Transcripts For BLOOMBERG Bloomberg Markets European Open 20240713

Security law over hong kong sparks outrage from the opposition. We will be live in beijing at the National Peoples conference with the latest. President trump, a pledge of retaliation. The hang seng leaves asian stocks lower as u. S. Senators lower rates. And the fed could hold further guidance until the fall. Bets on a boe journey toward up support for small business. We are just under an hour away from the start of cash equity trading in europe. We will take a look first at futures after the hang seng fell 5 . Youre a stocks, ftse, and dax futures all down one euro stoxx, ftse, and dax futures all down 1 or more. On the majorps European Equity indexes. In terms of u. S. Futures, halfpercent drops, basically, across the dow jones, s p, and nasdaq futures contracts. It looks like it could be a negative open, even before we talk about big budget deficits. Anna indeed. Lets get to some of the earnings. We get some numbers out of burberry, the luxury clothing business based in the u. K. , but with a substantial presence in china. Heading into the numbers, there was a focus on china and how sales on the mainland have been rebounding. They save yeartodate sales in Mainland China and korea are ahead of the prior year, of interest to anybody tracking the recovery trajectory for luxury goods in that part of the world. The company does say it is not in position to provide specific items for the full year 2021, and future Dividend Payments to be reviewed at the end of fullyear 2021. Matt, you were referencing u. K. Economic data in the headlines, talking about the possibility of whether we end up with negative Interest Rates in the u. K. We are also hearing some lines around the u. K. Budget deficit, the largest since modern record began in 1993. The budget deficit, excluding banking groups, stands at 62. 1 billion pounds in the month of april, a sign of the where governments spend to shore up their economies and protect their people from the coronavirus. Lets get to the Global Market picture. Its all about tensions between hong kong and china and what china intends towards hong kong. It is the stock market, the hang seng down by 4. 8 right now. It was down more than 5 for the session has china plans to impose its National Security law on hong kong. Asia in general heading for its biggest slide in a month. We also see, a little further along in the sovereign bonds column, some big movement in the indian side, on the back of a surprise rate cut coming through, underlining how Central Banks tried to deal with the fallout of coronavirus. Matt . Matt lets get the top headlines from the bloomberg terminal. The house will review legislation to impose restrictions on Chinese Companies listed on u. S. Exchanges. Speaker nancy pelosi stopped short of promising a vote. The Senate Passed legislation last week this week with overwhelming support from both parties. This illustrates pushback against china on capitol hill. Prime minister Boris Johnson wants to end the u. K. s reliance. N chinese imports as well he has ordered Civil Servants to identify the countrys unique vulnerabilities. The paper reports that this might feed into the u. K. s postbrexit rules. Hasident donald trump decided to withdraw from the open skies treaty, and arm control pact designed to promote transparency between the u. S. And russia. The president s citing violations from moscow, saying , we will pullre out. Says the u. S. Could reconsider if russia complies with the treaty. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Anna . Anna matt, lets get into the conversation around global stocks. Asian stocks dropping, the bulk of the losses coming through in hong kong. The hang seng and msci indexes are on the biggest on track for the biggest decline of the year. President trump threatens to further escalate tensions between washington and beijing. Lets get a look with matt cudmore, who joins us from singapore. The reaction to this quite obvious to see an equity markets. I suppose we all felt how longlived this will be, and maybe some of that will depend on what we see from u. S. Politics and the reaction to this. Mark thats right. I think its the fact that you are going into a long weekend for many parts of the world. Its going to be low liquidity, so investors are nervous. You have this stock on a thursday, friday. It is a time when we are expecting official policy from china, because the mpc we have this long weekend. Investors want to do risk. Derisk. Hong kong has been hit by a perfect storm in the short term, especially as the mpc disappointed investors in terms of what it delivered in terms of stimulus. But there was a bit of a perfect storm for hong kong shares. That will probably last until after the weekend. I think next week probably will not see a continuation of must the protests are really bad on the weekend unless the protests are really bad on the begin. Matt do you not expect bad protests . Will the virus hold people indoors in terms of protesting . Mark im not sure if the coronavirus will impact it in hong kong, since they had such a successful job they have done such a successful job at containing the virus. I do expect protests over the weekend, but i think it is important to remember the hang seng index is already trading below book value, so it is already massively discounted. I think many people have discussed for months, even before the coronavirus, the general theme that china would take a harder line this year and cannot afford the protests to go on. All that conversation was put on the back burner by the coronavirus, and that we have that whole element again. Is the backdrop picture stock markets heavily discounted this story already, maybe not 100 , but certainly largely discounted. Weve also about the fact that china is doing better than many other western countries, and hong kong is doing very well. I think this is a theme where we are getting the news event which is kind of seeping into the process for many months. There is no more downside, but a lot of negativity is already present in the index. Even in a very bad scenario, it is hard for the index to fall substantially lower. Anna let me ask you about emerging markets. We have seen india go to the lowest since 2000 and terms of its Interest Rates. The central bank of india expecting the economy to contract for the first time in more than four decades, underlining how Central Banks in emerging markets are trying to take action to shore up growth as best as they can. Mark i think this continues the general theme of not just emerging markets, but we have seen every central bank around the world being very proactive. We know Central Banks have been proactive since the last prices, but they even surpassed expectations this time around. It is not just developed markets that can smash our expectations. Emerging markets, as well, can do that. One thing with this crisis relative to the last crisis is within the gsc, it turned into a situation where emerging markets had a hike rates after a couple of months because their currencies were weakening so much. This time, there is a different dynamic. Emerging markets do have the capacity to ease rates themselves. That is a reflection of several different things. It is hard to generalize because it is different by country, but external balances have been safer than they have been in some of the em crises at the start of the century. Theyve got more room there. Also, they are slightly more mature economies, so they are viewed in a different way. I think the fact that emerging can implement policy in isis and not have to positive. Matt thank you, mark. Remember, you can join todays question of the day on the mliv blog. How much longer can the gold rally extent . If you have thoughts, go ahead and reply. Become part of the conversation. I want to bring you some breaking news here on nissan, as we wait for