Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20240713

Markets. Buying in the long and in the u. S. We had a seven year auction yesterday. A lot of supply was coming online. One area you are still seeing selling is btps in italy. Oil up by about 1. 50. As we get lots of earnings sees their yum restaurants around the world largely open for business, so that is interesting. Worldwide comp sales down by 7 , better than estimated. The estimates were for down. 4 . 8. 4 . E for down no visibility really for all of these companies trying to figure out where they go from here. Into all of todays market moving news. We are about 1 3 through earnings right now. Onhabet surging in premarket betterthanexpected results. D both taking a hit. Annmarie hordern has more. Annmarie i want to look alphabet, up in premarket trading. On top of that, it is boosting shares in the nasdaq futures market. Sales came in better than last year. On top of that, they beat the street. They did suffer from cuts in marketing to do the pandemic, but the executives had a lot of optimism around youtube and Cloud Business is that fueled some of these shares. 2 billion more than what was anticipated. We have seen the pind, crilly have a massive blow to the auto industry. The ceo of ford acknowledged that. Ge this morning, they missed earnings, taking steps to really save cash, but this was very well forecasted for the company. No doubt, the pandemic has been absolutely brutal for aviation. The ceo said this quarter, the as hit, but the Second Quarter as well. In about 30 minutes is boeing. That is going to be very interesting. Theres talk of boeing meeting to tap government data. On tap. Companies one thing you have to ask yourself, does this quarter really matter, or is this to stay right off . Q2 or is this just a write off . Q2 and q3 is when we will really see the impact of this pandemic. Alix thank you very much. In europe, another wave of Bank Earnings that was First Quarter results. The site despite some strong numbers, feeling the pain from bad loan provisions. Bloomberg spoke to jes staley, ceo of barclays. That toughconomy is and unemployment goes that high, we have reserved what we into the debate to be. The government response is so were bust around the world. If it starts to mitigate contraction in the economy, that will free up reserves later on. Bloombergs dani burger has more. Souring ininly the loans set aside, Standard Chartered earnings under 1 billion. These are a level u. K. In european banks havent seen since the financial crisis, and it really just piles pressure on the lenders that already have a fragile business model. Coronavirus also has a disproportionate effect on any banks that have a large retail and commercial focused business model. Look at barclays for an example. Ae credit card business saw 38 drop in pretax profit. But there is a briley big qualification there is a really big qualification here. Strategists are saying about these earnings, it is overwhelmingly focused on the positive. You can see it reflected in the share price, as barclays is up nearly 7 right now. Morgan stanley points out that our place fic trading that barclays fic trading more than compensated for poor results elsewhere. Deutsche bank, we learned today that the surprise profit than an ounce profit they announced earlier in the week was also fueled by trading revenue. The other big earnings we got in europe was airbus. Through 8. 7 burn billion in the First Quarter, unprecedented for the firm. Have of that came from a bribery settlement, but the drop in deliveries that started in march also eating into their reserves, and likely will continue to. Shares are up 4. 5 . Analysts say that the cash burn was actually better than feared, calling it somewhat of a relief. You have to imagine with shares down 60 year to date, some of the results are already baked into expectations. Adding into the pressure for airbus and european banks is this new dynamic, where forecasting is basically guesswork, and we continue to see Companies Pull their guidance. Alix thank you so much. That 8 billion could have been worse. Heres one other story we are watching this morning. It is italys surprise rating cut. Toch downgrading the rating, can get down one notch to bbb, just one level above junk. Currentlynd market is on life support from the European Central bank, although the outlook was lifted from stable to negative. Morningp, more of your news, trade and analysis in the market in todays first take. This is bloomberg. Happy wednesday. Alix welcome to bloomberg first take. We give you the news, you get the trade and analysis of the markets. Joining us is bloombergs Michael Mckee and damian sassower. Lets set up the stage for the fed today. Michael the fed is the second item on the agenda today. The opening act, gdp for the united states. The consensus is for 4 annualized drop. We will see if it is worse than that. But wall street will kind of shrug that off, looking more at the components to see how fast the decline was in various areas to get an idea of how bad it is going to be in the current quarter. Then we go to the fed. They will decide what they are going to do, eights probably nothing because they have done so much already, but look for some discussion from jay powell in the Virtual Press conference this afternoon on where the fed thinks we go from here. Do they think we need to add more stimulus to the economy . Do they think we are going to be doing this for a year, two years . A lot of the programs they set up are supposed to expire september 30. Do they think they will have to go longer than that . Some questions about where to invest in the future, but not a whole lot of additional action expected. Alix if that is the set up, what are you watching within that . Damian i agree, the big what it discusse fed doesnt the actual duration. I dont expect that it will. But if it should do that, that could be, in my opinion, quite bearish for markets. Lets see what happens there. In the meantime, i am focused on china. We are seeing the big banks. We just saw the big oil producers. Clearly they are not exempt from what is going on globally. Spending cuts, output cuts, they are going to reduce dividend payments. Very sensitive given china is the Worlds Largest oil and gas importer. Alix so how do you digest that . We knew that was coming. How does that inform how you are viewing them . Damian i will tell you one thing it is doing, it is causing the bank of china to take a 1 billion loss on oil linked retail products. They have this crude oil product links to wti in the u. S. , but it is in yuan. They are not the only bank in china that has products like that. B youve got ccb and banks in communication with others. They will exit the pandemic more quickly than other countries come about china banks are trading at less than five times book value. I am looking to see any improvement. Alix im glad you brought up oil. What has been interesting is oil prices havent necessarily had the same disruptive quality they have in the past when it comes to e. M. Volatility or emfx. Retail investors got wiped out, but that is different than what we what ive seen for years ago. What you make of that . Damian its no destructive quality right this minute, but it will certainly be destructive down the road. Not just in the middle east, but across the whole of emerging markets. We have seen roughly 70 billion of dollar debt issued from e. M. , most of which have come from easteigns, with the middle comprising a large portion of that. Metrics are deteriorating off the back of that. While that may not impact them today, it certainly will in the future. Alix how does the fed address oil and the inflation conversation . Michael they will talk about the fact they need to keep an ion it, and there is the danger of disinflation out there. I am not sure they are going to come out and say inflation is on the horizon because that might scare the markets, but they will talk about the need for vigilance, and that the policies they have