Interview with Michael Oleary is coming. Good morning. Also happy friday. It has been a long week. This is what your markets are doing and a lot of folks about what we heard from a we heard about will we heard from the European Central bank. We continue our earnings outlook. Was tech yesterday companies. This is what i am looking at, dollars up. U. S. Futures are down. Treasuries advancing. If you look at trading, holidays across many major markets. Gdpecb coming out with calls saying it could be it could rebound. Of course, this year that gdp could shrink between 5 and 12 . Year will be next a lot better. We will have the more forecast. Figureseuro area gdp being published. We will delve deeper country by country and give you an update. Lets get to new york city with the first word news. Viviana we begin with the u. S. Federal reserve expanding the scope of its main Street Lending program. Businesses with up to 15,000 employees will be eligible. Expandingl bank is its paycheck protection facility after the initial round. Bank, itropean central moves to ease money market stress. Pandemicroducing emergency longer for financing operation. They are to ensure sufficient liquidity. Now to president trump. He is speculating china may the president says he has seen evidence that wuhan was the origin. It got out due to a lab mistake. Intelligence Officials Say they are still investigating the exact source. Unfounded. It is to u. K. , that is where Boris Johnson is pledging a plan. How businesses can get back to work. He is suggesting people will be encouraged to wear face masks until restrictions are lifted. He says the u. K. Is passed the peak and it is on a downward trend. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. I am viviana hurtado. This is bloomberg. Francine. Francine thank you so much. Lets talk to lets talk about ella gone and the cardboard boxes. We heard from jeff bezos yesterday. They say this is a pretty period. The ontime retailer may incur loss. Online retailer may incur loss. Lets get to alex webb. Alex, great to have you on the program. If you look at amazon, this is kind of counterintuitive. How much of a struggle is it to make money in this environment . They run quite a tight timeterms of close margins. Despite a bump in the wrong direction, that could send them in the negative territory. They still have the advantage of a huge buffer in the form of services and Cloud Computing services. Investment on supplying people during the virus. Investorsin the past, would have been ok with earnings similar to what we heard. Is this time a difference . Alex yes, i think so. Historically, amazon investors e been trained to realize they should be looking topline growth number and amazon to demonstrate its ability to flip the switch and turned that loss and profit. The ability to generate is a question the longterm, but what we are seeing right now is different from the past. Previously, it would invest in infrastructure. This is shortterm investing. It is giving People Safety measures they need. Investors are inferring this isnt something that will secure longterm growth and stickiness from its customers ensuring their return. It is a different investment profile in terms of operation expenses than they are used to. Francine very quickly. How much is this getting market shares . How much will amazon reap the benefits . Alex the question orif that has been forming if people think they can leave their houses or apartments. Street and do all of their shopping there. Theres a big question mark about that. Francine thank you so much. Alex webb there. Coming up, we have a great conversation with Peter Oppenheimer of Goldman Sachs could we talk about his new book and where he sees value in the stocks desk Goldman Sachs. We talk about his new book and where he sees value in the stocks. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua here in london. Lots to talk about. This reminder, a lot of markets are closed. We are open. A lot of markets are also open. It is a good time to get stocks and what we are expect from a. U. S. Stocks first. They posted their best month and more than 30 years. Looks to start may in the negative territory. It would be great if we can bring that up. In europe, companies have been identified for the next market cycle. I am pleased to welcome Peter Oppenheimer at Goldman Sachs who also is the newly minted author of the long goodbye. Congratulations on the book. When you look at markets, you sent waves talking about granola. This is basically how you identify companies that create value in europe. What are they . Peter good morning. Things ise of the that a lot of people focus on the u. S. And the u. S. Equity market is outperforming very strongly. One of the main reasons for that companies. Gy they have become very dominant, around 25 . The Top Five Companies make 20 of that. While you dont have a bigger concentration of technology in europe, we are still seeing concentration. We should reflect and companies that have strong growth, strong Balance Sheets, relatively predictable