analysts expected. Muchsolute size, it is slower than u. S. Peers. If you look in the context of their overall business as a percentage of revenue, also much lower. That remains to the companys mix. Where we saw the big jump, the biggest numbers and biggest risk ahead, really relates to the u. S. Card business, citigroup and j. P. Morgan leading the way. Alix i struggle to understand if that is a good or bad thing is it a good thing because they are less exposed, therefore they are not going to take as much hit on losses . We kind of one banks to lend a lot so the economy can get going. I think it is really just a different model in terms of mix. If you look at the diversified u. S. Lenders, it is a much bigger portion of their business. If you think about the u. S. Consumer and the u. S. Card business, it is much more significant than in other parts of the world in terms of u. S. Propensity to borrow. When we look at some would like Credit Suisse, their business is really much more focused on so over the more last decade or so as they moved ,way for more volatile trading and that did also outperform for them this quarter. Think that as we go forward, a couple of big questions, and i think why investors are sort of is we hadout the bank a huge one q in trading that is not necessarily sustainable. Now sort of the lower asset levels in q2, it is a much lower base. Blackrock talking about a 12 drop versus their q1 rate. The loss provisions, that is really such a bigger question in terms of the uncertainty around how deep this downturn is going to be and how long its going to be. Alix yes. We are going to have to leave it there. Thanks so much for joining us on Credit Suisse. This is bloomberg. Alix welcome to bloomberg daybreak. Im alix steel. Not a lot happening on the equity front. You had some Investor Sentiment where we do see bearish sentiment, but we are not yet at retail capitulation. In other markets, what i want to be watching is what is happening with the euro, moving lower. We are waiting for anything to come out of an eu Leader Meeting summit. ,lso at the lows of the session not having an impact in the bond market. Portuguese,nish, italian yields all down between five and eight basis points. Crude stabilizing a bit. We still dont want to see 15 oil, at the end of the day. We are going to look at the impact of the pandemic in global stimulus to all currencies, particularly the euro, was that alisa break off with vassili , Ubs Securities fx strategist. Vassili i think the expectations for the eu summit are already relatively low. I think the factor that everybody is watching is the past to eurozone bonds. That is not going to happen quickly. That is quite clear. However, what we hope for are some steps in that direction. For example, perhaps some plans for the Recovery Fund where the bonds are backed by the eu budget. I think that will be something that can more positively by the market. When it comes to the euro, i think it is in an interesting spot right now because it has underperformed, as you mentioned. The bondhe widening in spreads, particularly italian yields, is a big factor behind that, but we would tend to say that at this point, a lot of this risk is already baked in, and unless you really think things are going to fall apart in the shortterm, i dont think we would be selling the euro at these levels. Alix the pmis really fell apart for april. It is the same question in the u. S. If the data comes in bad and we know it is bad, how much of that is priced in . And when a redone with all the badness . When do we start seeing some stabilization in the bad data . Vassili the data is going to be bad, no doubt about it. You do have some countries in europe starting to come back very slowly. If you look at france and italy at the forefront, the curves have come down a lot and i think they are starting to reopen, but we are not going to see anything good in the data for a few months. One key factor we are watching and i think the market should be watching more closely is how the fiscal stimulus impacts different markets differently. What is really interesting for us is that in europe, you have this massive stimulus to support the job market, essentially to keep people employed during this time. If you actually look at the you peopleata, 27 million joined the shortterm job protection scheme. That is more than the rising u. S. Unemployment. I think the scheme whereby in europe, we have actually retained a lot of the workers in their jobs, will make it a to rehire themer back, and that can be positive to eurozone growth. Alix does that mean we are looking at a weaker dollar or just a relatively weaker dollar . Issili i think the dollar still largely a cyclical play. I think the market has been diverging because you have some of the currencies doing quite well. The aussie and q. Week have actually rebound it and kiwi havoc and kiwi have actually rebounded. The euro has been the one tied to the sovereign risk, which we think is priced efficiently enough at this point. M currencies are very cheap it is not really the time to buy them yet because it will take longer for all of those money pensions in particular to resolve themselves. Ultimately, i think you wind up in a weaker dollar environment because i think the main driver is going to be the extraordinary easing by the fed and the cyclical rebound globally, but it is a slow process and you kind of have to pick your spots right now. I think the euro is a good spot mainly because it suffered because of some of the sovereign concerns, but to me, those peak. Ns are the local i think those concerns could come back if in the second half of the year, we get another round of lockdown. I thick this is where we would have concerns about italy and so on, but not right now. Alix dont say that out loud. We cant go there. Real quick before we move on from europe, the funding stresses we are seeing within europe, do you expect that to go away from what the ecb has already done . Vassili i think that is somewhat concerning recently. We do think that the ecb has shown enough flexibility recently, and we saw that with junk bonds, for example, to address some of the emergingmarket issues. I dont think at this point it is going to be a main issue for the euro itself. I think the euro is really more breakup,stence risk of but that is certainly something we are watching. Alix if we move on to how much stimulus we are going to see and how we pay for it, do you think we