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Stimulus package. Billions in aid for municipalities. They are expected to boost bond buying by half a trillion euros today. Endorsed china security law proposal. This as hong kongs most prominent activist tells bloomberg he wont leave despite a root to u. K. Citizenship. It has just gone 6 00 a. M. In london. It is daybreak europe. Annmarie hordern, good morning. Billion. G of 146 she did it. Angela merkel sets the tone for the benchmark for fiscal stimulus on a really global scale as we go into ecb day. Is it innovative . Is it different . This is about fiscal stimulus versus the angst of politics of america. Good morning. Annmarie that fiscal stimulus deal topped expectations by 30 . What does it mean for the Auto Industry . You mentioned the United States. What a 24 hours it has been since the last time we spoke, especially in the u. S. An absolute condemnation coming from the former defense secretary jim mattis, really condemning president donald trump. We will look into that with our reporter in d. C. In the markets this morning, a rally. A little bit of breather in asia session. Nasdaq 100 yesterday briefly touched above the record we set in february. The bloomberg dollar index coming a little bit higher after those lows for six weeks area i want to see whats going on in the market. Morning, 1. 12. Thats pretty decent for the euro. Heading into the European Central bank meeting. We had Angela Merkel delivering. She did it. The pound, 1. 25. Theher rare statement come coming from the boe. A no deal brexit back on the table. Barrel today. 0 a do we have a meeting today . All the shenanigans of a preopecplus meeting is currently in the works. Lets begin. Manus i turned up a dollar short and a day early on that. Annmarie you were correct. Mcnally was considering it in his mind. Manus i was right. Im relieved. Im not a dollar short and a day early. Take it away. Annmarie you were on the money. Lets begin from d. C. Jim mattis has ripped into President Trump over his aggressive rhetoric. He wrote, hes the first president in my lifetime who does not try to unite the american people, does not even pretend to pry try. As protests continue, minneapolis has updated charges against eric shaaban to seconddegree murder. Three other former officers were charged with aiding and abetting. President trump says he doesnt think he will have to deploy u. S. Troops but has the power to do so. I dont think we will have to. We have very strong powers to do it. The National Guard is customary. We have a very powerful National Guard. Over 300,000 men and women. We can do whatever we want as far as that. As far as going beyond that, sure, if its necessary. Annmarie lets get the latest lines from john hardy. Thanks for staying up late for us. If you could explain more for european artisans audience about how rare this is for the United States. John its extremely rare. I cant think of another instance where a sitting roundlyt is so castigated by a member, a former member of his cabinet. Is obviously obviously, trump himself has been widely criticized ever since he took office. This is different. Mattis had an unusual level of in the, even reverence early days of the trump administration. He was one of the generals who trump chose to run his National Security post. Allure ofe the military background. Provided some reassurance for this new administration, this inexperienced leader. Mattis has been gone for 18 months. Now fromned until directly criticizing the president. We have the current defense secretary mark esper, he was talking to reporters yesterday, asking active military he is still in the job. How has trump responded on this . John Jeffrey Jacobs got quite a bit of background on that. Housewent to the white and was confronted by trump over this. It was not on the level of jim mattiss attack. It was a break of sorts with the administration. With trump himself. Metr esper had left, trump with some of his advisers including mike pompeo and Vice President pence and asked if ask her esper could still be effective in his job. By the end of the day, trump apparently, his anger had blown over. Esper remained as defense secretary. Was the mattis events talk of washington. And beyond. Manus indeed. Thank you very much. Another day, another new deviation on the political story. News this word thursday. Plan k, china plans a ban on flights. The u. S. Announced it would suspend passenger flights to the u. S. By chinese airlines. Officials say it was retaliation for beijing barring american carriers from reentering the country. The u. S. And china broke rules by not allowing delta and united to resume flights. Theres a reshuffle in the ftse 100. Travel is out of favor. Maker goes tot make cap territory. Including stayathome stocks. Benchmark ason the a vast boosted by more people working from home. Standard charter and hsbc are endorsing chinas controversial on long security law Hong Kong Security law. They say it will help maintain economic and social stability. The move comes despite critics saying the legislation will diminish freedom, violate the one country, two systems. Later today, the European Central bank will decide if its massive monetary stimulus is enough. Policymakers have tried to help the region out of its deepest recession in living memory. Ant economists expect inrease of 500 billion euros pandemic emergency purchase. