Good morning, everyone. Tom keene here. Thrilled to be with you, honored to be with you with your coverage of 10 downing street. How will the Prime Minister celebrate this important day . Are all going to be listening to another Prime Minister about 3 00 u. K. Time, tom. You quoted him talking about winston churchill. We will get a broadcast of what he said at that time 75 years ago. Interesting the parallels between then and now. Of course, limited as they are, certainly a very difficult time to be celebrating 75 years since given we are not able to go out onto the street and celebrate. Tom just extraordinary week that it has been. On this friday, of course, all focused on the depth of the jobs report that we will see at 8 30. That was adjusted over the last two days with a difficult adp report on wednesday and a really challenging and grim weekly jobless claims report. Right now with our first word news in new york city. The top trade negotiators for the u. S. And china have agreed to cooperate on that trade deal. It is the first time they have spoken since the agreement was signed in january. So far, china is running behind the pace but buying more u. S. Products. The uncertainty could hurt beijings ability to meet those targets. It is likely to be the worst u. S. Jobs report since the end of world war ii. The numbers are released at 8 30 a. M. New york time. They are expected to show that employers cut 22 million jobs in april because of the coronavirus outbreak. The Unemployment Rate will probably hit 16 that would. Be . The highest since the Great Depression . 16 . That would be the highest since the Great Depression. The British Government trying to dampen expectations that the coronavirus lockdown will be significantly rolled back. Bloomberg has learned there may not be a major change until june. The u. K. s infection rate has crept up in recent days. The imf warns that the Global Economic outlook has gotten worse since it last forecast. That was just three weeks ago. It says the world can expect more waves and Financial Market turbulence. The imf chief Economist Says developing nations will probably need more than the 2. 5 trillion in financing that was previously projected. Global news 24 hours a day, onair and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Tom equities, bonds, currencies, commodities. You take the surveillance nap, as i did yesterday, and you wake up to a different bond market. It is just simple. The two year yields caved in yesterday. The german yield, yes. Far more, the u. S. Two year note to well under a. 13 at one point. Where watching that carefully. We saw negative Interest Rates modeled in the wirp function in the bloomberg terminal. Thats what everybody uses to game the future of Interest Rates. There was a Seismic Shift in the daily yesterday. Dataily yesterday yesterday. Anna absolutely. How much does the fed really want to stick to all those comments they have made in the past about how they see nothing in the european experiment with negative Interest Rates to convince them that they need to go down the same path . As if the market does not quite believe the fed in those statements. Waiting for the jobs report that you referenced earlier on. I put the euro in, fairly flat this morning. I am reading plenty of an existential nature on the euro right now. The jobs story might be cushioned by governments in europe. On the negative side, all these questions about the future of the euro keep circling. Moodys later will review italy, spain, and their ratings. I put in oil. We are set for a second weekly gain, in case we havent noticed. Tom yes. Im glad you mentioned oil up there with brent crude while up there. To give us perspective after this exhausting week, to give us perspective into the jobs report , and particularly on the writings of the weekend, simon french joins from panmure research. Thrilled that he can join us. Let me start with the zeitgeist of still shock over the bank of englands forecast yesterday. It is an alphabet soup of recovery guesses and decidedly, the bank of england has 14 and return. Did that surprise you . Was the governor being too optimistic. Simon good morning, tom. He was. Unfortunately, the truism in labor markets, it is much easier hire. E than it is to there will be a lag trying to get back, with extensive for loading of workers. We expect unemployment furloughing of workers. We expect unemployment to get to 10 . The bank expects that to happen by 2022. I am afraid i am much more cautious. I expect it to be a much more prolonged hiring cycle. Tom the shock of lower Interest Rates yesterday on the negative yield indicated by the wirp function on the bloomberg, jay berry at jp morgan wrote of technical reasons that we saw the thrust to a negative Interest Rate forecast. Was it that or was it the real understanding of the rate market over the depths of this jobless economy . Simon so i think theres probably more weight on the second one of those arguments. We are starting to see a shift in the thinking around tolerance for negative Interest Rates. You mentioned in the introduction the fact that jay powell and the fed have seen nothing to like about the negative Interest Rate environment the euro zone. That was also the case for the bank of england until yesterday. I thought it was a fascinating interview that francine had with andrew bailey. He is not following governor carney. He is leaving the option open. We see that will we now see that same read across into the United States . I think that is part of the story of why we saw that seismic move in bond yields yesterday. Anna