earnings from the japanese carmaker. We see reports in the kyoto news that nissan is considering over 20,000 job cuts worldwide. It looks like nissan is going to join the pack of Big Companies cutting a massive amount of jobs. Yesterday we heard from rollsroyce cutting 90,000 jobs in the u. S. , so nissan is considering 20,000 job cuts, according to kyodo. Anna in the u. K. , some other breaking news. The Financial Conduct Authority extending the mortgage payment holiday by a further three months, so that takes us to the end of october. If mortgage payers are having trouble paying mortgages, they can ask up until the end of october for payment holidays. That is an extension being offered to mortgage payers in the u. K. Ecbext on the program, the planning to unleash even more stimulus. The central bank publishes the account of its last meeting in a few hours time. We will talk with our next guest. Matt welcome back. We are still about 45 minutes away from the cash equity trade across europe and in the u. K. , but we are looking at futures that are once again today down, indicating a drop of about 1 right now. The ecb publishes the account of its latest meeting in just a few hours. Analysts will be looking for any clues on whether the central bank will boost bond buying in june. Bloomberg economics is expecting an increase of 250 billion euros , after the governing council opted not to make any changes in its april meeting. Chief joined by economist at ubs. What do you think about the stimulus . Does it need to be adjusted . Know the Pandemic Emergency Purchase Program launched in march has an envelope of 750 billion. We know that by now, roughly 180, perhaps 200 billion has been bought. We do expect an increase in the billion to one trillion on the fourth of june as well, but i have to say, given that by now we have bought less than one third, it is not strictly necessary. The ruling from the German Constitutional Court has made the outlook more uncertain. We are not so sure in the ofrease coming on the fourth june. Anna thats interesting. I suppose there is increasing pressure if the ecb is a little distracted by the Constitutional Court ruling. They are increasing pressure on governments to do more. We have seen the Recovery Funded by merkel and mike brown macron, but it will take time to implement. Do we risk a crisis, in the meantime, for the euro zone . I think for the policy response, that was already on the table. I think we are good for now in the shortterm. We have a new sensibility from the European Investment bank. We have also launched a new one up lehman insurance fund. Everyone knows that the discussion of the Recovery Plan is underway. Its going to become located. But if unforeseen events do not happen, i think we are good for now. But i would not want to downplay the need that we really do make progress with the Recovery Plan. As you say, the Franco German proposal was very important. The European Commission is going to launch its own proposals next week, wednesday the 27th. Then the European Commissions proposals will be put together with all the others, including the Franco German one. I think that will be passed on to the European Finance minister for further discussion, and i think eu is will eu leaders will be in the position to discuss their plans at their summit four weeks from now. But i would caution that final decisions will not be taken before the second half of the year, because this Recovery Fund will be part of the 20212027 budget my which is not going to be launched until next year anyway. Its going to become located, and it will take a few more months to be seen. Matt that does not sound much like a bazooka. That does not sound very overwhelming. Reinhard, what kind of recovery do you expect from this . In china, we are seeing positive surprises in terms of consumers returning to purchases. Businesses with units in china are positively surprised with the rebound. What rebound do you expect to see out of the euro . Reinhard of course, china is a few weeks ahead of us in the covid cycle, so to speak. Yesterday we got purchasing manager indices for the euro zone. Pmis for may weakd a lot from the super levels we had in april. We are slightly above the march level, but overall still extremely weak. I think we can say this recovery is going to be very slow. According to our forecast, we will see a gdp contraction of at least 6 . We expect a recovery of 4 next year, but that would mean by the end of 2021, the level of gdp would still be at 1. 5 below the precrisis level. That means we would probably need all of 2020 22 just return 2022 two just return to the precrisis level. Some incorporates will go under and people will lose their jobs negative effects will be quite significant. Reinhard, thanks for joining us. Reinhard cluse, chief economist for europe at ubs. Snest. Icks the hornet residents call for protest. We are live in the capital next. This is bloomberg. Matt welcome back. We are just over 36 minutes, 37 minutes away from the cash equity straight across europe. But in china, we have seen a hornets nest stowed on hong kong. The premier has told the National Peoples congress that beijing will reinforce National Security in the autonomous region. Their remarks came after beijing announced dramatic plans to dissent into the citys charter. A critic has called it the end of hong kong. Joining us is bloombergs selina wang. Why is this Hong Kong Security law i thought some version of this already existed, so why is it so controversial . Selina china is signaling it is going to be bypassing the Hong Kong Legislature to pass this law, which has been pushing for many years. While we dont have the text yet, it is expected to ban sedition and subversion of the Central Government in beijing. The last time they tried to pass a similar law was in 2003, which sparked mass protests and the legislation was shelved. At a time when the world is preoccupied with battling the coronavirus, this could further erode hong kongs autonomy, judicial independence, and other freedoms that people dont have in china. There has been immediate backlash from people in the international community. A prodemocracy Lawmakers Said this erodes the status of hong kong has an International City, and they expect this status will be gone very soon. And it further inflames tensions between the u. S. And china, with two senators introducing legislation to punish chinese entities involved in this new law and penalizing banks that do business with them. That is on top of potential delisting of Chinese Companies from u. S. Exchanges. This type of rhetoric is only expected to escalate as we head into the u. S. President ial election. Anna we heard from President Trump just yesterday that the u. S. Will address very strongly any hong kong crackdown. Michael pompeo, secretary of state, his views on the degree of autonomy that hong kong enjoys in its special status, we will watch that conversation closely. Meanwhile in china, we have heard from the chinese leadership that they are stepping away from the strict growth target we had heard about before. What is that . Selina the target is normally the anchor of the countrys policymaking. The fact that they are abandoning this underscores the scale of the uncertainty caused by the pandemic as well as the damage that has been caused. It is notable because local officials really look to this their as a cue to spending and investment. It looks to coordinate diverse actors across the economy. But we did get figures in other areas. The target budget deficit was widened to more than 3. 6 gdp. We also had a boost in infrastructure investment, ¥3. 75 trillion in local bonds. The government also sent a target to create 9 million new jobs, lower than last years 11 million, but this focus on jobs is critical. More than 130 Million People have lost their jobs or been furloughed. Given this could lead to social unrest, it is critical for them to focus on creating more jobs. Anna i remember when the growth target was 10 , then 7. 