are looking at a world in the u. S. And the u. K. Where we are just going to monetize straight up, even if you dont want to call it modern monetary theory . Vassili you can call it whatever you want, but i think you are absolutely right. This is a new environment. This is an environment of rapidly rising debt to gdp ratios. But remember, there was this antipercent number a few years ago. Nobody really knows where the number is right now. Because the Central Banks are stepping in so aggressively, they are really absorbing a lot of the increase in debt. Got to rethink the macro market and what is driving currencies in particular. If Central Banks have really suppressed the interestrate environment and Interest Rates are not going to move very much Going Forward, what is going to be driving currencies on the macro level . This could be growth, this could be equities. But a lot of systemic shift going on in the market right now. Alix in your mind, are steepeners a foregone conclusion , or now the widow maker trade because we are going to continue to see the demand matter how much issuance we see . Vassili i think you can have some moderate steepening, and i think you can see where Central Banks are stepping back a little bit. , theyample, and australia have already been papering some of their bond purchases. About 10, 20lking basis point moves. We are not talking about big moves. I think the big moves are still more about taking a view on risk, and in particular, equities, credit, these are you are more positive about the Global Economy from current levels, equities and credit is probably where most of the recovery is going to take lace. As i mentioned before, i think em is a big question mark. Lot of cheap valuations there. People are not stepping into take advantage yet, but this is an ongoing question. I think the shape of the yield curve is kind of an interesting there aretion, but bigger and larger opportunities out there. Vassili serebriakov of ubs, thank you very much. Heres how the global Coronavirus Response highlights the haves and havenots. We were just talking about the stimulus from certain countries. This could exacerbate the gap between rich and poor nations. Wealthy nations like italy and germany have allocated more than 30 of gdp to fight dependent mix effects. Many that to fight the pandemics effects to fight the pandemics effects. Meanwhile, countries in africa and latin america have struggled to come up with 1 billion for aid. Now we want to give you an update on what is making headlines outside of the business world. Heres Viviana Hurtado with your first word news. Viviana President Trump signs an executive order to curb immigration. Green cards or timber early on hold. They allow foreigners to become ash green cards are temporarily on hold. Green cards are temporarily on hold. Sticking in washington, the u. S. House is expected to approve today the 484 billion rescue plan the Senate Already passed. The bill adds more money to aid Small Businesses, plus funding for hospitals and coronavirus testing. House Speaker Nancy Pelosi saying her next priority, a major aid package, but focused on state and local governments. That sets up a conflict with Senate Majority leader mitch mcconnell. He wants to slow the doling out of federal money. In europe, the continent inching its way towards a 2. 2 trillion dollar coronavirus Recovery Plan. Still, it may never happen. Today, european leaders participating in another conference call. A sticking point, how to allocate the money. Hardhit countries like italy and spain want fiscal issuance, but germany and the netherlands dont want to be stuck with that bill. 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. Two really difficult areas to invest in right now, real estate and oil. We will talk to one private equity firm investing in both. , Warburg Investment Group ceo, coming up next. Check us out on tv. This is bloomberg. Viviana you are watching bloomberg daybreak. A big change at apple. Bloomberg has learned that next year, the company will start selling Mac Computers with its own main processors. Apple plans to rely on designs that helped popularize the iphone and ipad. The macs currently have chips built by intel. Unilever is speeding up the launch of new cleaning goods because global stayathome orders devastated sales of the consumer giants food products. Unilever withdrew Financial Guidance for the First Quarter. The Company Reported worse than expected sales. A sign of life in the luxury sector. Reporting is sales lowerthanexpected decline. For a reboundring after the coronavirus outbreak killed demand. Alix thanks so much. Many investors remain concerned that the Oil Supply Glut will continue to swell and weigh on the back end of the curve. Joining me is a woman putting money to work, kate richard, warwick investment ceo. It is so great to talk to you. I want to get your take on your current oil assets that you own. What are they . What are you noticing . What are you doing with them . Year we came into this over 90 hedged for 2020 and 2021 at oil prices above 50 with very little debt, though we looked at this dispassionately. Basically, for eight weeks weve been telling investors that to eightded to fall dollars to 15 a barrel in the United States. That was a call for the forward curve for 20, not the spot. When weportant because look in the First Quarter, we still see that oil prices are just below 30, and that is too high. Isht now, what we are doing looking at curtailing our operating production, and then working with our partner operator on delaying completion to the extent that we can, i think from a Financial Market standpoint, people like to think that it is pretty straightforward, but that doesnt address a number of realities we deal with operationally. One is geology. Producerse offset . Hat are bringing wealth online another is what is the type of crude that you produce. This a fair amount of waxy crude produced in north america. As one of my producer colleagues said to me, i cant shut in i waxy crude because if i do, i will have a one mile candle underground. Its very easy to say these guys should all shut in, but shutting in is complicated. I think the industry still has probably 30 of capex needs to be cut out of the system this year, and then shut ends are just going to be used to manage inventory. Alix so if you think the back end of the curve needs to come down more and you are hedged for this year and next year, when do you