cash flows. Reflective of the particular 11 companies that dominate europe. These companies with 10 of the market and now a quarter of the market. It reflects the way that European Markets are also changing leadership. Years ago, all of companies were telecoms. There is one bank. Now there are no telecom companies, Oil Companies all banks in the top 10. Even though the Technology Company it is bigger than the oil sector. Same size as the bank sector. What we are trying to do is identify companies that have strong Balance Sheets, relatively predictable cash over the can grow medium to longterm and an iron in an environment with relatively weak growth. Francine you talk about relatively weak growth. What if we see a decade of disaster where a lot of companies have to cut prices . I guess because it is relative value, it could hold stronger than the rest of the market. Peter that is a very good point. It is a relative story. In the end, equities are making a claim of growth. One of the things that drives economiceconomic activities contracting since the 1930s. Hopefully that will not last. It will be relatively shortlived. We should bear in mind one of the legacies of this downturn is higher debt. Both higher debt in the corporate sector but also dublins. That generally means that growth is likely seen below. With this, Interest Rates. On a relative basis, given that kind of prospect, companies that can grow relatively predictably in a modest way and have strong Balance Sheets and paid dividends, those are the ones that could become more expensive and what is a difficult environment. Francine peter, why has european stocks european equities performed so much worse than u. S. Equities . If you look at the number of infections, the u. S. Is much worse off than europe. What are investors looking at . Europe has underperformed u. S. Over the last decade. Much of that is explained by the success of technology itself which is a much bigger part of the u. S. Market. He recently, the u. S. Here recently, the u. S. Market, roughly 30 and in europe more than 20 , despite the fact that the infection rates are higher. Lot of this raises the scale what we see from governments and the banks, the speed the speed, the commitment. Really impressive. They have come a long way to reduce the tail risk for investors. That has helped to reduce risk premium and push equity evaluations higher valuations higher. The monetary support has helped reduce the Systemic Risk in the financial system. The fiscal support, they have gone to reducing the fear around the threat of lockdown. On both counts, the u. S. Has done more. Theyve got unlimited support from the central bank is not the case here in europe. The size and commitment on the fiscal side. Those two things go a long way to explain why the rebound has been stronger. Also just to say this has been a very unusual because it has company, theclical weaker balancing sheet companies. Because of the longerterm uncertainty about growth, and there is a bigger share of those in the u. S. Market and in europe then in europe. Francine when you expect europe to outperform . What needs to happen for the foundations to be laid for that . The European Market is more cyclical. It has more cyclical composition in terms of the index. Also, the economy is more exposed to global trade. Even when we do get to some point where investors get more confident about a generally stronger activity, europe will probably whether that happens over the long run really comes much more down to the collection rather than the geography that they represent. There is a lot of exciting Dynamic Growth companies in the u. S. s make a big share. In the u. S. That make a big share. I think that is the longerterm challenge. Is a drag on the european relative prospects. The ongoing precious pressures we are seeing sovereign debt. Improving funding conditions for banks to help them encourage to lend more. That is good. Side and in terms of the size of their qe program. Riskseans there is still which from the market perspective needs to be dealt with given the sharp contraction of activity. Also the public deficit. Bigger and clearer commitment from that side. And see more relative sovereign spreads. Francine congratulations on your book. It cannot be easy launching a book during lockdown, but you wrote this book called the long goodbye. It exports the history of bear markets and bubbles. It could not be more timely. Hows this crisis going to affect cycles . We are looking at the front cover on the screen. Nice color orange. What does it do to the current cycle that we are seeing precovid19 . Peter thank you for mentioning it. Really, this is a study of cycles well over a hundred years. Some are a repeated pattern. Cycle,s a very unusual because it was a very long one. If you look at the u. S. Economy, prior to this shock that we are experiencing, it was the longest one ofc expansion, about the reasons, you got lower volatility of Economic Activity alongside inflation and Interest Rates. That was pretty helpful for financial assets. Valuations