5 , and now it is gone. Selina wang in beijing. Up next, we will stick with this story. One opposition lawmakers has this could be the end for hong kong. We will discuss whats next for the chiefwith economist at enodo economics. 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. Matt welcome back. Here are the stories we are watching closely. First off, the National Peoples congress, the annual gathering of chinas main legislature, has opened in beijing this morning, as we were just talking about. We are going to continue to cover this throughout the program. At 10 00 a. M. London time, easyjet kicks off its egm. Call ill feel they shareholders will field a call by the coowner. The ecb p. M. U. K. Time, releases the account of its latest Monetary Policy meeting. Finally, alibaba is set to publish earnings before the u. S. Market open. Is chinese ecommerce giant likely to report a year on year profit decline in the march quarter. U. S. House Speaker Nancy Pelosi spoke exclusively to bloomberg about needing further stimulus and getting people back to work in america. Take a listen. Thater pelosi we all know issues like unemployment insurance, food stamps, and the rest really provide stimulus to the economy, and we have to do that. We think in our package, the ,eroes act, we do exactly that to open the economy safely and soon, supporting our heroes to keep those jobs in place, which the so important to economy, and the stimulus in the pockets of the American People. The question on everyones mind is the prospect or passage of the heroes act and what might happen. From secretary mnuchin that he talked about something that needs to be done. President trump today saying he is working with the Senate Majority leader on some package. How much hope do you have that we will have something soon . Optimisticosi im because the American People fully support what we are doing, two to one already, just newly passed, they support the provisions of our bill and oppose the senate is striking it the senate obstructing it. I am confident in public opinion. It is bipartisan across the country. We have less than a trillion dollars going to states, localities, and territorial governments that provides jobs for people across the country, so we have democratic and republican mayors, governors, county executives and the rest very enthusiastic about the legislation and making their voices known to the members of the United States senate. This is very unusual, that we have such a strong bipartisan advocacy for legislation of this kind, which is meeting resistance in the senate. But i dont think for long, because what we have in the bill is disciplined, focused, all necessary, and it has broad bipartisan support from the country. It is just a matter of time. They want to pause, but i have said a year before, losing your job does not take a pause. Paying the rent does not take a pause. We really need to meet the needs of the American People and provide stimulus to the economy. And as you know sorry. Speaker pelosi i was just saying, you mentioned mnuchin, the chairman of the we jay powell has said that should use the taxandspend response billys we have in a way that helps us response ability that we have any weight that we havelity to help the economy. About quick question china. On capitol hill, there is legislation about possibly delisting Chinese Companies. Is that going to make it through the house, and might it have ramifications for the markets overall . Speaker pelosi this is something we just learned of that passed with unanimous consent, so there was not much debate. We will review it in the house. I have asked my committees to take a look at what that is. They have violated human rights policies for decades. Of hong kong, tyvek, you name it, to them they have been very oppressive and more so. Action as toevery what it means to us as well as what it means to china. So i look forward to seeing that. Its interesting that it had such unanimous support, though, in the senate. That was the u. S. House of representatives speaker, nancy pelosi. Talking about china. Hong kongs status as an International City is perhaps under threat. An opposition lawmakers says the new security laws being imposed by beijing marked the end of hong kong. That the move is reignites a u. S. China standoff over the citys status. U. S. Secretary mike pompeo has delayed a report on hong kong, saying he is watching the situation closely. Danishjoined by people ava we are joined by diana at the noto economics. At enodo economics. Does the timing surprise you at all . At all. Ot china has become much more expressive on the international stage. It has shown that it has no intention when it comes to hong kong and actually even more importantly to taiwan to take a step back. Make the does is to risk between china and the u. S. Even bigger. That has decoupling been driving forward the World Economy for decades to come is accelerating, and dangerously so. We are looking at a statement coming out of hong kong. Chief executive carrie lam says chinas resolution refines the National Security legal framework. This was already a demand. I think a basic part of hong kongs constitution. They were supposed to do this for decades, right . How do you expect it to affect the hong kong economy . Kong economy is already down in the dumps. Whats really important is how the u. S. Is going to react to chinas assertiveness. I have been covering china for 20 years. , we have had scares every few years that the hong data will be attacked by speculators and will unravel. But we are now in a position where this could happen from the the u. S. , because states the obligation to Exchange Hong Kong dollars for u. S. Dollars. If there is a change in that, we upheaval inmassive financial markets. This is obviously a very delicate decision. As you listened before i came onto to nancy pelosi, the u. S. Has to think carefully how it will affect china and the u. S. , but i would say investors need to start thinking carefully and watching developments intently. Anna what about the u. S. Response should we look for specifically . Convertibility of the hong kong dollar peg, or is it about the special status that the u. S. Gives to hong kong separate and apart from china . What is it specifically that will really change things for you in terms of the u. S. Response . Diana both are important. If we have the peg being unraveled, it will clear a lot about peoples a lot of upheaval in financial markets, which would have a more direct shortterm impact. If hong kong were to lose its special status, that would have a much longer term impact. I would expect this to happen much more than the first, because actually, we are at, i would say, the end of the beginning of the bifurcation of the World Economys two spheres of influence, the americans fear and the chinese sphere the american sphere and the chinese sphere. The u. S. Will be writing the rules of engagement across the board. The coronavirus outbreak has accelerated that. We see the u. S. Accelerating those measures, not decelerating. Matt carrie lam does not seem whiched at all about sphere she operates in. Fullyong is said to cooperate with china to enact the u. S. Security law. Says this law safeguards hong kongs constitutional responsibility. She clearly feels a strong loyalty to beijing and is voicing that. That youink i know are an economist, but when you look at what the economy has priced in, do you think hong kongs loss of special status has been priced in . Diana no. Actually, the market has found it very difficult over the last couple of years to figure out how to deal with this fundamentally geopolitical shift. Trumps trade war, which was much more quantifiable in terms of trying to estimate economist models, how much the terrace will impact things and so on, was at the