start to buy stuff . What is the risk profile you look at . Theres a lot that is moving with this right now. Control andt of the the future of what happens to many of the companies that reuters and others have pretty will be part of that 30 bankruptcy stat is held by the lenders. Bondholders, it is for the smallcap, midcap and private companies. You can talk to the lenders right now. It was widely reported that some of the large lenders let the investment banks are involved in setting up operated companies to actually own and manage the , butteral of oil and gas on the other hand, we talked to lenders yesterday and they are not sure how they are going to handle curtailments. The covenants in these senior secured lending facilities are mostly based on trailing 12 month even donna 12 month ebita. When you curtail production, that will impair your e bitda. We havent seen widespread curtailments in decades, so this is something everyone is looking through. If the lenders want to put people out of business because they are in violation of covenants, they will do that. That could create an interesting cycle, but that is not something we have seen. We didnt even really see that in a widespread way coming out of 2008 were coming out of opec price war in 2014 and when he 15. Alix does that mean at some point, you could buy really cheap oil assets from banks . Kate the big thing people are talking about in the industry right now is can you buy production at a discount rate. Right now there are about six transactions we can point to where that has been done. General, isay in think it is a big theme, and everyone is saying you shouldnt pay anything for acreage, which is undeveloped. You should only pay a high teens discount rate. What we are seeing in reality is that that is a widely talked about idea that hasnt really been transacted on that much. ,f course we are watching it and a high teens return on production would be significant because production historically is priced at a 9 return or 10 return. That is really interesting, and it is sort of the same issue when it comes to real estate. He recently launched a real estate platform. Youre going to have homeowners, landowners, all of that not being able to pay the rent. Where does that create any you . Tunity for kate we look at energy and real estate similarly. It is all location, location, location. Across basis to allow appreciation to occur . When we look at the energy assets, we are looking at the core of the basin. Areook at real estate, we consolidators. We build consolidation strategies. What is really interesting to us right now is residential in manhattan. There is a major supply demand imbalance, while the rest of the country has had very strong real estate across sectors. We seen a lot of weakness in manhattan residential, partially because it is overbilled, and that is really a function of many players coming into finance new development in residential, and also building higher end products than the market is really requiring right now, and thirdly land costs. We think it is interesting to go in and buy at low dollar per square foot values, so allowing for longterm Capital Appreciation without realizing taxable events. The thing that is interesting is you may have a contraction in manhattan for a few years, but itself ill rebid will rebuild itself. Reallye have seen interesting new companies locate especially to the western and southern part of manhattan, which has sort of shifted both the Residential Market and the commercial market. We thought it was interesting before corona. We think it is even more interesting now. Alix kate, so good to catch up with you. Really appreciate this. Kate richard of warwick investment group, thank you so much. Coming up, we are going to take a look at how loose or collateral requirements for eu banks is affecting money market rates. Deeper in todays traders take. This is bloomberg. Alix time now for traders take. We are joined by Damian Sassower of Bloomberg Intelligence. We were talking about rising funding costs in europe. Damian thats right. We have discussed previously, a homework theme heading into the pandemic has been secular growth of currency hedged fixed income and credit portfolios at large nonbank institutions, specifically those from negative Interest Rate jurisdictions. What you are looking at on the chart are your libor threemonth spreads, and they have gone to fouryear highs. What this is driving effectively is increased demand for unsecured funding out of europe to buy, to swap into dollars and buy u. S. Credit mortgages, high yield, you name it. Swapping into dollars has been a source of stable income for these institutions, i dont expect that to go away anytime soon with libor ois spreads this wide in europe and the u. K. Alix so what is the knock on effect to that . We know why it is happening. What is the so wet for investors or companies, what is the so what for investors or companies . Damian we need to see further loosening of the collateral rules that enable lenders to borrow against euro holdings, or we need to see more fiscal out of europe, which is what we have been discussing. We have risen to 250 basis points. These are the impacts of it. We just need to see a more coordinated effort on the part of the euro zone to get these spreads tighter. Alix right. Thanks a lot. Really appreciate it. Coming up on the program, brent schutte, Northwestern Mutual chief investment strategist will be joining us. His call on equities. All on equities. Alix welcome to bloomberg this thursday, april 20 third. Im alix steel. Lets take it right from the top. Germanys Ruling Coalition agrees on a package to help the nomy as European Countries meanwhile, european leaders debating a 2 trillion euro plan. There has been a lot of backandforth. There has been talk about longterm bonds, perhaps a 2 trillion euro package, but all of this is still very much in the air. For the full year, we expect recession not only in the u. S. , but also in europe. Alix the new Credit Suisse ceo sets aside when billion dollars to provide debt provisions for bad loans, the biggest in decades. [indiscernible] guidance for the year, even as it launches new products. It is an absolutely tight absolutely tiny part of unilevers business. Underlying sales were flat for the First Quarter, but like other consumer goods companies, unilever is benefiting alix part of all of that, taking a look at where the markets are, equity markets pretty much not going anywhere, whether here in the u. S. Or over in europe. Where you are seeing some reaction is in the currency market and bond market in europe. Eurodollar testing the lows of the session, down by about 0. 