it was quite a stunning move, wasnt it . Looking at those moves in bond yields, what do you expect the fed to do with that . I have read some pieces that suggested the market is trying to lead the fed in that direction and asking whether the fed will stand up and say no, we wont go there. Whats your assessment of that tension . Simon as usual, i think you have nailed the challenge here. Monetaryhe margin policy at the moment . We have assumed that it is at the zero lower bound of the fed funds rate. It will be bond buying and bond buying moving up the risk curve. Does the marginal tool now shift back towards the policy rates and does the fed funds rate go negative . Part of guessing clarity in terms of pricing will be for jay powell to set up what the feds thinking is for the next bit of stimulus, should it be required, to support the recovery in the u. S. Economy. Anna i was interested in your note around the bank of england, simon. This applies to Central Banks globally. They are all trying to wrestle with an equation that says shut down economy for one week equals what damage to economy and whether you can take that into the future and use that to assess the length of a lockdown and its impact. How close are we to being able to establish that . The more we are locked down, the more scarring we risk. We do. The bank of englands scenarios yesterday assumed that each two weeks of additional lockdown impairs output growth for the year by 1. 25 . The top of thein show, hes got eight ways he can go, i would argue the bank of england has got many more of that in terms of potential outcomes. We are in a phase right now where that kind of scenario now is helpful to make the really difficult and subjective political decisions around leaving lockdown. Behavioral science, economic science, health care thinking brought together and a singular decision with all these conflicting Scientific Data points. Tom you know, simon, we are all riveted to the punditry and ting into theima future. Are we just rationalizing our way to another broad set of trillions of dollars of fiscal assistance . Simon we are. I think we have to acknowledge that we are in eight a period of radical uncertainty. This is a set of economic circumstances for which there is certainly no modern president. Therefore, in terms of the policy response, not only is there a constant question regarding how much stimulus is required from those insurers, on the fiscal side supported by the monetary side. But also what profile that takes. The gift that capitalism gives us his Creative Destruction. And Creative Destruction off the back of covid19 will lead to quite a different composition of output, composition of the Global Economy. That Creative Destruction needs to be allowed to operate and therefore striking the balance between protecting the existing supplyside and letting the new supplysider grow is key. ok, this is a really theme and goes back to august of 2007. Are we trying to do this painlessly, simon . Are we allowing Creative Destruction within our system of finance . Moment, i am on the side of the policymakers who are urging, you know, protection of the existing economy. What i am trying to do, which i think all of your viewers will be tried to do as well, his project forward where social distancing starts to ease, how policy moves dynamically to support Creative Destruction. There was a time 10 years ago, 11 years ago when perhaps the adjustment that was necessary was not allowed to play out. While there are significant creatived impacts of destruction, there is over the longerterm much more upside to go out there and grab. Tom its going to be interesting, to say the least. Simon french with us. We will continue. As always. Stant we will give you more conversation on these historic events. Jonathan ferro with Lawrence Kudlow. Look for that after the jobs report. This is bloomberg. Keeping more options open. Two of my colleagues on the committee voted to do more qe now. Other members thought it would be sensible to take in a next meeting, where we may have some more information. Anna that was the bank of england governor, andrew bailey, of course, in his socially distant interview with francine lacqua. Simon french is still with us. I am going to ask you something deliberately provocative to wake up anybody who is still may be asleep. Where does this crisis lead capitalism . I know we have got leave capitalism . We do we have gotten not have a thesis amount of time. What kind of economy are we left with on the other side . Simon part of the answer will be determined by the degree to which a Balance Sheet overhang in the corporate sector underscored by federal agencies around the world, whether that will be persistent in terms of seniority or whether that debt will be written off and enabled or diminished in seniority to enable capitalism to recover. What you fear perhaps is that if that retains its seniority, it slows the recovery, and perhaps most crucially, gives policymakers the feel that they strongerle, a allocative in the economy Going Forward which i think personally would be quite a mistake. Anna do ucs on our way to some jubilee, some sort of grand right off on that deal write off on that deal . Simon i do. What you dont want to do is introduce moral hazard. You dont want to also keep zombie companies, companies that would have other lies otherwise , that is delaying the Creative Destruction role we are talking about. This recognizes that part of vshapedng a recovery and getting the unemployment back down, the Balance Sheets have to be cleaned up. A debt jubilee will be