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Annmarie coming up, we stick with europe. The german chancellor spending package tops expectations by 30 . The Auto Industry fall short of its goal. That is something everyone will be talking about. Germany is next. Is bloomberg. Annmarie hordern joins us in new york. The chancellor of germany angela a sweeping 130 billion euros stimulus package designed to spur shortterm consumer spending, get businesses investing again. Immediate jolt by a temporary reduction. Germany allocated money to build out its 5g data network and double incentives for electric vehicles. One of the most contentious issues, the Auto Industry fell short of its goal of getting direct government support. She intends to take a longerterm view enforcing the recovery of germanys largest economy. We could not send out a stimulus package like have done in the traditional sense. It had to be a package of measures that contained views of the future. This is precisely what we have emphasized. The package will amount to 130 2021on euros for the year of which 120 billion will be spending by the government. Manus the ecb will decide today whether it supports monetary stimulus boosted even more. Bank is widely expected to boost its Pandemic Emergency Purchase Program by 500 billion euros. Far, it spent less than one third of the 750 billion euros already allocated. Simon wells is a chief european economist at hsbc. Thank you for joining us. Straight to Angela Merkel. She didnt just bring up business. She brought a whole garrison. This is over delivery by anyones benchmark. Your interpretation of her Stimulus Program on ecb day . Simon it certainly is big. It shows that having big pockets certainly helps. It will be fiscal impulse. So far, we we have been trying to unpick government packages and understanding the economic effects, its hard to know. Is this a turbocharged, automatic stabilizer . Sense, that is just a big automatic stabilizer. This kind of thing is for fiscal impulse. It will have a fairly quick impact, unlike some of last weeks eurozone packages. They may be more investment oriented or ultimately. It is really bold. Lets face it. Thats what is needed. Annmarie good morning. I wonder if this takes the pressure off of Christine Lagarde today. I have not seen any commentary about the fact that they dont expect the ecb to add in 500 billion to the Stimulus Program. They had some leeway. They dont have to rush. What are you expecting from lagarde today . They have not got 750. The purchase rate is 6 billion. They probably would be getting through it by the end of september. The initial calibration could well have been roughly in order to hoover up a lot of the net issuance. Since then, the Government Programs have got much bigger. Therefore, some degree of expansion should be warranted. Why wait . The market is expecting it. I dont think she can turn around and say, thanks to the german stimulus, the pressure is off us. Tryier this year, they did to put the emphasis back on government. We expect fiscal policy to do all the heavy lifting. Ineek later, they were back with a much bigger package. To give usy have their own forecast. That will give inflationary implications. They arent sure what the inflation targets are. My guess is they will welcome it. It wont necessarily deviate them from what they were going to do anyway. An expansion is widely expected. The ecb toexpect pencil in a contraction of 8. 2 . That is in the medium territory. We have images of Christine Lagarde on suite at the moment. She suggested it could be as bad as 10 . , doesthe German Response that skew us firmly on the medium term, the medium severity outlook . Worked at the central bank for over a decade. When you wanted to steer the committee one way or the other, you would give them alternatives. You would all his them to pick the middle one. The ecb gave us three scenarios last month. S. Ntraction was due to them basically picking the middle one. The certainly helps. Weve got to get better. The forecast would have been close. It would have depended what they were expecting. It is quite often a very mechanical update. This complicates matters further. The covid pandemic. They may not even offer a forecast. After all, the bank of england, they certainly shied away from offering a new forecast. We will see. I cant see the ecb staff doing anything that is massively away