forefront of the investors. But i have argued over the last couple of years that the tectonic shift in entering the geopolitics are reshaping the investment landscape fundamentally. The market has been consistently behind the curve on this one. I wanted to ask you about something that seems to be creeping up in china, and that is around the unemployment story. Clearly the chinese economy is not recovering faster than the rest of the world, or got to a point of recovery quicker than the rest of the world around coronavirus, but there have been, for many years a lot of economists have pointed to a link between civil obedience and unemployment. Do you see unemployment rising in china, and if so, what are the implications of that . Diana the rise in unemployment is a huge challenge to the Chinese Communist party. Actually, the dropping of the gdp growth target during todays well. Is a big deal as the communist Party Carries a sort of unwritten agreement with we giveese people that you stability and growth and you keep us in power. That is now under threat. Whether it will lead to social unrest, you have to remember that china has become much more authoritarian with the new technology it has found. With the new technology. It has found even more effective ways to suppress the population, with the liability being. Ignificant political change it is at this stage unlikely, but what is more likely is an internal Political Tension at the very top as a result of this huge struggle that china will have to go through and already has been going through. I was speaking to your colleague theeijing in november about gdp growth target, and i said i expect it to drop, and that was even before the coronavirus. Leadership is in a very difficult position to make. It does not look good at this point. Anna thank you for joining us. Diana choyleva, chief economist at enodo economics. Up next, we will get back to the corporate earnings season. Burberry saying it is not in a position to provide specific guidance for the full year 2021 at this stage, due to the pandemic. We will talk about Luxury Brands results, how they are faring in china, as well. Matt welcome back to the european open. We are just 12 minutes away from the start of cash equity trading across europe. Futures are looking worse and 1. 5 . Down like Many Companies in the wake of the pandemic, burberry says it cannot give specific guidance for the future. The company was out with earnings today. We got a decent look at what was going on in some parts of the world. Joining us is Annmarie Hordern from new york. How has burberry been faring in the wake of the pandemic . Annmarie good morning, matt. Im not sure of any company that can forecast the future given what is going on with the virus, especially burberry. When they talk about how many stores they have shut, 50 , it is at the peak and will stay near that level through the rest of the quarter. That is going to severely weigh on them. Another interesting result was the dividend. Cash for to hold onto liquidity, so they are holding off on that. They say the final dividend will be declared in the fiscal year. ,ne bright spot potentially retail sales fell 3 on a comparable basis. Analysts were expecting worse. As Deutsche Bank noted, this was supposed to be a moment of truth for burberry. They have been on a plan to try to revive sales. They brought in a star designer. All of that is being diminished by the virus. Marie, we know that these luxury companies, burberry included, have big exposure to the chinese market, which has been in trouble ahead of the rest of the world because of the coronavirus and the timing there. What do we know about burberry in china at the moment . Annmarie yeartodate sales in china as well as korea are ahead of the prior year, but consumers are out there catching up on purchases as they come out of lockdown. But the big question is how sustainable that pickup is we are seeing in china. The pickup is real, and there is no better example than hermes. One saturday, one Flagship Store brought in 2. 7 million. Luxury is a different beast when it comes to online shopping. When you purchase a handbag, you want to touch and feel it. But a Bloomberg Opinion piece really drills down the problem is. There is a big problem with revenge buying, but it is happening in china. You would have consumers traveling to paris, to milan, to hong kong. That is not happening. While we may be seeing an uptick in china, is this enough to save the sector globally . That is the big question in the luxury space. Matt i think i just sighed picture of a guy who had a belt on the outside of his jacket. If they think that is going to work out, i foresee real problems for this company in the future. Annmarie hordern, r luxury specialist. Wouldhe, i dont think, wear a belt on the outside of hirsute blazer. As a man, i feel like that is untenable. We are minutes away from the open of trading. We will get more stocks for you whichch, including hsbc, may be affected as hong kong friends protests over chinas sweeping National Security laws. We will catch you uptodate on the stocks you need to watch. Anna welcome back. Seven minutes until the start of the last cash Equities Trading day of the weekend. It is friday. It does look as if tensions between china and hong kong will spill over into the european session. Futures suggested weakness after we have seen more than 5 taken off the hang seng in the last trading day in the asian session. Dani burger is here to run us through some stocks we are watching. Ani one of the ones to keep ion is air france. They are having a difficult time securing a loan. They will now give customers a full refund. Before, it was just vouchers. However, it means they are likely to be by the 4 million euro maximum. Hsbc likely to decline as well. There is tension we are seeing in hong kong with china imposing National Security laws. Hsbc gets 20 of its revenue from hong kong. In this latest move, it is likely to reignite the domicile question for hsbc and threaten hong kong in general as a Financial Hub in asia. Matt huge story really affecting large waves of the market. , we do see the hang seng falling 5. 4 , the biggest drop we have seen in hong kong since july 2015. Thats obviously going to have some fallout in europe as well. Coming up, it is the european target open. We see futures falling down, so watch for a risk off trade, especially anything related to hong kong. Also going to be a tough day for banks, for airlines. Nissan is going to fire 20,000 people, according to kyodo. Friday sk out riskoff friday. W . W . Uhiono anna a minute to go until the start of cash Equities Trading. Lets get to your headlights. Limits on hong kong. China plans to impose a new security lot over the city and it sparks outrage from the opposition. President trump pledges retaliation. Leaves asian stocks lower as u. S. Senators proposed sanctions. Futures in europe and the u. S. Take a hit. Richard clarida says the fed could hold further guidance until the fall. Bets on a quicker bank of england journey to lower rates gather pace. Matt lets take a look at futures this morning. We are seeing a downward progression. Now, we are looking at losses of 1. 