part of that solution. Tom that jubilee was such a good band. Debt jubilee . Simon debt jubilee is le, thevely the princip burden of debt is going to be either totally or partially written off. Historically, we have seen haircuts, we have seen reductions in coupon. Offlee in form, writing it is more unlikely because of those moral hazard issues we talk about. But a partial jubilee to reduce that burden is probably the kind of thing that policymakers will be looking at. Jubilee sounds like something constructive and positive. Ok, great. Who loses in a debt jubilee . Simon well, thats a great question. One of the risks, of course, is that you start to generate a the of confidence in ongoing Capital Value of debts, which of course, while liabilities on some Balance Sheets, assets on others, you generate an inflationary spiral. I think that is one of the risks that policymakers are going to start looking at before they start weighing the risk. The cost of inflation, who loses, is potentially that ripple around the economy in terms of enhanced inflation. Tom superb. Simon french, thank you so much. We have been doing a lot on politics. With Speaker Pelosi the other day, Lawrence Kudlow with Jonathan Ferro later this morning. We move onto the gentlelady from los angeles and watts. Maxine waters is chairman of the house financial committee. She will speak to us about this historic moment. That jobs report at 8 30 this morning. This is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash. Mens has abandoned its fullyear sales and sales forecast. They saw orders slump due to the impact of the coronavirus outbreak. It expects a moderate decline in revenue for the year ending in september. Over. Ays the worst is they reported quarterly bookings declined for the first time ever. It says business is already starting to recover and it plans on cutting more than 1 million in expenses. Shanghai disneyland sold out of tickets for three opening on monday. It is a sign that chinese consumers are prepared to spend in the wake of the coronavirus outbreak. The theme park has been shut down for four months. Shanghai disneyland normally has a cap cassidy of 80,000 visitors has a capacity of 80,000 visitors and only 1 3 will be allowed and now. Tom thanks so much. Let me do a data check. Lets get right to it. The vix under 30, showing that good equity market. 29 handle earlier, right now 30. 04. 23ures up 28, dow futures up 8, nicely over 24,000 as well. European banks a little soft today. In the yield market, im sorry, extraordinary, about 1 00 p. M. Yesterday, the twoyear yield resets right now. In the last hour, the german to year yield has come down another notch for a negative yield. Anna . Anna yes, stunning stuff we have seen in yields and bond markets. The stoxx in europe up by 0. 6 . Siemens really flying, though. They gave a moderate fullyear revenue drop as their diets. That giant up by more than 5 . We will speak to Valentin Marinov from credit agricole. We will talk about the strength we have seen in the dollar. We will ask about existential crisis in the euro as well. This is bloomberg. The best we can do in a situation like this is to learn together, cooperate is much as and let our better do more so our weaker can do measures elsewhere. Tom the International Monetary fund, an exceptionally important webinar, Virtual Meeting yesterday with Christine Lagarde of the ecb with francine lacqua. It brings up the idea of institutions scrambling within the financial suit. Valentin marinov joins us now with credit agricole. Anna and i decided to rip up the script and go away from the interview, because he is perceptive about the news of the moment, will the United States join europe in negative rates . Would you suggest we will see some form of negative Interest Rates in the United States . Valentin that is not our official view. So far, there is nothing to suggest from the feds communication it has no appetite that it has an appetite to cut below zero. Last week when the fed had a chance to deliver a technical reserves, they decided not to do so, so that could have been put in place under the fed funds rate was not put in place and as a result it is why the fed fund futures are implying a negative rate for 2021. Tom i see this morning off the , but that impulse yesterday has sustained overnight through asia and europe. Has negative rates been successful . Give a primer from credit agricole, what has it meant from society that she was speaking of . Valentin it is the case that overall, the situation is complex. Overall, it is certainly one of the tools, negative rates are one of the tools that could be considered in fighting tova 19 the covid19 pandemic and its consequences. Thejury is out on whether policy could deliver more politics and the costs associated with negative rates are still quite considerable. What we have seen so far in terms of track records, the evidence is mixed. Gethe positive side, you weaker currency and easy financial conditions but on the negative side, you have diminished Bank Profitability which could lead to Financial Stability risks. In talking about currency week weakness,an only we can only refer to the swiss krona. The swiss franc and japanese yen, the benefit of currency depreciation was nowhere to be seen, and fact the contrary. A mixed track record. I dont think the fed will be considering negative rates anytime soon, not before they have exhausted all other options that deemed to be on the table seem to be on the table, going down the list of assets they consider in asset purchases. I should also stress that in terms of