from consensus in their headline numbers today. Annmarie simon wells from hsbc stays with us. We will get to the boe in a few moments. Key events coming up today. The ecb publishing its official projections for the growth and inflation along with a policy decision later. The central bank is expected to boost its emergency stimulus package. Ill be addressing the Global Energy crisis of oil from 3 00 london time. Manus, i hope you watch. Manus absolutely. I will be tuned in at 7 00. Sunshine drinks on the beach. The u. S. Jobless claims for the month of may are due to be published. Hong kongs annual vigil commemorating the t eminem and Tiananmen Square has been moved online. Where were you . Banks to prepare for a no deal brexit. The bank of england governor says they should step up plans to deal with any outcome before the transition ends. We discuss, next. This is bloomberg. Annmarie this is bloomberg daybreak europe. Manus cranny joins me in dubai. The bank of england has reiterated its morning to lenders, saying they must prepare for a new no deal brexit. The boe says it is one of the scenarios that must be considered. A rare Public Statement yesterday, it said it is fundamental that it prepares for the u. K. Financial system for all risk that it might face. The Governor Meets the leadership of u. K. Banks on a very regular basis. Simon wells is still with us. Perfect guest for today. You worked at the boe. What does this all mean . We are coming off of the heels of the pandemic. Potentially a second wave. How does the economy deal with a no deal brexit . Well, essentially from here, there are four choices. There is a deal done eventually. There were some kind of partial or temporary deal. Perhapst an extension, not announced in june. But eventually. Or we end up with no deal. Suppose, given when the covid pandemic started, everyone assumed there would be an extension. Comments suggest that that is by no beans given. Thats not even a central case now. Understandable that the bank of england is saying, given this, we need to be prepared. I think thats fair. Think thats basically it. The question is, what does a partial deal look like . Do we ultimately get an extension . If not, be prepared. I look back at cable. 11485 on the 19th of march. That was collapse on close down. You worked in the bank of england. We have about the volatility within currencies. Officials england upset about the pound volatility and the risk to the downside . Do you think that is part of the consideration . Simon it certainly was. Feelinghere is now a which is somewhat understandable that compared to what is going on with global demand, with the pandemic, perhaps the incremental impact of brexit is not going to be what we were obsessing about for much of last year. In that sense, thats another thing that is playing into these probabilities. How does the bank of england think about currency . It is hugely important. The inflation outlook. A small open economy, the Exchange Rate is the most important asset for us for the bank of englands judgment. It . A target does it have target forward levels for it which it wont tolerate or desire . Not really. It is mainly using it to try to understand whats happening to the economy and what that means for inflation and growth outlooks. Think the increased outability of that coming will affect their thinking for the currency. It is very important. I would not describe their view as an of session in the same way that the market is. Manus thats one of those tv moments of silence when theres only 40 seconds left to go. We did not even get to your kids. We will return to that. My cohost this week, when she came to live in the united them kingdom come of those were the days when i used to go shopping in new york. Annmarie i remember those days. He would come back with these amazing buddies. I remember. Manus those were the days when i was trendy. Whats happening with british banks . Chinas hongy back kong security law. The endorsement boosts the confidence of investors. This is bloomberg. Stay with us. Annmarie good morning from bloombergs headquarters in new york city. Im annmarie hordern. This is daybreak europe. These are todays top stories. U. S. Defense secretary opposes using active study duties forces against protesters. Curfewsde protest defy but are largely peaceful. Germany passes a second sleeping stimulus package which includes a cut and billions in a free municipalities. They are expected to boost bond buys by half a trillion euros today. Heres an hsbc and Standard Chartered rise after they endorsed chinas security law proposal. Good morning. A little bit of tension in terms of geopolitics. The question i want to know about hsbc and Standard Chartered, is this the move of bank wants to do . Are they being asked to do this . On top of that, Boris Johnson running an opinion piece about the fact that london, england could become a place