5 . Germany also putting in billions of dollars worth of stimulus for its country to help its recovery. You are also seeing a move into the bond market in europe, particularly in the peripherals. 10 year yield not moving that much in the u. S. For more on the markets, joining me now is brent schutte, nor western brent schutte, Northwestern Mutual chief investment strategist. You have a deal with earnings come over you have blackstone cutting dividends, eli lilly on the backend. How do you look at what we are getting . Brent i think they matter more on a relative perspective. I still think the virus is the macro control of the overall direction. Market isnt always synced up with earnings. Back in 2018, earnings were up 23 or 24 . In 2019, earnings were around 1 , but the market zoomed 22 . This is more of a virus concern. Im not suggesting that they dont matter because the ones that can produce good earnings it ising put up now, but more how you can survive, and if the virus changed tomorrow, i think people would forget what happened yesterday. Alix it is really interesting because that is in some ways reflected in this vshaped recovery that we have seen within u. S. Equities, regardless of the fact that ceos are coming out saying i have no idea what the rest of the year is going to look like, and withdrawing guidance. Is that because we are expecting a strong recovery in the u. S. , or is that purely a valuation trick, and that the s p yield is much higher than the 10 year yield, the most we have seen in decades . Brent i thick it a combination of all of that. I hear the commentary of the s p only being down 12 , but that is driven by a select group of stocks. If you look at the people waited s p, it is down 21 . Down 26 . Small caps down 32 . I am not sure people are expecting a vshaped recovery. Point number two is the data is so bad it is causing the data to be bad. With, it is to deal with the quarantine, the aarantining has led to conversation about how to reopen our economy and start climbing on the other side, which may mean better economic data. That is why think parts of the market have rallied now that we are talking about what we call step three, how we reopen, and that is really going to drive the market the next few weeks. Recovery,hat are the reopening asset allocations or sectors we want to be in right now . Brent i think people right now are trying to navigate the downside. We were going along. We got hit by an unexpected stock. It is now causing a slope downwards. If you are trying to navigate that and your time horizon is shorter, certainly the top 50 are Still Producing earnings. As you shift into thing you about how we climb up that valley, and if you believe in valuation metrics, there are certainly Asset Classes that on our models are cheap relative to large. Even if you look overseas at emerging markets, theres all kinds of reasons to be worried there, but they are also pretty historically cheap. I guess it is a matter of what youre trying to do, and given our focus is more so everything we do in this company is longerterm, we are looking towards cheaper Asset Classes. We dont know yet when the virus is going to turn more favorable. I guess that implies that value stocks will outperform and the momentum stocks, Growth Stocks underperform. Is that how you are looking at it on a factor level . Brent if you start climbing that wall, gdp starts accelerating even off of the bottoms, we have to show that we can actually open the economy absent a vaccine or treatment. I do think you will have some kind of a bounce back more cyclical sectors in places like small caps, which typically are better coming out of a recession, and they are historically cheap. I think that would be a nearterm forecast. One thing i always want to counsel, i think back to having done this for 26 years, it is easy now to suggest that only the s p 500 will do well, but this were mines we have 9099, 2000. This reminds me of 1999 and 2000. Every recession has consequences. I think about stock buybacks may be being eliminated. I think about universal basic income. I think about a central bank that anchors rates below zero. I just like the next 10 years is going to look different, and i advise not to draw trendlines far into the future. Alix that is such an interesting point, particularly when it comes to things like protectionism or moving your supply chains more locally so you arent exposed to this kind of thing. All of that having huge ramifications. When youre looking at your models and you have to put in things like a ceo has no idea what the forecast will be, and you have longer implications, how do you make safer bets and know how much risk you want to be taking on . Brent i think you play them off against each other. Thats what diversification is at its base. Many want to only invest in u. S. Large caps because that is what has worked. I think if you do that now, you are making a comment that you know exactly what that future is going to hold, and the valuation does not matter, which i thicket still does. I think all of those things come to roost and we will see what the next 10 years holds, but i dont know exactly how it is going to play out, but history is going to tell me it is not going to play out how adjusted. These things rotate. If i go back, it flipped into thousand one and it is going to flip this time. I just dont want investors to set up their whole portfolio in one asset class. Now . Your best hedge right gold. Well, we do own at 10 year treasury being certain yields still has hedge and capability, but we did move some of that safer nominal money towards tips. I think we still get the safety of the u. S. Government, i know my specs inflation in the future. Those are the two things i would say from a hedge perspective that we are looking at right now, and we do like some of the smaller caps, midcaps. We still like the u. S. I think as you look forward, we also think emerging markets, we would have a barbell between the u. S. And emerging markets. It. really appreciate a robust discussion there. Brent schutte of Northwestern Mutual, figure very much. Coming up, we speak on the prospects for Energy Companies , up next. West of bcg this is bloomberg. Alix big oil in the hot seat next week, reporting earnings from chevron to exxon. Typically, the dividends are seen as joining us for more is robin west, bcg managing director. Also served as the chairman for pfg energy for decades. What one or did today, cut asked what equal nor what equinor did today, cutting its dividend, were you surprised . Robin theres a 50 billion question. That is about the amount that the International Oil companies paid in dividends last year. Will they continue paying it . The jury is out. These companies have enormous capital expenditures, very high dividends, and weak earnings. Something has got to give. These will be looked at closely, and obviously the case with equinor, it was. Quinor stock is down by 1. 