impact, negative rate for a currency with a sizable current account that like the dollar debt like the dollar could be surplus currencies are offering funding to the rest of the world. For a currency borrowing from the out side, that could be a disaster. Anna how do we play the dollar . Said,hat you have negative rates did not weaken the yen or the swiss franc and both are havens. The dollar has been a haven through this crisis, so how do we apply that knowledge to the nonfarm payrolls later today . Do we know about positioning around the dollar and how the dollar will respond . Valentin the discussions i have been having with clients is that a lot of negatives are already in the price, not only in the u. S. Economic experience but the Global Economy as a whole. A disastrous payrolls print lies ahead. On wednesday,adp we had 20 million or so unemployed. From that point, we have a sustained Market Impact. Whichint is much weaker seems unlikely, so in terms of Market Impact and positioning how the dollar will respond, investors are quite selective when it comes to the dollar. When there are certain currencies, the yen, the swiss where investors like to see the dollar weakening, the european currencies, the pound, investors are more comfortable buying the dollar, expressing a more bullish view. I dont think the payrolls will change that much in this type of price action. You would expect the dollar to lag behind the likes of yen and gold. Thate same time i think any rally in eurodollar or maybe cable selling opportunities at this stage. The dollarortunes of are pegged on whether we see a second wave of virus . Valentin these are the risks for the medium to longer term. The markets, the Broader Investor Community Seems to have assumed the worst of the pandemic is behind us. A number of governments are easing measures and opening economies. The risk is a premature opening which means the virus may resurface leader in the year, so instead of a v shape but a ushaped recovery, we are dealing with a w shape, a doubledip recession and that is particularly pronounced in the case of the u. S. Because they are in a rush to open the economy, which may mean the risk of the virus returning remains significant. From that point of view, you would argue there are some risks ahead for the Global Market as a whole, and in that environment the best way to express a bearish dollar view would be against other safe haven currencies like the japanese yen and swiss franc. Ubs where they are going to offer a negative rate holiday to some clients after they took their money out of ubs. The public wont put up with this, and this buttresses up against ken rogoff and Marvin Goodfriend talking about if we do Interest Rates negative Interest Rates we have to do them with a larger impulse. Have we done negative Interest Rates and a half assed way . Valentin it depends on the economy we are dealing with. , all parts of the Government Central bank are working in tandem with one goal, furtherurage dis swiss franc depreciation. Thebiggest kiwi out there, Balance Sheet of the Swiss National bank qed out there, the biggest the important thing is that negative rates could work only in tandem with other aggressive easing measures. In isolation or when they are not accompanied by fiscal fail, andthey may be the best example of that. Back,e are going to come Valentin Marinov with credit agricole. Our first word news in new york city. Ritika one Economist Says this might be the worst Macro Economic data report in u. S. History. The government comes out with april jobs numbers at 8 30 and it is likely to show that 22 million jobs were lost, 11 times the previous record decline in world war ii. The Unemployment Rate will hit 16 , the worst since the depression. Great a malaria depression. A malaria drug touted by President Trump failed to help patients. Tests on the drug hydrochloric chloroquine. Hydro germany, the number of coronavirus cases rose the most in a week. This is as they are preparing to shops, andrants and soccer matches will resume. Democrats are accusing the Justice Department of bowing to pressure in the case, dropping its case, dropps prosecution of the former National Security advisor despite his pleading guilty to lying to federal investigators. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am ritika gupta. This is bloomberg. Anna thank you very much. Coming up later on programming, Lawrence Kudlow, national director. Around four hours from now, that conversation on jobs day. This is bloomberg. Anna welcome back to surveillance, on bloomberg tv. Valentin marinov stayed with us. Another Big Development around the European Central bank, the German Constitutional Court made a ruling. Has it reduced the room for maneuver for the ecb . Valentin it certainly added to the uncertainty when it comes to the implementation of the ecbs qe program. The ecb did not try to talk to the German Constitutional Court. It is relegating the whole matter to a purely german matter , so that attitude between two important institutions in the eurozone as a whole is not helping. From here, the ecb will try to fight the issue by putting greater emphasis on the pepp program, the pandemic purchase which has not been mentioned specifically and by implication where the bundesbank should and principal be able to participate further, that is the same reason the court used to criticize the implementation of qe that it may be used for pepp as well. Uncertainty will likely increase from here. Tom it is jobs day in america. The struggle in europe and all the constitutional stuff that i dont understand, will