for hong kongers who dont agree with the National Security law. Maybe some geopolitical tensions coming back in. They will have to digested at some point. Manus these markets are utterly dispensing with any concern about geopolitical risk. If we lean back into what we leg talked about, this next for germany, the cuts from germany, 30 over delivery. That isarrative delivering the biggest run on the s p 500 and 50 years. Do you like brandy . Not really . Theres other drinks that can be nicer. They see a strong recovery. Im not allowed to show favoritism. First quarter sales. They drop by 45 . First half current operating profit is going to be between 4550 . Helpedy is going to be by the United States and china. Bear that in mind. Lets quickly move through the board. The s p 500. The 150 day rally on record. This coronavirus did not happen, they to be numbers then were better than expected. The adb numbers set the tone for the payrolls report. Valuations are at a 20 year high. The euro rolls over. The longest winning streak in six years. Thats more a dollar story. Cuts on vat. The risk is disappointment from the ecb. Our guest host says there is a risk that they might not give a target on growth inflation. The dollar down 1. 5 in the past five sessions. That will them on the dollar seems to have halted. Theres a new risk. To the oil market. There you go. Will they have an opec meeting or not . Oil comes back by 2 . 10 year bonds on the futures. A little bit of bit in the futures. Cable rolls down by one quarter of 1 . The bank of england said, prepare for a no deal brexit. Sterling dips on the back of the dollar flipping around. 12541 is quite a staggering delivery. Hsbc and Standard Charter are the two british institutions. They domino hong kongs banking system. They back beijing in a standoff over the proposed new security law. The Bank Statement came on the eve of the anniversary of chinas 198019 amid square crackdown. With the u. S. Ripped by violent protests. The timing highlights growing tensions amid the coronavirus pandemic. Called ong activist the community for support. Economic freedom is being better by beijing. I think now is a critical point to seek the support of the general public. Its also important to have Business Manager support us. Manus selina wang joins us from beijing on this story. Good to have you with us. Can you tell and marie and i the significance of hsbc and Standard Charter backing the National Security beal bill . Selina to put it into perspective, they are the First Companies to back beijing. All major local businesses voicing support for the National Security law. Thats despite opposition to it. Are and Standard Chartered in a uniquely dell of it best ellicott position. Their headquarters are in london. The British Government has expressed strong opposition to the new law and offered refuge to 3 million hong kong residents. Take a look at hsbc. Hong kong and china are vital. Greater china accounts for 40 of revenue. Forward, getting on the wrong side of the government appears to be out of the question for the new ceo. When you look at Standard Charter, it is lets exposed to hong kong versus hsbc. Hong kong is still Standard Charters biggest mark market. 61 came from hong kong. 14 from china. I want to clean out some of the harsh reactions that we for from british lawmakers. Including chairman of the u. K. Parliamentary group on hong kong. He said, its a colossal bejudgment because we cannot seen to be advocating for a flagrant breach of international law. Annmarie there will be more tension today in hong kong. The commemorating of the Tiananmen Square massacre usually happens. The police have banded. What can we expect it to look like this year . Selina thats right. This is the first time in three decades that authorities are banning the Tiananmen Square vigil which is a memorial to those who lost their lives in 1989. Chinese leadership ordered troops to fire on prodemocracy protesters. Authorities cite a ban on gatherings as a result of covid in hong kong. The opposition politicians and critics say that this ban on the toil is a deliberate attempt stifle free speech. The virus is mostly under control in hong kong. Larger groups in the city rather regularly gather without issues from authorities. In terms of what it might look like this year, activists are planning alternative event including a protest of the legislative council. Theyre encouraging people to post photos and text on social media. I covered this vigil in hong kong a few years ago. This typically draws tens of thousands of attendees, people of all ages and backgrounds. Last year, the vigil drew more than 180,000 participants according to the organizers. This years vigil is coming up against a very tense backdrop. There are fears among many in hong kong that the vigil may never be allowed to happen again. Annmarie thank you so much for that insight. The feds efforts