3 . On the other hand, this is why you want to own the big guys, because of the dividend payout. Otherwise, how do you own exxon, for example . Robin i think you are right, and if the dividend is cut, the industry is going to have to develop a new narrative with investors. I think it is important to point out that the super majors particularly, the big five will hold onto the dividend as long as they can, if they can. Totale and shall have used script, but that is expensive and shell have used script, but that is expensive. Alix based on that, there are other parts of the business energyost have been at transition, going to Carbon Neutral or trying to transition in the next few decades into other types of energy. Does that get pushed forward . How do you look at it . Robin i think particularly for the european companies, for bp, and equinor, these companies have got to continue their Energy Transition activities. It is critical to their license to operate in europe. Simply cant get cut. They are sacrosanct. Alix at what point do they not have a choice . If youre looking at negative , how do you model your risk for that . Robin i think one of the things with renewables is you can continue those programs. The question is how do you pay for it. There may be other sources of capital. There are lots of organizations which dont have the same kind of Balance Sheet as Oil Companies that are in that business. I think Oil Companies are going to have to be more creative financially, but i dont think they have a choice about continuing with this low carbon program. Guys . What about the u. S. Robin the u. S. Side is quite different. Theres much less political pressure. Both chevron and exxon has basically stuck to the oil and gas business. I think they are trying to run good, clean businesses. But they are much less aggressive than the renewable area. Your policy hat because in the early 1980s, you were assistant secretary of the interior for policy and helped manage offshore oil policy. Should the government stepped in to help u. S. Independents . If yes, what is the best option . Robin i think there are some people that would like to have the u. S. Make supply decisions lalaw opec decisions a opec. That is difficult because we have thousands of companies producing, not one national company. Think this is a problem because it can benefit others and hurt some people. I think it is very difficult to buy in oil. America is a big, complicated place. To execute effective policy in time soon would be extreme or difficult. Like what about something paying to keep your oil in the ground . Can are essentially already doing it for themselves. Robin i think it is going to be economics, not government policy, which will decide what oil staves in the ground. What oil stays in the ground. Some of the large u. S. Producers have already announced they are going to be cutting production in the u. S. , which is oil in the ground. I think paying to do that just gets awfully complicated. This could cause distortions in the market and for investors. Alix when we come out of this, what do you think if the more likely result . Prices, really low gasoline prices put a bid under that commodity on a demand cents for years as we work through the inventory, and that prolongs the shift into alternative energy . What is the conversation in five years about this . Robin first thing, right now it is too soon to tell. We really dont know. The collapse in demand is unprecedented. I think you are going to see patterns change. For example, ive been advised that in certain countries, as soon as people can get out of their houses, they are going to go down and buy automobiles because they dont want to get on public transportation. We are going to see Consumption Patterns change. I think the other side of the coin is that if the Oil Industry Cuts back too much and there isnt investment in production, eventually that could come back to bite us as well. Supply and demand is still fundamental, but it is this collapse in demand which, because of the covid and global recession, this is really unprecedented. But i think there will be unanticipated changes, but there may be some surprising changes as well. Alix interesting. Really appreciate it. It was really great to chat with you. Robin west of the boston consulting group, thanks very much. Coming up on the program, europes 2 trillion euro Recovery Plan. More on that, next. Plus, looking at expedia, up by ceo, has now named a new and is raising 3. 2 million in new capital. They are also ceasing their dividend. Chairman barry diller had been running things. That stock is pretty much down flat on the day. This is bloomberg. Viviana you are watching bloomberg daybreak. Blackstone saw asset values plunge across most of its Business Segments in the First Quarter. They fell 22 . Despite the impact of the coronavirus, blackstone taking a bullish tone. Suisse. Redit it is joining u. S. Banks in taking an upfront hit from the coronavirus. The lender is taking more than 1 billion of writedowns and provisions for bad loans. Credit suisse saying it may have to make further allowances in the future. Europes economy suffered this month a massive blow. An estimate of private sector activity on the continent falling by more than half. The groep the drop was far bigger than economists estimated. Companies struggling to stay afloat. Alix thanks so much. The European Commission is floating a 2 trillion Recovery Plan. Eu leaders are about to meet in about half an hour. Going from brussels is bloombergs maria tadeo. Can you give us more detail on this 2 trillion Recovery Plan . Maria this is what european leaders will really talk about in this meeting. The market is hoping to get some clarity, and we have seen many stories, many leaks, proposals