went higher. In some ways this cycle when you get out of it be quite similar. We will get low longterm growth because of high debt levels. Also with the support we are seeing in terms of fiscal policy and very low inflation and Interest Rate volatility, it could be a very long cycle. You are trading up a little bit here with growth. Obviously stronger growth tends to be better for risk assets. For more stability and longevity growth. So, the in time other thing i would say in terms of comparison is in the book i write a lot about different types of bear markets. Cyclical. , we do think this is a driven market. They do tend to be shorter lived in faster and stronger recoveries. So far, this is playing out in a very similar way. Francine peter, thank you so much. We will come back to Peter Oppenheimer at Goldman Sachs. Coming up later, we will be tourism in airlines and the impact covid19 will have on them. This is bloomberg. Francine this is bloomberg surveillance. Lets get back to peter from Goldman Sachs. The author of the long goodbye. We were talking about markets and cycles. How much do you worry about margins . Peter i think what is interesting is discussing the differences between other cycles and this one. The last cycle, the last 10 years is interesting because the profit margin generally increased. It was true more broadly. You get more focus on protectionism. Some degree, slow globalization. The supply chain as well as higher corporate taxation to deal with the deficits. We are likely to see more downward pressure. That is one of the other reasons why Francine Peter . Thank you so much. Peter oppenheimer of Goldman Sachs. This is bloomberg. Staying connected your way is easier than ever. 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. Francine economics, finance, politics. This is bloomberg surveillance. I am Francine Lacqua lets get to bloomberg first word news. Viviana we begin with gilead sciences. It may send 1 billion spend 1 billion for treatment for covid19 at how much revenue can it generate on companies generate . It is givingcall, away the first 1. 5 billion vials of the drug. Shareholders. China may have chosen not to contain the coronavirus. Speculation from president donald trump. He has seen evidence that a lab in wuhan was the origin. It is possible it got out due to a lab mistake. They are still investigating the exact source. China says the accusations are unfounded. Most 10 times the amount it set aside a year ago. The bank did not update his forecast but says the outlook mades uncertain. Ryanairok remains cutting 3000 jobs. It is also planning to carry 1 of its normal passenger volume. It doesnt expect a full recovery until summer of 2022. Ryanair will to save its competitors. It will hurt healthier airlines. Its airways may close according to the bbc. It is a part of a move to refinance the businesses because of sustained drop in demand. The airline says after the lockdown, there is no certainty life at the airport will ever resume. It will be a blow. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Im viviana hurtado. Francine lets focus on europe and the ecb yesterday, we were listening to that press conference i Christine Lagarde. Money markets and bonds by Christine Lagarde. Money markets and bonds showing a positive side. I introduced in a further effort to loosen the flow of money to help backstop exist in loans. Lagarde says shes ready to increase signs of asset purchases. Given the high uncertainty surrounding the extent of the economy fallout, growth scenarios produced by ecb stuff staff. Growth could fall between 5 and 12 this year. Depending crucially on the duration of the containment measures and the success of policies to mitigate economic consequences for businesses and workers. Francine joining us, maya bhandari. Great to have you on the program. Its the ecb enough . Can they do more . Do they need to focus on the recovery phase . Maya we are seeing the speed and scale of monetary response across developed markets. The ecb will fit in that bucket. Have beenearning deployed within days. If we look at the ecbs response, although the ecb tech or equities, it continues to do things that are positive. Banks more supply. June without any targets. There was they were not going to allow in the transmission of monetary policy. I guess in contrast to what your previous speaker ancient, it would be worth mentioning the combination of asset growth and rate cuts that are accompanied by those crucial set of guarantees guard against corporate collapse and other forbearance measures. Think lending is about four times as important in europe bank lending is about four times as important in europe than the u. S. Ncine how different maia different, maya . Maya on some of those credit guarantees. Liquidity and state aid. , think to our minds in europe the financial markets. The companies will carry higher debt on their Balance Sheet as a result. So, as columbia threadneedle investments, we have been increasing the quality of risk that we take in portfolios. U. S. And adding