to stabilize the economy may encourage companies to take on too much risk, according to scott minerd. Lets hear more of what he had to say. We already were at record levels of debt on a number of corporations, when we got into january of this year. One of my concerns was that when we have an economic downturn, this highly levered economy of ours was going to lead to more severe pressures on the economy than we would normally have. Now, the Federal Reserve has basically eliminated the downside in corporate debt. They sent the world a bicycle. We are now putting on record amounts of corporate debt. The leverage situation is even getting more exacerbated. Ultimately, the fed is going to find itself in a position where it tries to phase out these programs of support for corporate debt, it will be a lot like what happened back in 2013 when ben bernanke first talked about ending quantitative easing. There was a tantrum. Fed quite likely that the will face that day of reckoning when it tries to slow down asset purchases of corporate debt. The market will then challenge the fed to find out where the putting his. I think this is now a permanent feature of the market. Bill dudley has told bloomberg that he believes that they are flirting with moral hazards here. What does that mean in terms of how Companies May look coming out of this crisis . Help us understand what is at stake here. Sure. I would quote Milton Friedman who said, nothing is so permanent as a temporary Government Program. Corporate america is going to become addicted to the fed providing support. What i think it means is that corporations will take greater risk. That if you dont have a highly levered Balance Sheet relative to your competitors, your equity returns will be punished during business expansions. So pressures will be on ceos to continue to increase the amount of leverage, especially when the fed has a policy of maintaining low rates for an extended time. Ultimately, is there a day of reckoning . I think that the Federal Reserve will be faced with the challenge of whether they allow a day of reckoning or whether they basically decide that they just have to continue to provide liquidity to the system until inflation rates pick up to levels that probably would be viewed as unacceptable by most participants in the fed today. Weve seen record amounts of borrowing from corporations. At the same time, if you look at downgrades, it is happening at a faster pace than we have seen in a decade. How do we pair off that thinking . Its really interesting. This is something we expected. We expected to see downgrades among highyield and trooper be into the highyield category of about 1 trillion in a slowdown. I think that we are on pace to do that. Theres also another question that i brought up today at the s p conference. Which is that the rating of a bond reflects the probability of default. So when you have a Government Program that provides liquidity, you have taken away one of the major causes or sources of default. That is the inability to roll your debt over. You have to think that at some point, the rating agencies are in theo start factoring implicit support of the Federal Reserve. In the longer run, its going to reduce downgrades. Corporate america becoming addicted to fed support. That was the guggenheim ceo. Coming up, wti retreats from a threemonth high. To our guest. This is bloomberg. Were making a substantial cut now. When we come to december at the end of the year, we will be producing 300,000 barrels less per day than what was initially planned. At the moment, i feel this is a good contribution. We are seeing clear signs in the market that it is moving towards stabilization a little bit quicker than the worst fears. We will and regulation by the end of the year. At this time, these are the cuts we are ready to go through with you with. Annmarie that was Norways Energy minister on the current production cut. We might be expecting more from the opecplus group. Manus yes. When will they meet . Who has the leverage . Can we afford another spectacular implosion, as we saw with people exiting the opec building physically at the Russian Society . Lets get to the chief energy analyst. She witnessed that exit dramatically. The world is changed. We went negative. Were back above 40 on brent. Are we having a meeting . Do the saudis have power to drive through the extension they want . Good morning. Amrita good morning. We are going to have the meeting. It will not be today. It will probably be the original date, the ninth of june. I think the difference this time is, the saudis and russia have agreed on extending the current cuts by a month. They are really forcing a hard target on those who continue to cheat. Iraq,k, nigeria nigeria, kazakhstan. The saudis and russians are saying, if you have cheated, you need to compensate by that by over complying in the coming months to make up for that. I dont