floated around. The latest does look at the European Convention and a 2 trillion euro budget. Money. A huge amount of what is key here is that they would be open to tap the market for new debt. Youre looking at potentially 320 billion euros. Issued by european institutions, it would be aaa. This is new money. Having said that, this is a political discussion, and it is so countries like germany, but also italy, where are under huge pressure. Alix for the money, is it going to loans to countries . Is it going to be grants . Do we know some of the mechanism by which it is distributed . Maria that is the debate at this point, and this is the debate between the north and southern European Countries in terms of where to go from here. The countries that wouldnt want ,o see transfers, this money they argue they need this because they dont need more debt. If you dont, you will end the year in recession and you dont want to see your debt to gdp ratio go higher. To saythe ecb is trying even if we do get a ratings , that is how the 2008 crisis was dealt with. Are we going to see something new . Theres no clarity on that yet. What we do see is that france, italy, and spain are joining forces to say this should be done via transfers. Ok. we will see what that actually winds up coming down to. Thank you very much, maria tadeo joining us from brussels. We are minutes away from the latest initial jobless claim data. We know it is going to be bad, but the how bad is the question we are going to discuss with director of pgim portfolio strategy. 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 this is bloomberg daybreak. I am alix steel. A quick check on the markets. Not a lot of action in the equity market. Mixed into the latest ecoreport. Switch up the board. Eurodollar one of the underperformers in the g10 space as we wait for anything from the eu leader summit. Also want to highlight the movement into the bond market. In the u. S. Not seeing much. Are seeing buying for peripheral debt as the ecb can use fallen angels as collateral. Initial jobless claims. 4. 4 million from last week. 4. 4 Million People filing for initial jobless claims. That brings the total to about 26 million over the last four weeks. Unbelievable and staggering numbers we see. Continuing claims less than estimated if you will look for any kind of bright spot, but nonetheless jobless claims up or. 4 million. Joining me to break it all down is Michael Mckee as well as greg peters, pgim fixed income head of multisector income and strategy. Mike, walk us through any nuance we need to know. We know these will be bad. Michael we knew they would be bad but most of the pig is through the python if you can say that about 4. 5 Million People. We saw a big rush in the first couple weeks of the month and now we seem to be getting to the point where things are slowing down and americans are getting their applications in, states are clearing backlogs. Still a lot of jobless claims. It would have been ahead shaker if we had not had the previous weeks. Continuing claims starting to rise as people get into the system. That is where you will want to put the focus in the future. Right now, it looks like 15,976,000. That will go live or 20 million next week. That will go over 20 million next week. It will tell some the people are continuing to get jobless claims. Adjustednably Unemployment Rate is now 11 , that is an alltime high. No surprise there. We are seeing these kind of superlatives with this many people out of work this quickly. Hear it and, we then we say it, and when you think about it it becomes staggering. Greg, how do you look at the economy right now and take a view on the market. The equity markets are telling you we are in a vshaped recovery, but the data is just in a trough when it comes to jobless claims. Greg it is an interesting time. The data currently coming out is meaningless. As a consequence, as an investor, you almost have a free what everyone is trying to determine is what does the reopening look like and what is the consequences of that reopening on the economy . My belief is the equity market is pricing in a very aggressive positive reopening, where i think the credit markets and bond markets are much more measured in that respect. Investors are in the dark. It is uncharted territory, and we are taking the opportunity where the data is meaningless to get the all clear, which could be a more dangerous path Going Forward. Wantel it seems to me you to ignore the data to an extent because there is no way to contextualize it and you know it is bad, but what will be important is how quickly we see the data improve so you can get some sort of context from where we were when we started going down and how quickly we are getting back in that direction. That is when you want to look at what you can put money into or not. Greg that is precisely right. Determine what industries and sectors are most affected is the easy part. It is clearly retail, it is clearly leisure and other types of highly cyclical sectors. What does the rebound look like . An interesting aspect is what typically drives a vshaped rebound, whether in the broader economy or sector, is a cleansing. Cleansinghas been no and so capacity has not been taken out. You have not seen defaults come through. It is my expectation that this will be a much more muted type of recovery than many are expecting. Rhetoric isf the you have the fed and all they are doing versus profits. Do not look at profits, do not worry about it, it will depend on what the government is up to. You think the amount of money the government is spending, is that enough . Greg i do not think we know. It helps on the margins. It is quite astounding at the size and scope and the swift nature of the activity. I think that has taken everybody by surprise. The government has stepped in, not only here in the u. S. But globally. It is one of these things were we just not know. It helps on the margin, it helps contain the downside, but it does not necessarily produce upside results. It might have the opposite effect. I think the markets are pricing in all of this government and centralbank action in terms of the upside, and i think it is more about cutting off the tail, which is important not nearly as important as we are thinking of getting out of this. Michael as you talk about getting out of this and looking to where you can invest, i wonder who there will be to invest in. The oecd came out with a report that says