but in place so far should help counteract that. We will have some data on prices from the gdp report. It may give us an indication of some of the impacts of the overall coronavirus shut down, and the idea that that is going to be weighing on prices as well. I think everybody is pretty used to the idea that we get very close to zero. We might even see a month of disinflation, deflation where we go below zero, but the expectation is then the economy starts to open up, oil starts to get pumped out of your lix, and prices start to rise again. Then the question, the market will flip, and the question is how far, how flash does inflation rise. That will be a whole different conversation, when we havent had in quite a while. Alix it is crowded with hummus right now, so i am doing the chickpea long for my refrigerator. All of a sudden we get oil stabilization, and rates spike. Is that something you are or is or are we that far out . Because mikeup mckee just mentioned inflation. Froment heard that word him. Certainly if inflation accelerates, it is really going to damage emerging markets, specifically those which resorted to quant easing. The rise in the Monetary Base means is going to lead to weaker currencies abroad. It is certainly going to lead to faster inflation and many of these emergingmarket economies, and that certainly wont be good for Foreign Investment or foreign inflows from abroad. Alix what did we just see, saudi arabia and reserves plunging the most in two decades . That hasnt even begun to factor in the potential inflation. Damian we saw a lot of Central Banks, including china, dipping into its reserves in march to defend its currency. Deteriorateerves and deteriorate considerably, that is going to be a prealarm bell for emergingmarket investors. Alix what is interesting yesterday, if you read the headlines after stocks dropped, it was all about Consumer Confidence was really terrible, and thats why stocks were selling off. Did you buy that, or do you get the feeling when you talk to sources that this is a normal trading environment as we wait for clarity . Or are we really moving on these headlines . Michael it is kind of like people are saying this is normal, to the extent that anything is normal right now. We also have lower volumes than usual these days, and especially with the holidays coming up. You do get some exaggerated moves at times, but the feeling is traders have an eye on the economic data, but kind of know what is going on. Morning ishis germany. They want to open up the economy , but their infection rate is going up again. Singapore, the infection rate going up again. People are trying to parse out, . O we get to open earnings . T to see or are we going to stay in lockdown and a lot of places . I dont want to use the word fundamentals because nobody really has a fundamental at this point, but the traditional things you want to look at, and then the progress of the disease, those are the two factors that are balancing each other out right now. That is the next and we are going to be tackling over the next couple of hours. Guys, really appreciate it. Tune into bloomberg tv. We will have special coverage for you at 2 00 p. M. Here in new york. Any charts we use throughout the two hours, go to gtv on your terminal. Viviana the parent of mercedesbenz another company hammered by the coronavirus. Daimler says sales and operating profit slumped. Has startedsays it a gradual ramp up of production. Ford forecasts in the Second Quarter, more than 5 billion loss. That is about 2 billion more than analysts projected. It is one more sign of how the pandemic is hammering the auto industry. Ford expects to see in every region significant sales declines. The company also says it will delay until 2022 start of its self driving vehicle service. Shares of alphabet higher today. Cloud and parents you do business is kept growing amid the pandemic. Sales rising 14 , beating estimates. Crumpled, ad sales but still werent as bad as expected. Alix thanks so much. sr more on alphabet ourings, we are joined by bloomberg analyst. A second. Ads for do we have visibility of what it will be like in the Second Quarter . Reporter the pain is going to continue. We have some visibility for the. Onth of april from strong in january and february 2 almost declining by midmarch, and that trend continued into april. There are some signs that some aspects of the business are showing flattening, but to be honest, i dont think the pain is over for the Advertising Division side in general. Youtube was extremely strong as well in the First Quarter. In fact, surprisingly so. Also slowed down 30 plus growth to significantly slower towards the end of march. So i think if you look at the other side of the equation, you are hearing how the customer revenues are dropping as arens continue to continuing are dropping as lockdowns continue. Is going toisaac mirror what the macroeconomic trends say. What is interesting for google, the quarter is showing that the business is more diversified than in the last recession, especially with cloud benefiting a lot from work from home trends , and the structural change for a push towards accelerating cloud options. Companies are trying to make sure that they are ready and prepared and adapting to videoconferencing, the ability to have employees work from home for a longer time. It is really changing the culture of Cloud Adoption in many ways. The growth we have seen in cloud yes . Alix if you look at the good and the bad, the risk of the weakness versus the strength, what is priced in and the relative earnings value right now . I think the weakness on the ad side was expected. What came out was not as bad. What is clear is the cloud side have somentent side secular details here. So theyre managing the costs well amid this uncertainty, but they are seeing a lot of adoption of content across the property, even if it is not making money from some Cloud Solutions lets or ecommerceing adoption. Ads on googleng for now to benefit from the. Urge on the other side of the pandemic, it is going to add new Revenue Streams for this company. Alix weve got to leave it there. Thank you very much. Coming up, it is how to trade all of these earnings. We will break it down with dean curnutt, Macro Risk Advisors ceo. This is bloomberg. Alix this is bloomberg daybreak. We are waiting for numbers from boeing. On the stock market, you are looking at a climb in the equity markets. Nasdaq also rebounding. Yesterday, the nasdaq was one of the hardest hit. Detect winners became the losers, prompting calls for, is this a shift in leadership, or was this just normal trading . European equities a little more mixed, but they have negative autos and positive banks. Nonetheless, stronger trading revenue at the big banks. Other asset classes, looking at broadly weaker dollar, btps getting moderately hit. Boeing is out right now. Revenue coming in 16. 9 billion, down 26 year on year. Their negative operating cash flow came in about 4. 3 billion. Loss per share was 1. 70 versus 3. 16 a year ago. Lets take a look at the cash burn, 4. 