think thats going to fly. Annmarie im stunned. Russia in the past has also had challenges with compliance. We know they think they have been complying. This is why they are taking a tough stance on the rest. How is it likely that how likely is it that a rock do this, though . Amrita this is the point. They have their National Oil Companies that work there. They cant just cut themselves. They have to distribute the cuts with those companies. Weve always seen iraqs compliance over the last two years. It has been about 20 . Its a big issue. This time, the difference is that in the past, it was a few hundred thousand barrels of day for cuts. Are they supposed to cut a Million Barrels a day . Compliance is half of that. Thats where the issue is. Cant just cheat by half a Million Barrels a day. Its convenient for russia right now to point fingers. Their compliance hasnt been good in the past. This time because tanks are filled up, they dont have a place to put oil. That has forced them to comply. Manus you let us straight to the next graphic. This is the can take a. You make a point that the narrowing of this, you can see that shift. It is unleashing floating storage. Easing ons to be this storage issues. Where are we with that . How much storage is coming back online . What does that do to the market . Amrita the problem is that we built a Million Barrels across the year. A lot of that inventory is try to tied up. Narrowed, not has all this oil can come to the market. Withen flirted backwardation earlier this week. It is being unwound. We have to work through all of that inventory before we can move sustainably higher. We are at 40 for rent. I still think that the equilibrium price at the moment is lower, between 3040. The weakening of the dollar does help. Thats a big reason why we are in the 40 area. Would take us five dollars lower than here. Annmarie i want to pick up on that. People talk about supply and demand getting back to normal. We have over a billion barrels in inventory. When do you see that part of the market starting to ease up . Balances . Our annmarie on the inventories. When do you see that starting to ease . Amrita that should start to ease now. We are starting to draw from inventories right now. By the end of this year, we should have drawn down what we built. Supplies are now falling faster than demand. I would be very cautious about using the word normalization. Yes, demand is recovering. We are far away from being at last years level. Manus you flagged chinas demand for stock building, theyre buying spree. Does that continue . Is that predicated on building inventory as opposed to some kind of vshaped recovery . Amrita yes. The point im trying to make on china is that, yes the recovery has been impressive. Demand is really strong. Consumers have not picked up all the way. Theres a lot of inventory being built. This is not product inventory or oil inventory. Im talking about at the manufacturing level. Goods are being filled up at storage warehouses. Consumers need to pick up from here. It will happen. It will take a bit of time. Saving rates have gone up. People are very cautious. Its a bit of an uneven recovery in china. You wont see that everywhere in the world. Annmarie it is only happening in china right now. The rest of the world is still dragging behind. There were still a lot down. Is still a lockdown. Funny more oil to talk about today. We have a live event, bloomberg crude awakening, at 3 00. Stay with us. Is bloomberg. Manus its daybreak europe from dubai and new york. Annmarie hordern is with me. Simon wells is a very patient guest host. Moral hazards. The fed hazards aplenty. The ecb is playing with it. The bank of england stays away from it. Which central bank is playing the most dangerous game of moral hazard, in your view . Simon good morning. With theu hit me trillion dollar question straight up . Look. Manus [laughter] simon this is it really a time for those kinds of discussions come in a way. Isnt really a time for those kinds of discussions, and away. When the house is burning down, you dont worry about who was paying the water bill. You dont just suddenly stop because you think, theres an awful lot of water going on here. You carry on. The time for this discussion is there. In terms of the amount that the fed is buying, clearly that has been huge. It was necessary. A few months ago, markets were highly dislocated. We were looking ats annmarie we are going to have to leave it there. Up, more on the oil discussion. Stay with us. This is bloomberg. Welcome to Bloomberg Markets the european open. Im anna edwards alongside matt miller. Say that theres light at the end of this tunnel. The positive catalysts pileup in europe. The futures slag off after three days of bumper gains. Lets get your top headlines for you off the bloomberg terminal. Germany goats goes big on stimulus

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