europe revert with higher unemployment back to the permanence of that higher unemployment . Valentin that is one of the risks definitely. It is the case at the moment hite the crisis that has the eurozone, the biggest since the euro, there is a lack of institutional leadership to help us get to the fiscal and monetary stimulus that will help us avoid the negative outcomes you have described. Carryingof a permanent , if you want to use that ,anguage, is very much there and the longer it takes for the institutions of the eurozone to arrive at a compromise, the greater that risk. It is unfortunate that the sectors of the economy, the Services Sector are the hardest hit, are also the sectors implement instrumental for eurozone. Of the the other concern for the investors from the fx side is that persistent evidence of fragmentation and the ejb market that would not go away despite the ecbs best efforts. Anna exports all not be what they once were. Valentin marinov from credit agricole. Coming up, we will speak with the theme around the ecb, weathering the shock. The president says she has no choice but to go beyond conventional policies. This is bloomberg. Ritika this is bloomberg surveillance. That jcpenney could be headed to bankruptcy. They made a 17 million Interest Payment due yesterday. Did not make a 17 million Interest Payment due yesterday. It is the second payment i have skipped. The Justice Department has launched an antitrust investigation into the meatpacking companies in the u. S. The disease prompted the meatpackers to shut down a number of factories because workers got the virus. Says Net Interest Income will not fall as much this year is expected, but the bank may need to set aside more jpey to cover bad loans morgan said the u. S. Economy could decline by as much as 40 . That is the Bloomberg Business flash. Anna thank you. With the business flash europe struggling as much as the United States with fallout from the coronavirus. Francine lacqua spoke with madame lagarde as part of a panel discussion. Banks,lagarde central the ecb included, are driven by their mandate. They have the privilege of being independent institutions, being accountable to the European Parliament to which i report back and am accountable to and go every three months to tell about our action and tools and how we measure them and assess them. Also mandated and mandate did dates we do whatever is necessary and whatever is needed did dates we do s we dor is dictate whatever is necessary. We are currently and we have all said the same thing going through exceptional circumstances. The Global Economy and euro area where we are located has been facing an unprecedented shock we could not have imagined. You clearly have to go beyond the normal, including the normal unconventional tools to use things that are of an exceptional nature. That has to be designed and calibrated with the appropriate level of deviation and room to maneuver in order to deliver on that mandate, whether it is to avoid the tightening of financial conditions or to make sure that anna terry policy Monetary Policy is transmitted across all the euro area. That is what we are doing and we will continue to do so because that drives our action. Francine what is on top of your worry list is a central banker . Lagarde i fear a w. A w is war because on top of Everything Else we have, that would be the most aggravating factor we could face. Wavecond w is the second if we ever had a second wave. If you look at analogies like the spanish flu, not necessarily spanish for that matter, the second wave was worst worse than the first. That is what i have on my mind from a humanitarian, as a person. The economy consequences of that , even without those ws, we have the most unprecedented economy crisis we have seen in peacetime, i have said that for, and the damage this is economy ison our really causing damages to potential out but, output, to families, to jobs, to the capacity to bounce back. We have no sense of how badly economies are affected. It isply dont know and all going to be a factor of how we get out of those lockdown measures, at which pace, at which sequence, and if we do, we dont know either how fast and strong the recovery will be. It will be a factor of the measures taken at this point in time. That is the situation we have and in the face of that, we have to take all possible measures and policies to help with maintaining the situation and sustaining it as long as necessary to weather this horrible shock, and help families and the government to bounce back and move to a recovery phase. The nearly 4 Million People affected around the world, one quarter of which are affected in the euro area, are on my mind. I also venture beyond those borders because i think of people in the developing world which clearly is expecting a big hit and will continue to take a big hit despite the fact that Health Systems are not as solid as they are in advanced economies. Tom Christine Lagarde of the georgieva astalina well we will set up the next hour and get you to 8 30 and get beneath the headline data of without question, the most historic labor report, and i will be bold and say in the history of this nation. The backdrop of that simple. Equities, vix under 30. Coming up, Catherine Mann of citigroup. This is bloomberg. Tom across a europe shattered by the pandemic, we remember 75 years ago and david three in europe and a victory in europe. Five years ago, we saw so much occurring. Today, the celebration and remembrance of the bravery of so many soldiers as well
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