3 billion. Airbus had an 8 billion plus, but have of that was due to some settlements, so it seems like there negative cash burn are relatively inline line with each other. Theyre looking at a voluntary layoff program, and they are still looking for safe return of service for the 737 max. The 787 production rate is now going down to 10 per month. The negative cash burn is that headline for you as boeing stock is still up by about 1 in premarket. So how do you trade all of the volatility when you dont have any visibility . That is the real question, whether looking at the overall market or individual stocks. We are joined by dean curnutt, Macro Risk Advisors founder and ceo. How do you hedge right now stocks overall, s p . Dean there is certainly some sticker shock in terms of the price of hedging. It is clearly down substantially from a month ago, but when anyone looks at the prospects for hedging their portfolio out a couple of months, certainly relative to earlier this year, it is a normal sleeve more expensive. It is set against a couple of things that make it even more challenging. One is the policy response is overwhelming, as it needs to be. So it is certainly setting a floor under the market. The daily swings in the market are clearly settling down. The first thing i do in the mornings look at the overnight futures. You get a sense as to what the u. S. Is going to do based on even the preopen activity. You are just seeing a narrowing of ranges. That means hedges are increasingly difficult to pay for because you are not getting those daily swings. So it is not obvious. I think the second part is just the market has given a free pass to a lot of these numbers. It is a bit of a waiting game to see what is on the other side. I think about hedging and a couple of different ways. One is just paying for options. Those are harder to do. The second is trying to put things in your portfolio that can do well in a market that might revisit subversion s revisit some version of negativity. That is as gold becomes an increasingly interesting thing to look at in that context. Alix before we get to gold specifically, i wanted to get your take on the future of volatility because all of the talk the last couple of days is the vix curve coming down. From your risk perspective of the market, is that an appropriate view . Sense in the make context of the market exhibiting lower swings. , thisk in a lot of ways has been a classic crisis. You get a shock to demand. It creates derisking. Dd risking feeds on itself. The authorities dont sit by and do nothing. They come in, this time with reasonably overwhelming force, and then that creates a rush to cover the shorts and brings volatility down. So now we are in the hard part. The vol has come down a tremendous amount. It is still maybe worth it to be long volatility, but it is difficult to ascertain that in the context of a lot of artificiality in asset prices from government and fed response , and peak crisis is over. That was a month ago. So we are trying to sift through what is the result, and a little bit of it is a frustrating waiting game because the market is not really responsive to economic and profit data in the sense that it normally is because we are in no mans land right now. Alix lets go back to gold. Is that a call for 2000 gold, or is this is literally here is where i can put some money safely . Dean i think it is a little bit of both. I think gold is going to do well for a couple of reasons. And i think the playbook from the financial crisis is actually useful. What happened to gold in the financial crisis . During the peak, gold sold off dramatically just as it did in the peak of the 2020 crisis. From october to november 2008, gold was off on the order of 25 . That really was a function of a dollar spike and in asset price liquidation. The same thing happened this be march 5 or so to march 18. Gold got sold just like u. S. Treasury bonds. It was a liquidation of margin calls. Once the fed came in with sufficient force and pushed real rates down, which it has done to the tune of 55 basis points on the 10 year, gold found its footing. It is up on the order of 17 from a month ago. So very similar to 2008. Once we got past that global margin call, which i think culminated at the end of november 2008, gold had a really sweet run. It was a function of the fed holding rates really low, real Interest Rates at negative levels. So i think it does well in that context because it doesnt appear like these rates are going anywhere for an extended time. On the 2000 call for gold or even higher, i think of that is a real tail, meaning i think gold is just long paranoia. Financial paranoia, that is. That is accumulating. I read the oped piece on the terminal with a little bit of dismay, but perhaps some sense of this is the orthodoxy, which is this is the call that the fed should take rates to negative levels. I just think it is dangerous. I think it speaks to financial policymakers that just want to do more of the same and havent really learned the lessons from the last crisis. I think this is where gold potentially does really well, the way the u. S. Goes of europe and japan. Alix dean, good to have you weigh in on that. Good to catch up with you. I want to recap what is happening with boeing. That stock up over 3 in premarket. The cash burn for the quarter came in at 4. 3 billion for the Fourth Quarter for the First Quarter. They are also targeting about 10 reduction in staffing levels. They hope the job cuts will be voluntary, but also involuntary if that is needed. They are also reducing their commercial airplane production rates as well. They are going to shrink the size of the executive team, consolidate some roles, and see. Bout 15 cut in jobs some details coming out from boeing there. It feels like the worse it gets for the companys report, the better the market takes it. Does this mean we can then look to the upside in the back half of the year . We will break that down over the rest of the hour. Coming up on the program, the pandemic is pushing food chain supplies to their limits. That is coming up next. If you have a bloomberg terminal, check out tv. Go check it out. This is bloomberg. International posting First Quarter profit. It also withdrew its 2020 outlook as well, but they are seeing many customers grazing. I am definitely one of them. Going me is the ceo and chairman, dirk van de put. Every company, every sector coming out with no visibility for 2020. What are you looking for to get that visibility . What are some of the road marks . Mark is thest road lockdown to finish because with the lockdowns around the world, it is sometimes impossible for us to distribute our products or to sell them in certain channels. So getting out of the lockdown and having the possibility to have normal distribution, normal sales, that is the first milestone, i would say. After that, it is going to be to take a look at what is the consumer doing, how are they reacting. What we are seeing at the moment is that consumers are spending more time at home and eating differently as a consequence from that. You have probably seen all the effects on restaurants and so on. In our case, it does mean that they snack more at home, particularly biscuits and chocolates. Going forward, i am expecting that the consumer still will be quite reluctant to be all the time out and about, to go into crowded stores and crowded restaurants. Expect that inhome consumption will continue and out of home consumption will still be mitigated for the first able future. So how that is going to settle, that is the second big milestone we have to wait for, to see how that balances out. Then there is a number of other milestones. How big is the recession going to be . Are they going to increase their spending . What is the effect in emerging markets of some of the devaluations . How is the situation going to evolve as it relates to some of the emerging markets and commodities . Thats probably the thirdbiggest one, how big is the recession going to be. Last lets tackle that one, which is supply chain issues. Lets say we open up. Everyone wants to go back to work and snack the way we used to. How easy is it to ramp up your business, talking about supply issues, etc. . Moment, 99 of our plants are functioning. I would say 30 of those are not having the output that they would normally expect, 10 or 20 lower. From a supply chain perspective, i wouldnt call it ideal, but it is not dramatic. Biscuits,e in the chocolate, gum and candy business, so we dont see any disruption of our suppliers. Ofdont see any disruption our plants being able to run, except for the fact that it is sometimes difficult for our people to show up in certain countries, like india. They just cant get to the plant because it is not allowed. Higheru. S. , we have seen levels. So the Biggest Issue at the moment to keep our plants at that level is have sufficient qualified people to run them. But it is getting better. The u. S. Was the worst, but