4 on ftse futures and dax futures. The hang seng index in hong kong, as you said, taking a big drop down more than 5 , the biggest drop since 2015. That has some followup. Here, fallout. Here, we see the gmm screen as markets start to come out of the gate. 3 oftse immediately down 2 1 and falling. We see stocks opening up and dropping. The ftse now down more than 1 . You do see investors buying bonds. You can see the sovereign yields are coming down. The price rising on sovereign bonds. Its a little confusing because we make it green, even though everybody talks about bonds in terms of yield and the yield is falling. That would indicate green indicate a gain normally. Here, we do that because of the price. People are buying into bonds as this risk off mood spreads across the European Market as well. You can see that we now have the german dax open, the french cac open, the spanish ibex open, and they are all down more than 1 . European markets opening lower across the board. This all as china announced plans to impose a national ,ecurity law on hong kong threatening a further escalation of tensions between washington and beijing. Joining us now is louise dudley, golbalfederated hermes equities Global Equities Portfolio Manager. Let me ask you about your take on what is going on in hong kong. Now, do you think it threatens hong kongs status . Louise yes. Thisinly, we are seeing significant escalation in terms of tensions within the region. I am most surprised to see things trading off quite so sharply. I think we can look back to what happened at the start of the year and how things were going what that might look like if we start to see more escalation. It is a bit of a shame. Global investors typically are looking towards asia and china. See the negative sentiment is im sure sending people into a different direction. Anna good morning to you. Interesting, in your notes ahead of this conversation, you talk about focusing on companies with a chinese supply chain and with chinese customers because they are ahead of the curve when it comes to the virus globally. You still think that is the right path to be following, to look to chinese growth right now . Do you have concerns that we do enter into this sort of bifurcated world, where there is a western economy world and the chinese sphere of influence. Louise i think so many Global Companies have supply chain elements within china. Tohave seen companies losing other countries in the region, whether it is taiwan. I think we may continue to see that as a way of companies building up resilience of their supply chain. Dont want to be concentrated in a single region. At the end of the day, this will not stop domestic china and certainly that kind of powerhouse and domestic consumer edge within the country is going to continue going. We are seeing strong stimulus within the country as well. That will also be there to support the economic recovery that we are seeing. Matt we are seeing really positive surprises in terms of the rebound out of china. Annmarie hordern was talking about revenge bank, perhaps something we will see buying, perhaps something we will see in other countries. Companies with units in china are positively surprised. Earnings estimates are on the rise. Do you think there rebound will ir reboundr the will be stronger than that of the western world . Louise i think so. The virus hit their earlier, so we are seeing things come back. Consumers are coming back in store if they can. Certainly, they are reopening, the companies that can start going again. Consumer buying coming back quite strongly. Anna let me ask you about some of the sectors that you like at the moment, given all of the challenges that Global Equities perhaps face. The tech sector. Do you find refuge in the tech sector . If you do, is that enthusiastically or just because tech stocks are so huge you cannot ignore them . Louise it is a bit of both. Yes, they are so large they are hard to ignore. It is a longterm trend. Whether it is work from home or generally everything going online, digitalization. We have got most recently the tech numbers that have come out. Downward been a bit of revision in terms of longerterm outlook, but generally, they have been supported by their ,nline areas of business particularly as companies recognize that they need to do more online. Robust givenmewhat their size. Also, the strength of the Balance Sheet that they have. Also, there is so much growth still within them. There is still lots of headwind there. Matt we are going to keep you around. We need to talk to you about a lot more of the biggest themes in markets today. Louise dudley is a Global Equities Portfolio Manager at international at federated hermes. Coming up china kicks the hornetd nest hornets nest. Activists in hong kong call for protest after beijing introduces sweeping security legislation. We will continue to talk about that from the Chinese Capital next. This is bloomberg. Welcome back to Bloomberg Markets european open. We are 10 minutes into the session right now and looking at bigger than 1 drops across European Equity indexes. You can see at the bottom of the screen there the hang seng index. The hang seng posting its biggest drop since at least july of 2015. So it continues to trade right now in hong kong. We continue to see it falling further and further. 5. 4 after the chinese law that we have been talking about the entire day. I want to give you the Bloomberg Business flash. Is warning of a severe downturn this fiscal quarter. The Luxury Company says that is when store closures due to the pandemic will probably reach their peak. Burberrysirus hit attempt to revise sales but the Company Provided hopeful signs for a rebound in asia. Since april, sales have returned to growth in china and south korea. Nissan is considering more than 20,000 job cuts, according to the kyoto news agency. Demand,emic is hurting obviously, and driving the need to cut production, like everywhere else in the world and at every other company. It comes as the continued lockdowns factor continued lockdowns causes factories to close. Scotland says of most of its staff will not return to the office for months. The chief executive says a small number of employees will be working in june at the office. Taking social distancing measures. This comes as other lenders are planning a return to the office. Some cutting occupancy levels and others thinking of moving stuff to the suburbs. That is your Bloomberg Business flash. Anna lets talk about whats going on in europe right now. The ecb publishes accounts of its last meeting in a few hours. Analysts will be looking for any clues on whether the central bank will boost its bond buying in june. , international at equities hermes global Portfolio Manager, is still with us. I know that you are not that keen on financials, european financials at the moment. Now, we have another reason to more broadly dislike european financials, i suppose. That is the ones connected to that hong kong story. Hsbc down by 4. 8 in this mornings session. Give us the basics of your dislike for european financials. Where is it coming from . Louise yes, i think certainly it is relative to some of the u. S. Banks, where they definitely have much more underlying strength. Certainly, when we look at europe in general, much weaker underlying growth. The gdp numbers just not there. Hadhe same time, they have to be a lot stricter. They have had a lot stricter topdown measures imposed on them. And things like that, so their outlook Going Forward is not as great. There are european banks that have hsbc got bad news out of asia today. Some of the other european banks , particularlysure within latin america, there are some growth areas. U. S. , they are quite a bit weaker. Matt we saw a spike or at least hillary shared with us this morning a Google Search or a spike in Google Searches for the migration. Basically indicating that people in hong kong are looking to get out. I am wondering if you see the same thing with flows . Do you ever scanned for flows out of scan for flows out of hong kong when china clamps down like this . Do people try and transfer assets out . Louise i think it has probably been a longer term with people trying to get money out of china more than necessarily out of hong kong. I think we have seen other areas within asia, so certainly taiwan, singapore looking a bit more resilient. Also from a consumer perspective, people looking from a housing perspective. With the writing that happened within hong kong, in terms of that preparedness to respond to this, it should not be a surprise to them. We expect companies to be able