to higherquality equities in the u. S. And Investment Grade corporate bonds. Francine overall, how do you see the markets reacting . There is a huge difference between u. S. And what european stocks are doing. Our markets shrugging off the marketsk are shrugging off the real risk . Measures to contain the virus. Assets measures markets response to covid has been astonishing. Forcefullyuite within the retracing of the selloff from the marginal points. If i look at equity markets, the consensus is looking for 2022 earnings to be about 20 above where we ended last year, which may be a bit optimistic. Given the weakness. Equally, as we have discussed already, there is a huge uncertainty around earnings. Meaningful policy response to bridge the gap. Investors may well look to the shortterm impact. Columbia threadneedle, our best case is we see a ushaped economic recovery in the u. S. Where growth returning to where it was last year at the end of next year. We expect an lshaped in europe and the u. K. , and probably in japan. Coming back to the asset market assets tons, we see benefit employees the most of the policy response and attracting value. We have increased our risk. You do withat would tech earnings . Tech and a lot of those places is the winner. I dont know if amazon changes the perspective of a lot of investors. Maya it has been and most likely continues to be an unusual earnings season. Not because it is difficult to see where earnings relax. I was looking at the old country world and Earnings Growth expectations for this year. A 10 expansion this year. And then a 25 rebound and growth next year in 2021. Appler question on tech, reported decent earnings. As with many of the markets affected, a lack of Forward Guidance for the first time in a decade amazon had a drop in profits. Gainuidance of 1. 5 billion of operating income in the next quarter in many ways echoes Christine Lagardes comments that pointed to a wide range for european growth. From minus five to 12 this year. We think tech is a sector that could come out of this better than most. Companies like google, facebook have pretty large cash on their Balance Sheet. I guess we could say the existential crest is all relevant for technology. You might even go as far as to say that in some ways the pandemic antilockdown has accelerated and the lockdown has accelerated. Francine meyer, thank you so much. We will get maya, thank you so much. We will get back to maya bhandari. Coming up, we spoke to Michael Oleary of ryanair. We will ask about social distancing and what can airlines really do. When consumers will be ready to go back on those trips abroad. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua here in london. Lets get to new york city. Viviana we begin with this. For the first time in more than a decade, apple is not providing a forecast. Despite the tech giant reporting a 1 rise in revenue. Shares down in trading. A strong online performance hit a quarterly record. The ecommerce giant says it is the hardest time it has ever faced. Amazon may incur a loss as it boosts spending to keep operations running smoothly during the coronavirus pandemic. Of 1. 1 billion. We work is cutting more jobs as a part of an ongoing series of reductions since the company failed ipo last year. The Coworking Company also plans to shutter its ondemand efforts. Location and closed due to the pandemic. That is your Bloomberg Business flash. Francine . Francine think you so much, viviana. Lets get back to your markets. Maya, you were clear in telling us where you see opportunities and what you were worrying about. How do you deal with emerging markets . Markets emerging sorry. I didnt hear you. Francine working from home, there is always this. Maya we were talking about policy. From a policy perspective, emerging markets are more challenged in their ability to deal with covid and the implications thereof. Certainly Health Care Systems are not wellpositioned to deal with an outbreak. Asia ist said, i think thest along in the covid dealing with the covid virus. So, i suppose within emerging markets, there are parts of emerging markets like asian equities that have attracted valuations. Coming out of the covid crisis and reemerging. More broadly on emerging markets risk, i think we are more cautious emerging market risks, i think we are more cautious. Away fromdoes favor things like emergingmarket and investmentgrade corporate bonds. Francine meyer, thank you so much for joining us today. She is maya bhandari. Coming up, plenty more on your airlines. Michael oleary. Later on we speak to the chief executive of heathrow. This is bloomberg. Francine this is bloomberg surveillance. Lets focus on the airlines and tourism but also business section. We spoke to the ryanair chief executive. He says it will carry less than 1 of its normal passenger volumes. It also talked about the 3000 we also talked about the 3000 job cuts. Lufthansas, nationalized again. Largest Airline Initially but we have to compete with air italia which has the italian fleet behind it. That means we will