in the last weeks, we have seen a lot more of our normal employees coming back. To be getting out of it at the moment. There was aneless, interesting story on the bloomberg yesterday about some companies trying to get washington to help them with liabilities as they bring back workers. They dont want to be on the hook if their workers get sick. What do you think about that . How are you managing Something Like that . Far we havent seen that yet, but there is a risk and a worry. Our stance in that is we need to take care of our people and do whatever we can to make sure that they are working in the safest circumstances possible. Distancing, sending them home if they have been in contact with somebody that needs separation, and so on. Does a whole range of things to do, checks before they come into the plant and so on. So i think it is critical that people feel safe in what they do, and we as Companies Need to try to do everything we can to help them with that. Is about business continuity. We are supplying food to the country, and we need to keep on working. This is absolutely essential. I think most people understand that. To do a toughred job, but i want but they want to do it in circumstances where they feel protected and be rewarded for it. Usepe that everybody will some common sense to not try to tick advantage of the situation, and hopefully the situation will not be too bad in that sense. Alix you mentioned workers having a hard time getting to factories, and india for example. Do you anticipate a supplication of supply chains, maybe a retrenchment to different locations after this . Dirk i do expect that. We had already started that movement. Most of our plants are in our big markets. We are not a comedy that produces and chips around the world just because we want to be as close to our consumers as we possibly can be. Amplified,t will be that sort of movement, because of this pandemic. I think you will see another supplication, which is to make a lot less product because as this crisis arrives for us in the food industry, to have sufficient inventories and sufficient product for the consumers is absolutely critical. If you have a wide range of products, you are bound to have more issues, more changes in your plans with inventory, and so on. A i think you will see reduction of different products for a while in order to smooth out and make the supply chain work more smoothly. So we are doing that. Trying toucing and keep everything as efficient as we possibly can. Alix can you give me a little more insight into how you look at your inventory . Youre right, what you might have had two months ago is not necessarily what we are eating right now, so how do you prepare for that for the next 12 months . Consumers. Ok a lot we spend a lot of time reaching out and understanding what they are thinking, and trying to anticipate that. The second thing we are trying and tos to be flexible change whatever direction we are changing if we need to. So what were seeing is that family packs are increasing quite a lot. Consumers are at home with their kids. Oreos,nt to have their and they want to buy the bigger packs. So we have to make a major change in our production and supply chain for the family packs. Going forward, and emerging markets we need to reach the isht price points because it critical for products like ours that we are available at the right price, which probably changehanging the size, the packs. A whole exercise needs to take place to prepare for what the consumer will want to need future. But the main thing is trying to anticipate, trying to understand where the consumer is going, and then adapt as soon as you possibly can. Affectnd how does that your outlay in terms of capex . Not only do you have to deal with production lines and how you have to rejigger your arefacturing, but what you supplying. How do you think about that in terms of Capital Allocation for next year . Dirk we are going to tread very carefully as part of our overall Balance Sheet. We have a strong Balance Sheet and are going to keep it like that. This doesnt feel like a moment for big capital investment, until we are clear on how things will settle, what types of products the consumer wants, and so on. So we will tread very carefully and next 12 months, and as things settle down, decide on where we want to invest. That seems prudent in the short term, and also very prudent as we dont know where the consumer is heading. Alix dirk, really good to catch up with you. Thank you for your candor. Policen de put of mundt of mondelez, thank you. We will talk to kevin johnson, eo, coming up in new york. Boeing stock rising despite a 4. 3 billion cash burn and more in the First Quarter. This is bloomberg. Alix boeing shares moving higher this morning. They reported a 4. 3 billion cash burn and drop in revenue in the First Quarter, and the stock is higher. Joining me for more is brooke sutherland, Bloomberg Opinion columnist. What do you make of the higher share price and the numbers we got . Brooke certainly they are pretty ugly numbers. I think maybe some of the share price reaction comes from the it isthat boeing says continuing to explore all funding options, but thinks it will get the liquidity it needs to manage through this crisis. What that looks like i think is a legitimate question. Pushed long ago, the ceo back on the idea of the government taking an equity stake in boeing, that that would be a condition he was not willing to accept. I wonder if perhaps his perspective has changed, especially when you are looking at this really staggering cash burn of more than 4 billion in the quarter. I also want to call attention to the backlog dropping here for boeing in the First Quarter, talking about total backlog of 439 billion dollars, including over 500 commercial airplanes. That does not compare favorably to a couple of months ago. A lot of the cancellations we are seeing coming from airlines came after the end of march, so i think youre going to see that continue to drop, which raises concerns about the longerterm trajectory of boeing and its market. Alix how does it stop up how does it stack up against airbus . Brooke airbus i think is in the better position to emerge from this crisis for growth. Emphasisoing to be an on smaller aircraft. You already saw Companies Move away from widebody jets even before the coronavirus. If you look at the knock on effects from the u. S. China trade war and the effects it had on international travel, people did not want these massive airplanes because they were not sure they could get the passengers to fill the seats. Ahead with itsd acquisition of bombardiers jet program. The 737 max grounding going on more than a year needs that is now more easily cancelled then and airbus order. Thanks a lot. I appreciate it. Coming up on the program, willem buiter. This is bloomberg. These days staying connected is more important than ever. So were working 24 7 to maintain a reliable network, to meet your growing internet needs. Were helping customers who are experiencing Financial Difficulties stay connected. Were increasing internet speeds for low income families in our internet essentials program. And delivering selfinstall kits to your door. Nos comprometemos a mantenerte conectado. Were committed to keeping you connected. For more information on how you can stay connected, visit xfinity. Com prepare. Staying connected your way youre just a tap away from personalized support on xfinity. Com. Get faster internet speeds with a click. Order xfi pods to your home in a snap. Or change your Xfinity Services with just a touch. All in one place. Youre only seconds away from all of that on xfinity. Com. Faster than a call. Easy as a tap. Now thats simple, easy, awesome. Alix welcome to bloomberg this wednesday, april 20 ninth. Im alix steel. Lets take it from the top. We will continue to work to the 8 target we set for 2022. Alix deutsche banks cfo says it is still early to tell what the rest of the year will look like, joining companies with little to no visibility. If