to announce what their plans are or any changes. Terms of Global Equities and resilience to the pandemic, the geoPolitical Tensions, i wonder where you go. I was intrigued by a chart i saw on the bloomberg this week around ipos. Companies that have ipoed in the last few years. They have done very well. They have been really resilient in this last downturn, the selloff that we saw in march. I suppose that makes sense when you think of what an ipo is. Where do you go to find resilience at this point . Louise one area that we are quite focused on within the firm is looking at companies that have Sustainable Business esgtices, so incorporating metrics alongside the nontraditional fundamental metrics. That ensures that we are finding companies that do have that longerterm vision and they are thinking about stakeholders. Those are the types of companies that have held up quite well within this business environment, because they have already focused on what is important. Acknowledgedeady perhaps what employees or stakeholders do have a view. Therefore, they have been able to protect them within this environment. We have put out research historically that has shown that by avoiding companies that have ak,se particularly we especially social and government characteristics, that can lead to outperformance in the longterm. We have not seen that change too much so far year to date. When it comes to more companies being focused on the social area , the stakeholders, particularly employees, we are expecting more of that Going Forward. Whether that is from a regulatory perspective or it is just of companies themselves recognizing who the important people within their business are. That is an area where we see increased focus. And then the companies that are supporting that type of resilience also seem to be doing well so far in the crisis. Matt thanks very much for joining us today. Globaldudley is the equities Portfolio Manager for international at federated hermes. She will be continuing a conversation with us on Bloomberg Radio at 9 00 a. M. U. K. Time. Tune into that on london dab if youre in the city. Otherwise, find it on the internet. Next, the no coupon club as a new member. Could Car Rental Company hertz be forced to default on a 900 million bond it just sold and has never made a payment on . That would be a super bummer if you bought that. We will look at one of debts most dubious dishonors next. This is bloomberg. Matt welcome back to Bloomberg Markets european open. 21 minutes into the session. We are looking at a 2 drop on the ftse right now. The dax and cac off 1. 5 . The hang seng in hong kong trading down 5. 6 . So still the biggest drop that we have seen in hong kong stocks , and that index is still open for trading so it continues to trade down 5. 6 beijings plans to rein in dissent in hong kong. The chinese are writing a new law into hong kongs charter. The move risks fueling a fresh round of street protests. The move is aimed at safeguarding the National Security, says china. The government plans to integrate hong kong with other chinese cities in southern china. One Opposition Leader on the island it this is the end of hong kong. Central bank unexpectedly cut rates in an unscheduled announcement this morning. It is wrapping up support for an economy facing its first recession in 4 decades. The benchmark repurchase rate was lowered by 40 basis points to 4 . Their next meeting was not scheduled until june 5. The u. K. Has posted the largest budget deficit since modern recordkeeping began. That is as the government released an unprecedented amount of spending to prevent the collapse of the economy. The deficit stood at over 62 billion pounds last month, according to the office for national statistics. That is equal to the total borrowing in the entire you of entire year of 2019, or fiscal 2020, actually. 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. Anna . Now, matt, the infamous no coupon at all club could be about to welcome another member. Hasrental Company Hertz told creditors it may be forced to file for bank of seat. That would mean default in on a 900 million bond it sold in november before it has made even its first payout to investors since the no coupon at all dubious accolade. Dani burger joins us. Speaking about hertz specifically, how did this company find itself in this situation . Certainly an exclusive club that no issuer wants to be a part of. When they first offered these bonds in november, there was high demand. Since november, the picture has changed and the economy especially, with the demand for rental cars all but disappeared. They basically have to pay back 400 million worth that they owe to other lenders. Today is the deadline for them to hammer out a deal what to do with this. If they cannot reach an agreement today and at the moment, reporting suggests there is an impasse, they may become insolvent. People who bought those bonds in november see the Company Default without getting a single coupon payment. Blow,that would really right . To make a big investment and then get nothing before the company goes bankrupt. The fact that this went out in november could trip a lot people up. That is a super bummer. Defaults on the rise, how do investors justify buying risky bonds now . Think it wouldou be hard to. Another rental car company, was able to raise a lot of money. The way that they do this is by offering extremely high yields. Avis, the yield was Something Like 11 . Norwegian cruise lines is about to have another bond offering. That is likely to be at a 13 yield. These are distressed levels, especially considering how low treasury yields are right now. Out of the gate, they are distressed. The way they get this done is by giving a lot of yield to investors. Right now, investors are more than willing to pay up. Anna thanks very much. Dani burger joining us with the latest on a bond phenomena, bond club, as she says, you would not necessarily want to belong to. The story out of hong kong has been dominant. Hashang seng down by 5. 6 come towards the close in the hong kong session. Some of the negativity around the relationship between china and hong kong down what lies ahead for hong kong, essentially, in terms of its relationship with the u. S. As well and global, international Financial Hubs. All that spilling into the european session. Down by 1. 9 on the ftse 100. Some of the negativity in europe is selfmade. I was interested in some of the lines from the french finance minister suggesting that some support for the french car industry might be coming next week. As we know, this has been an industry that has been in trouble for a while. He saidyou said the company is in a really dire situation, something we probably knew. Interesting to hear that from the french finance minister. Clearly working on a bailout for renault, as a lot of these companies are for their big, National Champions. They are going to hope to, a lot of these countries, they are going to hope to give themselves an advantage. It will be interesting to see how the eu sorts that out, right . When every country in the eu wants to finance its own National Champions to give them an advantage over other National Champions in the eu as well. We will bring you our interview publishedas biggest pifys ceo. O welcome back to Bloomberg Markets european open European Equity markets catching the downdraft from the asian session. Considerable weakness in hong kong. Here in europe, down by 4. 1 . A directory across into some of the european financials. Hsbc and Standard Chartered having a negative start to trading because of concerns of what happens to hong kong as a Global Financial center. That is weighing on those businesses. More broadly, there is geoPolitical Tension in the air. That has taken the stoxx 600 down by more than 4. 