around the world and the 39 oecd countries, as many as 50 of small and Mediumsized Enterprises are at real risk of going out of business because of this, especially if the recovery is as slow as we are talking about. When you monitor companies, what kind of feeling you get for those who may not make it . It is definitely driven by sector, and you are quite right that the small to mediumsized businesses are the lifeblood of not only the u. S. Economy but the Global Economy. The sectors that are most vulnerable are somewhat obvious, but still trying to figure out the downside is essential. You look at the energy sector, the auto sector, media, gaming, retail, lodging, restaurants, transportation services, those are highly vulnerable and that is a pretty big part of the , as aneld market example. There are other segments that are much more defensive Like Health Care and wireless and packaging and others. I think sector rotation is essential. The issue is that the price has been so dramatic, the change in price has been so dramatic there is some value being created for those investors willing to take more risk and do their credit homework and some of the most vulnerable sectors. It is one of these unique opportunities where you want to be defensive, but there has been such a thrashing evaluation, somewhat indiscriminately, approximate the segments that it is worthwhile taking a look at. You want to play defensive, how do you do that, especially when you have so much issuance in the u. S. Coming from treasuries . Greg there is a crowding out effect that will be with us for some time. Corporatesowd out from issuing Going Forward and creating a better supply demand dynamic. That is something we have to contend with. When i look across at capital structures, i see a lot more value in the credit markets than i do the equity market. I think this is the golden age of credit, which i know sounds crazy to say at this point in time in the cycle, but what you are seeing is corporations looking for bondholders. Managed toing ceos bondholders, not equityholders. You are seeing dividends being trapped. Purchases being sidelined. All that benefits bondholders, not shareholders. Deleveraging is the path forward. When the backs are against the wall, i think that benefits bondholders. I see a lot more value in the credit market than the equity market, and theres a lot of bad news already in the price. Even if you are wrong to a certain degree, i think youre getting paid for it, and i think that is important. Alix interesting point. Great to chat with you. Greg peters of pgim fixed income, and Michael Mckee, always great to break it down with you. Lets get update from Viviana Hurtado with first word news. Viviana President Trump put immigration on hold. He signed an executive order that temporarily curves the issuance of green cards. His reasoning is it will protect american jobs. The order is more limited than the sweep enclosure he announced on twitter. There are exceptions. One, medical professionals as well as researchers. Now to capitol hill. The u. S. House is expected to approve the 484 billion rescue plan. The Senate Already passed it. The bill adds more money to aid Small Businesses plus funding for hospitals and coronavirus testing. Nancy pelosi saying her next priority is a major aid package aimed at state and local government. That sets up a conflict with mitch mcconnell, who wants to slow the doling out of federal funds. Six coronavirus vaccines are now think human trial stage. Half of those trials are being conducted in china according to the world health organization. In all, 83 vaccines are in some stage of development. 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. Hurtado. Vienna i am Viviana Hurtado. This is bloomberg. Alix thanks a much. Breaking news. Socgen lost hundreds of millions of euros on stock trades starting the market turmoil triggered by the virus. Apparently traders lost between 150 million and 200 Million Euros and that is according to people familiar with the matter. The losses took place in the First Quarter before aprils oil route are likely to be cushioned by the banks performance and fixed income and currencies. The Global Market units are Trading Volume three to four times higher in march across equities. That is a pretty solid loss. 200 Million Euros. Pandemic, the virus upending Business Models everywhere. That could lead to a lot of restructuring. We will speak with date leader in turnaround, simon freakley. That is coming up in todays bottom line. Bloomberg users, check out the charts we used throughout the two hours on gtv. This is bloomberg. Viviana you are watching bloomberg daybreak. I am Viviana Hurtado with your Bloomberg Business flash. Bloomberg has learned apple will start selling Mac Computers with its own processors. Apple plans to rely on designs that help popularize the iphone and ipad. The max currently have chips else by intel. The top u. S. Aluminum producer cutting costs and output at one of his plans. Alcoa will suspend production and is also cutting capex. Aluminum has been among the worst performing commodities during the crisis. I am Viviana Hurtado and that is your Bloomberg Business flash jordan alix thanks some i am your Bloomberg Business flash. Alix thanks so much. Today the focus of on the pandemic and all of the companies and how they will restructure across industries. Joining me as a man who can break it down, simon freakley, Alix Partners seo. It is a Global Consulting firm. , who isad strokes calling you right now, what are their questions, what are you telling them . Simon thanks a much for having me on your program. I am speaking to the ceos of our clients every day. Six weeks ago, the first concern was did they have the Balance Sheets, did they have the cash resources to deal with this extraordinary crisis. The early questions and effort went into making sure people had the right liquidity. Writshose that work cash even those that were cash rich were drawing down. That has now morphed into how to adapt to the new reality by making sure there is communication with customers but also employees and suppliers to keep those constituencies in place as they move through the crisis. Now to focus on not only how they exist through the prices, but what the other side looks like, what does the new normal look like and how they prepare themselves for that . Alix what you tell them . Things. E saved three first of all we say three things. First of all, act