unemployment goes that high, we have reserved what we anticipate the credit losses to be. The Banking Sector at the heart of what we are hearing today, and one of the key themes is credit losses and the level of provisioning the banks are having to make. Alix Standard Chartered puts aside against potential loan losses. Ord coming in right now, fiscal year adjusted loss per share is down about 16 . Operating warns of loss of more than 5 billion in the First Quarter. Boeing also says profit will drop significantly as a cyclical parts of the economy suffer from the virus. Pandemice seen the really have a massive blow to the auto industry. The ceo of ford acknowledged had asaying he has never Business Plan called pandemic. Alix alphabet up as advertising demand stayed relatively high. Ahead are rarely changes have got to be made. Alix a problem the Federal Reserve faces with his latest Interest Rate decision. It helped the economy with a crisis. Now how does it help it grow . Michael look for jay powell in his trust conference this afternoon on where they need to go from here. Do they need to add more stimulus to the economy . Do they think they are going to be doing this for a year, two years . Alix fitch downgrades italys sovereign credit rating, putting it on the road down to junk. Its get a quick check on the markets. European stocks are mixed, but in the u. S. , we are seeing u. S. Equity futures push higher. It is a weaker dollar story overall with the exception of the cable rate. I want to point out some headlines here from germany. The inflation rate fell to 0. 8 in april, worse than estimates. Also, the german finance and economic minister saying that they are looking at growth in germany contracting by six point 3 now in 2020. They see growth of 5. 2 in 2021, so i definite rebound there. Some earnings coming out as well , mastercard suspends its buyback program, First Quarter revenue pretty strong at about 4 billion. Taking a look quickly at the equity, it is up by about 1. 5 . It sees substantial liquidity at the quarter end. Their dividend is unchanged, but simper early suspending their Dividend Buyback Program as well. We do have the fed Interest Rate decision later today. A lot of focus will be on their plans for the Balance Sheet Going Forward. Lets break it down with a man who can help us figure it out, willem buiter, Columbia University professor of public affairs. Always a pleasure to talk to you. I wanted to get right into it and get to the Balance Sheet. How big does it need to grow to stem this crisis . Well, theyve added 2. 3 trillion since the beginning of march, and i wouldnt be at all surprised if, before this crisis is over, we are closer to 10 trillion then the 6. 6 trillion we are now seeing. Hese are staggering numbers the increase is staggering. But the fed is doing what it can. Dont even know how to think about a Balance Sheet that big. What is the repercussion of that . Stimulusemember, the that is supposed to be coming is roughlyscal side 2. 3 trillion, so effectively, the fed sent one point trillion sent 1. 7 it trillion of it to treasuries. The fed is monetizing the deficit. They are allowing the federal government to engage in helicopter money. It is helpful. It is useful. It is not inflationary under current circumstances, and it is what they should be doing. Alix any word of direct monetary financing usually leads to a conversation of modern monetary theory, and then to conversations about inflation and centralbank independence. Is that part of the conversation right now . Should it be . Willem absolutely. The obstacle to monetary financing is inflation. That we arect effectively at the lower bound for Interest Rates and there is now a growing amount of slack in the economy, large and rising fast, if there ever was a time for monetizing the fiscal deficit, it is now. At what point does it become inflationary . Willem when two conditions are satisfied. One, Interest Rates are off the the demand for fed. Oney is no longer unbounded and second, slack in the economy is exhausted. Neither condition is satisfied. Interest rates are at the effective lower bound. There is serious and growing slack in the economy, so there is currently no obstacle to , oneization, but clearly has to watch very carefully. The Interest Rate is very easy to tell when it is off the floor , and how much slack there is in the economy is much more subjective and a less scientific assessment, but still, we have ways of measuring it, looking at indicators like in the labor market. Really, whether you want to call it modern monetary theory, i just call it monetization of deficits at a time that cries out for it. Alix does it matter what the fed calls it . The fed has not addressed this specific part. They always seem to walk around it. Does the fed need to be explicit in it . Willem i think honesty is always the best policy. The fed and other Central Banks may be operation independent regards to setting up Interest Rates. But every central bank is ultimately a fiscal agent of its government, and that is true for the fed as well. Central banks dont like to talk about that. The fed is not the only one. The bank of england doesnt like to talk about it. The ecb doesnt. But it is the truth. You see it very clearly, for instance, and the u. K. , where whenever the central bank takes risk on its portfolio, say by risky lending or buying risky securities, they have the full guarantee of the government. This is unfortunately not the case in the u. S. , where the fed commit under the liquidity facility to offer up to 500 billion in lending, and the treasury provides up to 35 billion of protection, so there is some slippage in the division of labor there. It is time for both the federal government and the fed to get their act together and to tell the truth. If they are monetizing government debt, it seems like they are also monetizing corporate debt, or at least with the intention to. Is that true . Should they be doing it . Tolem they are intervening ensure that corporate debt markets, including now highyield debt markets, continue to be functional, and the way to do that is to intervene in these markets. Sensibleagain, a. Olicy if they dont want the monetary consequences of it, they can of purchases of the corporate securities by reducing the purchase of securities, but again, at the zero lower bound for Interest Rates, material slack in the tradey, theres no real without fearing the inflationary consequences. Alix one final question on that, should the fed buy even more junk, and should the ecb start to buy junk rated corporate debt . Think all of i do the bond markets, which includes highyield junk bond markets, are a necessary part of a normal functioning economy. If the private sector fears access to the corporate market, the fed and the other central bank contested means should intervene. I think this is an appropriate responsibility. The fed is the lender of last resort and market maker of last resort. Ow asare acting n market maker of last resort. That is the responsibility. Alix a totally new normal there. Really great to chat with you. They to catch up. Two and into Bloomberg Television later today for special coverage of the fed besides at 2 00 p. M. Here in new up, we are about 1 3 of the way through earnings season. Katie nixon, Northern Trust Wealth Management cio, will be joining us next. This is bloomberg. Viviana this is bloomberg daybreak. We begin with big cutbacks on the way at boeing. Ceo dave calhoun saying he plans to reduce the workforce by 10 through buyouts, turnover, and layoffs. Reducing theo number of commercial jets it builds each month. Orders in the Aviation Business plunging because of the global halted air travel. Ge is the Worlds Largest maker of jet engines. Profit missed estimates, saying this year it is targeting more than 2 billion in operational costs. Higher. F alphabet are the cloud and you do business is kept growing during the pandemic. From a year ago, sales rising 14 , beating estimates. Search ad, alphabets s