1 . This is what we have got for you today. Everything in negative territory. Banks, insurance, basic resources to the downside. Some of the bank i mentioned because of the hong kong link. A little bit of resilience and real estate in real estate, travel and leisure, health care. Canadaspify became Largest Public Company by market value earlier this month, as covid19 shut down physical stores and forced people to shop online, or gave them that privilege. The Ecommerce Firm has new offerings for merchants. Emily chang spoke to the ceo of shopify yesterday about his initiative. I think we are seeing the end of office centricity. The office was a place where work was being done and being remote really meant you are like using some digital crutch to be basically in the office so that you can get work done. I think what covid is going to accelerate, something that would have happened anyways, is that really everyone rearranges their understanding of that, at least for the companies that can do it. The work is digital by default. We expect that the majority of people that work from home in home offices in the future. We expect what percentage of people would still be in the office on a regular basis . I would say 20 , 25 , Something Like that. Really . Yes. I come across a lot of people who say, i cant wait for this whole thing to be over because i would really like to go back to the office. I dont think there is a going back to the office the way we had. I think we will go back to something different, potentially better in some ways and in some instances, also worse. I think the first time like if we would all wake up tomorrow and say, this is back to normal time, i think we will get basically to say, it doesnt feel right. Think i dont actually that the demand will be there to a way that people might expect. Instance, one of the words that is going to be firm meetings, if anyone is remote, it means that we would like everyone to be in their own zoom call. That alone is going to have Significant Impact on the floor plans of offices. We are going to keep our Office Closed and rearrange our floor plans. Ile, do you own mean their own cubicle . What do you mean by that . I mean their own little window. We would like everyone to be in the screenile on and that means the offices have to change. I think it is important to adjust to new realities as quickly as we can. Would you be comfortable saying your companies your employees could work from home forever if they want to . Jack dorsey said that. Yes. You are not at all concerned about a negative impact for productivity, teambuilding, morale . It will be different. Its going to work better for some people and its going to be worse for some other people. There will be a lot of learning to be done. By not really doing default. We are all very, very bad versions of what that might end up looking like in the future. It will never be as bad. It will get significantly better. The norms and our principles that evolve around these ideas. I dont think we have much of a choice. There just is not a choice to a up in any choice to wake a couple of weeks and go back to the office the way we were. The people that try to do this, they will figure out quickly that this is not a good strategy. The choice is really to be passengers on this title wave of change, or to jump in the driver seat and just embrace it. Matt that was the shopify ceo. Lets focus on the u. K. Real estate market and the seismic changes, the fallout coronavirus may bring to the sector. For commercial properties, landlords could see corporates looking to save costs by reducing office space. On the residual residential front, the governments plan could unlock confidence. Joining us now is daniel austin, ask partners ceo. Thanks for joining us. Daniel pleasure. Matt what do you see in terms of the commercial market . Ceose heard so many bank saint only maybe half of our employees will go back. We heard from shopify. We heard from facebook that they are going to start hiring people remotely. You could work for a Major Company in london, new york, or san francisco. Does that hurt commercial real estate . Daniel it will definitely change the dynamics for offices. Zuckerberg set up to 50 of facebook staff will be working from home in the next decade. I think industry professionals see commercial offices changing into some kind of hybrid model, which combines home working, local office hubs, and the head office. Overall demand for conventional office space has to be following. You can see that in the falling. You can see that in the share prices of major u. K. Corporates. Anna good morning. Office space can be repurposed for other uses, such as residential . Ere legislative rules that get in the way of that happening . Daniel i think the government a few years ago introduced committed development, where offices could be changed to residential. That was very successful. The quality of some of the accommodation that was produced was not up to the standard that you would expect. You are going to see more office hubs going to residential. Central areas, such as in the city, it is more difficult and there is regulations to protect that. Obviously, the whole place is built on very substantial office footprints. As a real estate investor, i would be very concerned if i had invested substantial capital in the canary wharf market. You will see a lot of offices being converted to residential to help with the housing shortage, and Retail Property as well, which obviously has been hit hard. That trend will continue without a doubt. Matt what do you think about the suburbs right now, daniel . In new york, i know for sure people are just crowding out to the suburbs of westchester, long island, new jersey. Everybody wants to get out of these dense, urban areas. Are you seeing that for londoners . I dont know where they would go. Oxford . Daniel they are calling it de urbanization, arent they . Since lockdown started, we have probably had the best weather on record in the u. K. That drive happening but people think it is so suddenly fantastic outside that they want to move to the country. We are seeing inquiries for Village Properties soaring like we have not seen since the late 1980s. It is very much a team of the moment. Whether it will be sustainable when covid has passed us and the bad weather sets in, the days are shorter. Fundamentally, humans are social beings. They want to meet after work for a drink, see their friends, play football. That is not easy to arrange when you are living in the suburbs. Commercialat property in suburban areas i think is going to have a renaissance. As i said, i think the Office Market will be split into three. Some people will work from home. The big corporates will still have a head office. There will be a third leg, which is substantial localized suburban opposites, where people have the opportunity offices, where people have the opportunity to work in your home. That will be work near home. That will be a massive change. Isa if office space challenge, retail spaces have faced challenges for years. Which areas of real estate, residential, you mentioned urban logistics and warehousing as of thehose two areas Property Market could be resilient . Daniel yes, what we call it in the u. K. Is beds and sheds. If you look at a company like see grove, which focuses on logistics, their share price has been performing exceptionally well for the last five years and continues to hold. Bill stocks approved relatively resilient as well. We will see a drive towards repurposed retail into mixeduse, residential led schemes, where people can live in the center of their town and villages and have leisure around the. Them. I think the longterm institutional need for Residential Property is growing rapidly. You are seeing pension deficits in the top eight economies globally growing at alarming rates. If residential can be built and produce longterm income flows, that would be very attractive to pension fund managers. With all new built property, there will be a huge drive to