have to have fewer cabinet crew. The remaining will be paid less. Spain, italy , where it could take a year or two years for the best traffic to return. We are looking at our orders. We are in discussions with boeing. We need to right size the be threehere they will to five years of grim trading. Ryanair. How many employees are you going to have left . What will you do when flying comes back . We employ 80,000 people. We are announcing cuts of over 15 . We are going to lose 3000 pilot and cabin crew. This year we are carrying less than 100 million passengers. We will be down about a third in traffic. We have almost no traffic in the june quarter. We have never lost money in that quarter before. We are is it the situation is grim. We expect to be allowed to be go back to some limited flying in july onward. Operate atpect to 40 . I think what we are facing now is a decline in air traffic in europe for the next 12 to 18 months. I do expect when we do fly in july, traffic will be strong. It will be strong because the airlines and the tourist facilities will be discounting to moveo get people through the tourist season. Think it is inevitable now our business is going to be about a third more this year. We are going to take out about 15 of our staff with deep regrets. Even the remaining staff, we will be looking for pay cuts of about. 2 . The environment of about 20 . The environment in europe has changed. Sheets and balance lowcost operations. We expect to emerge even stronger. The people who went into it weakest which is the legacy receivingre extraordinary volumes. They are applying for 12 billion euros in state aid. On top of payroll support. The level for aviation in europe. We will now be competing with Legacy Airlines who before cannot make money, but with now somewhat state aid they can afford to lose money for the next three to five years. Airlines the strongest will emerge the weakest. Francine that was Michael Oleary of ryanair. For full around off of earnings, lets get to dani burger. How much more forecast have companies had to lower . It totainly expect continue to sink. A lot of them just are not giving an outlook. Ryanair being one of the rbs saying theres too much uncertainty to give an outlook. Analysts continue to cut expectations. They did so heading into the earnings season. They lowered the bar about 22 of missed earnings estimates. The anticipation is these earnings will be bad. They are living up to that with Earnings Growth cracking a slump of 22 in the First Quarter. Most of that lag is coming from energy. Shell dividend cut here, energy down 42 in terms of Earnings Growth. Care, utilities, communication services, all of those are tracking higher with a bigger Earnings Growth which will reinforce equities. Francine what our expectations looking beyond this First Quarter . In 2021, the consensus is we get a rebound. We see about a 2 growth higher than it was in 2019. As Bloomberg Intelligence puts it, the key is 2021 earnings power. The consensus is a rebound. Other strategists are less optimistic. Jp morgan points out while the micro data looks supportive, there is extremely poor macro estimates out there. 16 . Ees profit sinking that big divergence shows you how clarity the future is for these companies. Much. Ne thank you so our dani burger with all of the expectations for earnings. The tech earnings. This is what your markets are doing. It is may the first so for a lot of countries out there, especially in europe, this is something we need to look at because it may be thinner trading volumes. I am looking at what the ecb said yesterday. Corporate bonds but also bonds generally. A lot of caution. The ftse 100 down. If you look at treasury, there is a bit of a riskoff prevailing. We will look at that dollar rising. Tom keene joins me next. This is bloomberg. Save hundreds on your wireless bill without even leaving your house. Just keep your phone and switch to xfinity mobile. You can get it by ordering a free sim card online. Once you activate, youll only have to pay for the data you need starting at just 12 a month. There are no term contracts, no activation fees, and no credit check on the first two lines. Get a 50 prepaid card when you switch. Its the most reliable wireless network. And it could save you hundreds. Xfinity mobile. Francine u. S. Stocks posted rest month and more than 30 years but looks to start may in negative territory. Will speak to we will speak ecb and fed. Isf bezos says the outbreak the hardest time he has ever faced. As europes Biggest Discount airline cuts 3000 job, ryanair chief executive tells us social distancing on airplanes will not work could we talk to the chief executive. Good morning, everyone. This is bloomberg surveillance. I am francine from london and new york. From home, tom, it is friday a lot of people are focused that it is friday. The fed on wednesday. We heard from Christine Lagarde yesterday. Reminder, volumes are thinner than usual because a lot of countries are celebrating may the first. Tom t
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