crumbling, but still betterthanexpected. Alix for more on earnings in the equity market, katie nixon, Northern Trust Wealth Management cio, joins me now. What do you like right now . Katie good morning. We continue to like u. S. Equities. Clearly, this quarter is a bit of a buy, so to speak. I dont think the quarter is necessarily going to be market moving in terms of results, and i dont think anyone is expecting clarity from companies in terms of the nearterm forecast, but i do think misstors are looking for a above the valley and anticipating a stronger secondquarter, and so are we. Not a resumption of growth we had, but certainly a better second half. We will see think the continuation of secular leadership that dominated before all of this started . Katie that is interesting. It is early days, but we have seen a bit of a transition into smaller cap stocks and value stocks. That is actually a good sign because that suggests that investors are thinking about an economic recovery and about some of these early cyclical plays, and taking a little bit more risk, moving away from the triedandtrue growth stocks. Based on the data we see so far, it does look like manufacturing will probably come out of the gate a little faster than betters, so we may see performance from some of the more cyclical areas, at least in the near term. Alix can you break that down a little more in terms of Sector Allocation . Katie i think you can see some of the sectors that have been really beaten down and look at the sectors around materials, and you have covered this so well with the chaos in the oil patch, although interestingly enough, that has not been reflected in energy stocks. Traditionale a cyclical area, materials, industrials, and even financials are areas that are certainly, from a valuation perspective, looking attractive longterm, and we may be at the point in the cycle when they will benefit from the kind of growth we see Going Forward. Alix i am sure it is a matter of moments until you talk about a barbell approach. [laughter] if you are going to take on that kind of risk, what is on the others of it . The other side of it . Katie i dont think it behooves anyone right now to place too many aggressive bets into many pots, so i almost wouldnt say a barbell approach. I would say maintain a diversified approach. I think you can hear from the folks in the weeds on the ground every day, that is the Company Managements who are telling us they dont know what the nearterm future holds, so i think that level of uncertainty would suggest taking a broadly diversified approach to equity investing, and that is certainly what we are doing for our clients at northern. Alix how do you know when is the right time . If you look at just the equity market, you would say we are in a vshaped recovery. We are looking at a vshaped recovery and stocks. On the economic front, it is a totally different story. When do you know it is appropriate . Katie when it is appropriate to place more bets . Alix yeah. Katie i think with clarity comes confidence. Risk and return are related, and right now it is quite risky to take big bets. Investors may be compensated for that risk, but i think the lack of clarity right now in the future would suggest patience is a virtue, and perhaps more diversification and taking the less risky approach is best. I do think that you can see signs of that lack of clarity and competence not just when you talk to company management, but when you look at analyst estimates. You could drive a truck through the highend low of analyst estimates for 2020 right now, not just on the fundamental at the microlevel level, but on the macro level. Theres just an incredible lack of clarity right now. The good news for investors is, as time goes by, as we get more data, we will get more clarity. That will provide us with a lot of information we can use to inform Investment Strategies Going Forward, but now is probably a bit too early to make those bets. Alix so ending where we started , google reporting yesterday, not as terrible as somewhere expecting, but the visibility is pretty cloudy. What do you do with big tech . The market is still so thin and small that if you dont own them, you are going to miss any kind of rally. But if you do own them, everyone is in them. So what do you do with the big guys . Katie these are companies that are great companies. They have great businesses that have proved themselves to be resilient against incredible headwinds. The issue with some of the big tech names is valuation. Owning them, not owning them is a big bet against them. Owning them, i think investors have to recognize that they will probably have lower returns Going Forward relative to some of these other areas that are much cheaper. It doesnt mean you shouldnt own them. It just means to maybe curb your enthusiasm a bit in terms of go forward returns. Alix alix katie, really great to get that perspective. Katie nixon, Northern Trust Wealth Management cio. Coming up, we are going to turn to europe enter to make europe and deutsche banks delayed pain. More on the next. This is bloomberg. We will continue to work to the 8 target we set for 2022 in our terms. I would say the biggest change in the environment that i can see for now is the u. S. Dollar Interest Rate environment. Alix that was the go to bank cfo talking about Bank Earnings that came out overnight. Bloombergs sonali basak joins me now. What were some of the themes we heard emerging . Sonali we did see provisions for loan losses like we saw with the big european lenders with the u. S. Lenders, im sorry. But the same time, theres a lot of folks wondering if that is enough. The trading desks held up pretty fantastically. Deutsche bank is going through a major restructuring, and to finally show signs of life at their credit business is a big deal, as now they are mostly rates and credit and fixed income at they scale back in equities. So keeping in line with u. S. Peers in trading is a big deal, but we dont know whether that will continue, and there are a lot of signs, and executives are saying not to expect a boon in the following quarters. Alix do they have any different kind of his abilities into their u. S. Peers . Sonali it is a much more fragmented market. There are more banks. A lot of smaller banks. There are differences between how they treat the bigger and smaller clients globally. So the question is, regionally, are they going to be taking more share among larger nationals, and where they fall in asia as well. Obviously we saw some oneoff charges in the banks as it came to singapores trading client in oil, for example. When it came to some markdowns, when it came to the elevator unit in terms of the leverage loans. So there are a lot of one offs when it comes to european clients and asian clients, the question is how did they whether those losses as well. Alix thanks a lot. Appreciate that. Coming up, we are Just Moments Away from the First Quarter gdp on deck. We will take a look at changes in consumer patterns and how the pandemic is also disrupting the sharing economy. We will break that down with a aom send a russian with are surrender option with un sundararajan. This is bloomberg. Alix welcomed bloomberg daybreak. I am alix steel. From minutes away firstquarter gdp. Broadly weaker dollar story. Youre seeing a bit into bond markets as well as the u. S. The exception of italy where you are still seeing selling when sovereign debt was downgraded. Oil able to find some stability. Cents up to 1. 25 after a selloff. What happens in the market for the fed and how they address any kind of growth issues as well. Still waiting for the numbers to cross as im looking up on my terminal. The position is how much is bacon that is negative into the in how much is bait how much is baked in that is negative. It seems like we are taking any bad news in stride because it could be worse. On my terminal now we are still waiting. Did not miss it. 4 forfor that read of the First Quarter as personal consumption could drop 3. 