bring construction. It will be a massive Green Construction Green Construction. It will be a massive talking point. I think you are going to see the construction of residential is a key factor in driving u. K. Economy out of recession. It is going to have to be coupled with newer, greener methods of construction. Matt i think construction is a key issue that we do not talk enough about in terms of real estate and proper development. Great to get your thoughts on that. Thanks so much for joining us. Ceoel austin, ask partners coming to us from london. Coming up, china drops its annual gdp target for the first time and pushes for tougher security laws in hong kong. We will go live to the forbidden city in beijing for the latest on the National Peoples congress. This is bluebird. Bloomberg. Anna welcome back to Bloomberg Markets european open. 45 minutes into the european trading session this friday morning and we have a weakness in europe in financials, particularly those exposed to hong kong. Lets get more details on that hong kong story. Carrie lam says she will fully cooperate with china to enact the National Security law in china. Alsoitys chief executive said that safeguarding National Security is a constitutional responsibly. Her comments come as beijing discusses introducing National Security legislation in the autonomous region following almost 12 months of protest and unrest. Hong kong opposition called it the end of hong kong. Bloomberg tv guess have been weighing in on the rising tensions. Terrorism . There is no such thing as terrorism here. It is so obviously targeted at all the antigovernment protests. Boy, hong kong, there is just no graceful way for beijing to manage the rather special circumstances. Deeply concerning to the United States. Hong kong is a great friend to us and we are monitoring the situation closely. I havetor toomey and been working on this for some time. The events of today on the announcement that china intended to crackdown further in hong kong has added i think new urgency to passing this legislation. In the house, i have asked my committee to take a look at that. I take second place to no one in the congress, house, or senate. Matt joining us from the forbidden city in beijing is tom mackenzie. Why is the Hong Kong Security law so controversial . Wasnt it already on the books . Law ise security consequential because it is something that the Hong Kong Government has tried to push through for a number of years and they have a failed every single time. Push03, they tried hard to this through and it triggered demonstrations and street protests. Beijing says this is about giving Law Enforcement in hong kong the tools to tackle what they describe as moves for sedition, secession, terrorism even, foreign intervention in hong kong. They say this is needed to shore up the legal system in hong kong. Opponents are deeply concerned, as you heard from some of those comments about what this may do for the autonomy, further eroding the autonomy of hong kong. This could trigger further protest in that city. A strong rebuke potentially from the trump administration. A bill was passed towards the end of last year that give the administration in the u. S. The ability to review hong kongs trading status, its special trading status with the United States. Potentially economically significant as well depending on what the administration does. You have this admission a bill being pushed to slaps sanctions on entities that would be involved in enforcing this law and banks that work with those entities, potentially targeting chinas banks, which is very significant. Big that is one of the waves that has come out of this Chinese Parliament meeting. Good morning to you. There were other things talked about, growth targets, for example, but also the u. S. Trade story. What do we hear on that front . Tom that is absolute the right. On the trade front, we have the premier reiterating that the chinese aside would be implementing its phase one trade deal, that they would be working with the u. S. To get that deal through. The big question is, whether impractical sense they can actually do that. Part of that deal involves the commitment to purchase 200 billion worth of u. S. Goods. Can they do that when the economy is expected to grow at less than 2 for 2020 . That is a key question, the timeframe as well. The phase one trade deal, that is one area on which beijing and washington continue to Work Together across every other issue it seems, supply chains, geopolitics, human rights issues. You talked about the gdp target. They dropped it for the First Time Since the early 1990s, bringing themselves up, some would argue, to take a more realistic approach to the economic pressure that this country is under. The deficit target was increased. A significant increase in the deficit target. The real number likely to be about 8 if you take into account some of the local bond issuance and the Infrastructure Spending we see here. Another big focus for chinas lawmakers is the Unemployment Rate here. Officially it is at 6 . Unofficially, economists say it could be anywhere between 10 and 20 . They want to add 9 million urban jobs by the end of 2020. It will be a significant challenge. Thanksll right, tom, very much for joining us on this big story today. Tom mackenzie coming to us from the forbidden city. Up next, how much further can golds rally extended . That is the question rally extend . That is the question of the day. Twitter,e answer from unlimited. We will see what laura cooper has to say. This is bloomberg. Anna welcome back to Bloomberg Markets european open. 54 minutes into the trading day. Weighted down by chill political concerns between china, geopolitical concerns between china, hong kong, the u. S. We see that spilling into the european session via some of those banks with heavy hong kong exposure, i guess. Absolutely. I think what we are seeing out of the hong kong headlines is it is adding to these tensions in u. S. China trade. We are just seeing them grasp onto the phase one trade deal. At this stage, markets are waiting to see the u. S. Reaction to the headlines. That will be a potentially crucial market mover. I think the key event will be around the annual u. S. Review around the hong kong human rights act. Pompeo delayed this previously. Ultimately, i think at this stage, these tensions are going to be a dominant market stress Going Forward. Probably not enough to overwhelm markets in terms of a catalyst to the downside. I certainly would expect this tough stance rhetoric is likely to escalate heading into the november election. It is clear that china is firmly on the radar of the u. S. In terms of heading into the election season. Matt i want to get into your question of the date, how much further can golds rally extend . Our friend of the show tweeted me that he says it is unlimited. What do you think . I am not quite sure i would Say Something as strong as unlimited, but certainly, it has been the best major performing 35 . , up about it has proven to be a safe haven in terms of market stress. Investors pile into gold etfs. That long positioning has become quite bullish. We are seeing this rampup in rhetoric around negative rates in the u. K. And u. S. The opportunity cost of holding this nonyielding as that is falling. It is becoming nonyielding asset is falling. Whether there is a limit to the upside depends on the dollar, whether reopening proves successful and whether we do see inflation pressure build. At this stage, that looks quite tentative. Anna thanks for joining us. Laura cooper. That is it for a negative session on the European Market open. Surveillance is next. This is bloomberg. Hong kong stocks plunge the most since the financial crisis as china announced a security law as disagree. Signs of a rebound in asia. Meantime, reports of 20,000 job cuts. And richard flick clara of the fed Richard Clarida of the fed