fast. Make sure the critical items are in place. You would be surprised how many Large Companies do not have cash flow forecast because liquidity has never been an issue. First of all, they have to make sure they have a Landing Strip of liquidity to do what they need to do. Secondly, things like looking at supply chains. If you think about what kimberlyclark has done to reconfigure at supply chain to rise to the need for more paper towels, people are having to act practical steps in place to deal with the crisis. Then we say, protect yourself on the downside, make sure you are taking prudent measures to protect your companies, but also look for the opportunities. There are significant opportunities. If youre a large corporate, you may find there are companies that come into play that can be bought and certainly at prices that cannot have been imagined even three months ago, save for private equity. Adapt but also think ahead. What we know about crises is this. They are all different, but they all do end. People have to focus on the others have this, not just how to cope during get. During it. Alix for those not yet able to buy, would you be advising them to take government loans that are coming out or not . What is the word on the street . Simon i think it depends. The most important thing is to understand what is available, and that is not entirely straightforward. First of all, understand the opportunities and make sure that in many set of reasonable outcomes, you will have the opportunity to be able to repay them. For most companies, it is a good idea to look at those loans and think about taking them, and istainly if a Company Looking at a very disruptive environment and potentially the threat of failure, than taking a loan now is probably the most opportune thing to do, then you can work with government and other stakeholders later to work out how to schedule repayments. First of all, understanding what is available and being proactive and practical. Alix if youre looking at practicality and you are in talks to sell part of your company or you want to now, are these deals still going through or is anyone buying . Becauseo include pe supposedly private equity is raising tons of money to buy the fixed credit, and im wondering if you are seeing that play out . Simon interestingly enough, you are seeing deals today but there is a lot of analysis going on by pe and other investors as to where the opportunities lie. Pe has a significant amount of dry powder that will need to be put to work. Certainly we have many clients in the private equity houses very actively looking at how they can do strategic addons to their existing portfolio companies, or indeed to do new investents of where they opportunities consistent with their investment opportunity. And other investors are being very proactive about seeing where the opportunities will be. While today you are not seeing a lot of deals, and the next two or three months we will start to see those deals. Alix this leaves a big elephant in the room. Retailers. How are you advising retailers about how they are supposed to survive considering most stores are closed . Simon it is a great question. The covid crisis has had a profound impact on the Retail Sector. Lets not forget that even before we heard of the word covid, the Retail Sector was going through profound disruption. This deep analysis over last 12 months as to disruption in sectors. Retail has been one of the most profoundly disrupted sectors by things like changes in customer behavior, by the fact that people are very much organizing their world around themselves with the ability through social media to create and curate their own environments in terms of their needs based on their own value systems, so the Retail Sector was insignificant disruption even before covid came along. Then the mother all disruption arrived with the coronavirus and footfall in the Traditional Stores ground to a complete halt. Those retailers that have significant online operations have managed to pivot quickly into really leading into their online strategy. Those without an online strategy , take try mark, which did not happen online strategy because they felt they got better prices while not going that route have ground to a complete standstill. What we will see with retail is it will reemerge, but there will be winners and losers, and you are already seeing a number of household names Contingency Planning for bankruptcy because they have run out of road. The real opportunity for retailers in the situation, those with significant online theations, is extraordinarily rich data they are collecting from their customers as they do home delivery. The data and the buying preference of customers is absolutely golden in the retail environment. Alix fascinating. Simon, such a pleasure to speak with you. I hope you come back because this will evolve quickly and that stating months. Alix partners, ceo. Thank you very much. This is bloomberg. Alix initial jobless claims coming in, 4. 4 million for last week, bringing the total between 26 million and 27 million. Equities on the move higher off the news. Have we had a trough . Is that the worst it will get . That is the questions for the market. Equity futures are higher. You can see eurodollar continues to get dragged down as we are waiting for any sort of clarity from eu universe from eu leaders in terms of a recovery or stabilization package. Peripherals are getting a nice bid in europe as crude also starts to stabilize. That wraps it up for me. Withg up on the open jonathan ferro, mohamed elerian. This is bloomberg. Happy thursday. From new york city for our audience worldwide, good morning, good morning. The countdown to the open starts right now. Lets take a look at the price action. Equity futures drifting higher on the s p 500, up around. 6 . In the bond market, unchanged for 10 year treasuries. Yields going nowhere at 0. 62 , and did the commodity market, the crude recovery continues. Lets begin with the big issue. I spend every thursday morning almost embarrassed talking about an equity market that continues to drift higher as we continue to see damage done to the labor market. It has taken a month to destroy what took 10 years to build. I get it because i have said it before. This equity market is anticipatory. This about pricing in the hope of the future. What kind of future are you pricing in . What kind of recovery can we have when the damage being done to this economy is so g