6 . All of that could have a significant impact. I want to bring in mike mckee while were waiting. Bloomberg International Policy correspondent. What is the one thing you will key in on here . Michael everybody will look at the headline numbers and how much consumer and business spending has been impacted by the shutdown because we had it for about a month of the three month period. What we probably have is the bea has not put this on the web. I am watching the website and we are not seeing the numbers. Im not sure if theres a problem at the commerce department. All of wall street is joining us in waiting to see if the number comes out. Alix in the meantime, i will put you to gilead. Their share is halted for news pending. Covid19their drug for has met a primary endpoint. They will continue to discuss the data with regulatory authorities, but it has met a primary end point. They see the data at the end of may. Obviously the market has been sensitive from these studies in gilead. There was a report a couple weeks ago that was not successful. That caused markets to move lower. Currently it is saying the trial is meeting some of the main goal to treat covid19. Well keep an i on that as well. Future spiking on that come up 1. 6 despite the fact that you are seeing the stock halted. Preliminary tests have been met. They will also share data from their phase three shortly with the market, and european stocks have turned positive. Here we go. First quarter gdp down 4. 8 . Much worse than estimated. ,ot necessarily a surprise particular when you have nonresidential business spending hurt by the likes of oil and gas. All that will get worse in the Second Quarter. 7. 6 ,al consumption off almost double of what we had estimated going into this, and inflation steady as she goes. Core pce quarter on quarter is 1. 8 , slightly higher. Inflation nothing to worry about at this point. That personal consumption number, that is pretty terrible. Michael it does show we shut down the economy and people stop spending entirely. We saw that in the retail sales report, where other than grocery stores, nobody spent anything during the month of march. We are still trying to get the soief loaded from the bea people are trying to get hip to that. Hard to get the backup data on this. One interesting note. It says the gdp estimate released today is based on source data that are incomplete, partly due to the response of. Eople to the coronavirus in the release there is a note that says the government stayathome order has led to rapid changes in demand as businesses and schools switch to remote work or cancel operations and consumers redirected their spending. They say the full economic effects of the covid19 pandemic cannot be quantified in the gdp estimate because the impacts are generally embedded in source data and cannot be pulled out. We have the full release. Let me take a very quick look. As you mentioned, we have the 4. 8 decline in gdp and personal consumption down 7. 6 . Spending, gross private investment down 10. 2 . Nonresidential business fixed investment looks to be down 8. 8 . Business spending dropping as ,uch, a little bit more actually, then we saw Consumer Spending drop. I want to see if we can get the information on exports. Importsdown 8. 7 and down 15. 3 . I do not have the dollar values in front of me but it does look like trade will be a significant negative contribution to this report as well. A lot of things that went wrong in march being reflected in the data. And went wrong in march, you can only imagine what april winds up looking like. 1. 3 ,tures are still up spiked higher after gilead set its covid19 treatment met its next phase of a study. More details there. That stock is halted. I want to dig deeper into different aspects of the economy, particularly Consumer Spending and the sharing economy. Workers from lyft and uber as well as those betting the farm on airbnb. Well be joined by next on the topic. A room some dharmarajan arun sundararajan. I want to get an idea of how you calculate the sharing economy as a portion of u. S. Growth. Hello. Alix can you hear me ok . Arun i can. The sharing economy, as a fraction of total gdp is still relatively modest. It is concentrated in the travel sector through airbnb and the urban transportation sector through platforms like lyft and uber. In some extent in the ondemand labor sectors. Seen the numbers steadily grow. It is hard to come up with an exact quantification of how much of the sharing economy is in the gdp number, because there is no unified definition of the sharing economy. I could see a lot of platform based retail of the kind we see through amazon as being part of the broader shift towards crowd placed crowd based platform models as opposed to the traditional retail models. Numbers we get these like personal consumption down 7. 6 how does that hurt the sharing economy . Arun a lot of these drops are changes thated by manifest themselves in significant drops to sharing economy activities. Travel has virtually ground to a halt and it certainly causes airbnb to take a big hit. The number of people who are getting into uber and going to work and going to see their friends is dramatically lower today than it was last month. , we arehort run certainly seeing the sharing economy take a significant hit ative to a greater certainly larger than the 4. 8 drop in gdp or the 7. 6 drop in Consumer Spending. How does it come out of this. Are we going to have to have gig workers get support from the companies. To airbnb need to support renters, does huber need to support its drivers, how is this wind up shaking out . Arun in the short term i have seen some resilience and the responses of the sharing economy companies. Many gate economy workers were ineligible for the federal unemployment support that is normally reserved for fulltime employees. That was a big step in the right direction, like uber drivers could claim unemployment for the first time. A lot of airbnb host have pivoted to offering mediumterm and longterm accommodation as opposed to just the shortterm accommodation. In some ways that sort of flexibility that they uniquely have that is hard for someone who owns a motel or a hotel to pivot in that way. The bright spot is ondemand from the uber eats and doordash to companies that offer meal kits. They are definitely seeing growth from the crisis so people stay at home rather than venture out. People in manhattan do not have kitchens lend themselves well to repairing their own food at home. This is important because i think some of these shifts will be permanent. Once you get over the hump of trying something new, even post crisis, some of these changes i think overall this will shake out well for the sharing economy in the long run. You can think of transportation as being on a spectrum from mass transit to driving your own car, and we will certainly see a shift away from mass transit post pandemic. That middle of taking and uber, where you are by yourself in the backseat or riding a bicycle, riding a scooter will be increasingly preferred to mass transit. Travelers post pandemic will gravitate towards a certified host who is healthy and where they have more control over their space rather than venturing into crowded Hotel Lobbies where you do not know who has passed through the room like over last 24 hours. Longterm, i am bullish about the prospects of the sharing economy and the kinds of behavior changes we are seeing occur because of the shop will probably work significantly in favor of the sharing economy platforms in the long run. They do have a rough few months ahead of them. Alix good to get that perspective. Hugely important Going Forward. Of nyu. Dararajan you can see our special coverage of the fed decides at 2 00 p. M. In new york. Coming up, Food Companies rethinking supply chain models as the coronavirus causes them strain. We will wake them down with alexandra brand. Terrible personal consumption numbers for the First Quarter. Down 7. 6 . Annualized gdp 4. 8 . That is just the beginning. Gilead moving closer to covid19 treatment, meeting some of its markers Going Forward. It will resume trading at 9 00 eastern. That stock was halted pending that news. This is bloomberg. Alix five or bottom line. We take a look at sectors and come time for bottom line. We take a look at sectors and companies and today we look at how the pandemic is weighing on the supply chain. We spoke with cargo ceo. The supply chain is under strain but there are a lot of supply chains under strain due to what is happening. There up in Food Production facilities in various parts of the country that have had to close because of illness or because of supply destruction. The ability of us to produce food is still there. More, alexandra brand, magenta chief sustainability officer joins us. You have a lens into china as well as latin america and the u. S. Are there food safety issues you see, and if yes, where are they and what are they . Covid could have a severe implication on the food systems in different parts of the world. I do believe the world still has all the tools in its hand to prevent severe impact. That is what i believe in and also what magenta is working towards. I see two major mechanisms at work. One is in the part of africa going into the south asia, tropical countries who always had to deal with lowtech ,gricultural Climate Change food vulnerable situations, and now comes malaria outbreaks because the programs are disrupted. Level, andstation then on top covid illness. In this part of the world, we are heading into a difficult situation. In the more developed part of the world, the more wealthy part of the world, certainly we have a huge economic crisis from the lockdown situation and the low income population is faced with rising food prices, but definitely that is less money in their wallets and less able to purchase Healthy Foods and the more valuable food, going back towards the simple staple food. These are the big mechanisms i currently see at play around the globe. Do you think this resolves itself . On the one hand, are we looking at worries about food inflation in certain parts of the world, whereas other areas we are seeing food deflation. In the u. S. You are seeing milk being poured out, there are reports of cows being slaughtered, can you walk me through the dynamics . Alexandra the most important steps most governments have been taking is to classify what are essential industries and water , that alloperations belongs to the food and agricultural chain, and i would say the first step most governments got right. This enables Companies Like syngenta continue to operate. When we have consultations with farmers as much as we can do that and prevent people from falling ill, government has enabled us to continue to operate. That is an important step for companies and government. Certainly the supply chain is extremely complex, the Food Supply Chain is complex and not all of the details which we have to get right are in place at the moment because of the complexity. Then we have disruptions of exports and imports, sometimes just by the fact that the ports were not fully operational, that logistics did not bolster the expanse, but sometimes also with export restrictions. We have countries were export into the middle east, who have put an export restriction, and that is a challenge. Do you see companies thinking about rejiggering their supply chains so they can be closer to the products they need . Alexandra that is definitely the wrong moment to think about these things from my perspective. At the moment, we need to ensure supply chains we have continued to operate and prevent intermediate crisis. Once we have mastered that and we can make sure we do not have an increase of hunger or malnutrition, then it is the right moment to reconsider how we want to shape supply chains Going Forward. Will considerations happen. I do think it will be beneficial for many farmers when you think of Fresh Produce farmers getting closer to their markets, to consumers, to be able to get higher value for the food they produce. I think that will be beneficial. On the other hand, we do have different situations. No way you can produce things like corn and soybeans and a lot of the tropical markets around the world. You do not have the economic conditions. We will also need to depend on a strong and free trade for food and supply as well as we need to look at where can we create and production locally. Alix you are a chief sustainability officer and syngenta has strong sustainability roles like investing into aggravating advocating sustainable agriculture. How to those goals and conversation evolving at syngenta in light of covid . Alexandra it is even more important. We are investing in making agriculture more sustainable and more resilient. Climate change is not stopping because of covid. The last thing we need is major trout for weather events for farmers. Technologies, in for good soil health, to make molding for rich biodiversity in soil, this ensures farmers being able to operate profitability. That agenda is enforced by the situation from covid and definitely no change of strategy , it is the right approach. Despite this crisis situation, we have been able to move the agenda ahead. We are signing up farmers. You mentioned the brazilian project on regenerating soil. We are able to have important strategic discussions in other markets, north america, in the protein value change, how do we make that more carbon friendly, we are able to have discussions also in china on soil health. We are moving the agenda ahead and we are not moving an inch on our commitment to invest in making agricultural more sustainable and more resilient. In, ito wrap all of this would love to get perspective on as well as the farmers as well as your initiatives and sustainable agricultural. Workers afraid to come back to work, are they ok . What are you hearing . Alexandra we are having a lot of dialogue online with farmers and that has been working well. It is remarkable how Fast Technology can change our ways of working. We are pleased with that. We have all of our operations, all of our plans. In operation, we were able to put in the necessary hygiene measure to prevent disease from spreading, from assuring our workers they can come into work and stay safe. That is not a given that you achieve that, and we are thankful for the good dialogues we are having with our people around the world. We have been able to expand capacity for producing Hand Sanitizer and donate to local communities. We always work with farmers on protective equipment to help them stay safe. We were able to donate that to local communities. I do think the company has proven to be resilient and be responsible in terms of managing health and safety and attending to the local community. Alix alexandra, i appreciate that perspective. Alexandra brand of syngenta thank you very much. Coming up at 10 30 a. M. In new york, kevin johnson, the starbucks ceo will be joining us. This is bloomberg. Alix s p futures are searching. Gilly it says its covid 19 drive study is coming out well despite the fact that the First Quarter gdp looks bad and personal consumption is bad. This is bloomberg. Jonathan from new york city for our audience worldwide, the countdown to the open starts right now. Here is your wednesday morning price action. 30 minutes out from the opening bell it is risk on. Two big pillars. Equity futures up one. 9 on the s p 500. Mega caps and tech stocks getting a lift on the back of alphabet earnings. In the last 30 minutes we have positive data from gilead on the drug trial. That gives equities a lift and leaves treasuries unchanged and a dollar weaker against the bulk of g10 through much of this morning and then some. Lets begin with the big issue this morning, the economic data. End of data marks the the longest expansion on record for the American Economy after the beginning of a recession in america. The focus of this market is on the path of the recovery, not the recession we are in right now. Lets get straight to the data and bring in Michael Mckee. Mich