Hong kong, the latter saying it will maintain security and division. Good morning, everyone. This is bloomberg surveillance. I am Francine Lacqua here in london. The market is actually pausing a little bit. If you look at the global stock seen, it isve pausing for breath today. The dow rebounding. The dollar actually rebounding from its weakest level since early march. Treasuries are pretty much study. Backup of 1 for the First Time Since march. A lot of the focus on stagnant asian, and a lot of the focus on the euro, depending on what the ecb does. The ecb plans to boost monetary stimulus, and of course we will look at jobs and employment data. Now lets get to the bloomberg first word news in london with leighann gerrans. Hi, leighann. Leighann good morning, francine. Saysr general jim mattis the president is trying to divide the american people, accusing him of making a mockery of the constitution. He publicly oppose the president was the idea of deploying the military to contain protest. Germanys coalition has agreed stimulusbillion euros package. The wideranging plan is even bigger than expected, including a reduction in dak, 5g networks, and improved railways. Tense negotiations to finalize the package took two days. Chancellor merkel [speaking german] translator it could not be in the traditional sense, brother it had to be a package of measures for the future rather, it had to be a package of measures for the future, and that is what this is, 100 30 billion euros for the year of 2021, of which 120 billion will be funded by the government. Leighann a vigil to commemorate the crackdown on tenants square has been banned for the first time in 30 years, but protesters in hong kong plan to still commemorate the anniversary. Officials cited social distancing measures due to covid19. Global news, 24 hours a day, on air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. I am leighann gerrans. This is bloomberg. Francine . Francine leighann, thank you so much. Now the ecb will decide today whether it has already met, if stimulus needs to be boosted even lower to help the region out of its deepest recession and memory. Boostntral bank plans to by 500 billion euros, even though so far it has spent less than onethird of the 750 billion euros already allocated. Joining us now is frederik pictet, af banque global strategist. How much are the markets expecting, for the ecb to do a lot, or is there an expectation that they will not do much at all . Frederik yes, there is always gameplay in the market in the ecb, but this time, there is more of a move, because most highlevel government levels, as mentioned, wolfgang schaeuble, of germany, all of them are consistently sending the same message that they are ready to do more and ready to do more as soon as today. So it would be a disappointment if we do not get at least, i would say, 500 billion creating the emergency program. There could be more. Perhaps in terms of the finding, it could be a quick a bit tricky, because there is a pending resolution of the german court ruling, they could wait until july, that could be a bit strange. But at the very lease, it should be strong, and there is no time to wait. They should do it today. Francine how much more will the ecb actually increase its Balance Sheet . What we see bojtype Balance Sheets in the coming months or quarter . Frederik as you know, the ecb Balance Sheet is a strange animal because of the construction of the euro, because of the limitation, of course, because of the treaty and selfimposed constraints. So it is not going to be as huge as the boj, relative to the amount of spending and government debt. Matters, it is in the composition, matters a lot more, and i would say more efficient in the euro area than in other is, for instance, the degree of bank lending operations. We are reaching the one trillion mark again, which was the case seven years ago, and now we are heading with another big operation with a 1 Interest Rate, so this is just one example that the ecb is throwing money to the banking sector, under the condition banks will continue to lend to the economy. Particular to kil environment, i think, again, the position of the Balance Sheet, which will be huge, but it will be more important in the months to come. Francine what does that mean for the spread between italian and german yields . It has been tightened in the last couple of weeks, and i have a great chart on bloomberg tv showing it, is there a danger that something gets interpreted by markets, the ecb not quite doing enough and the spread widening . Frederik i think the risk is very low. We had communications on the 20th of march, and since then, it has been explicit enough, again, from all members of the executive board and Government Governing Council that the ecb is here to cap the spread, and they will not stop any ties may, widening that will transfer the transmission of monetary widening. The market is pricing it income above rightly so. The ecb is issuing a lot of debt. It can wait, especially on the long end of the curve, which continues this week, but the ecb will buy more. We also saw this in the breakdown of the data. Just one country, italy, they are supporting the country, and if we take steps back, the one action that actually tightens the spread much more than anything else was the french and german initiatives, followed by the recovery, and the ecb will also be very anchored by this recent initiatives. Francine we also have another chart, which is really interesting, looking at europe and asia. Where do you see the most value when you look at, you know, fixedincome across the world . Leighann frederik lets be honest, we are Holding Neutral and most market rates across the curve, mostly because the Central Banks are credible. I believe the recovery will be much stronger, that we get some inflation down the road. Maybe there is a case that we short the u. S. , but on the other hand, it is an option that is very much on the table. We believe in the future it will be. So there are always conflicting sources, and, as you said, the segment is especially interesting right now, because of the supply. But this is also something that was expected, and we will probably save the move over the short term at least. Francine it was very clear we heard from madame lagarde a couple of weeks ago, looking at the range, that they were expecting the economy to fall by, were on the weaker end or were on the worst and, and we are not going to get the kind of rapid recovery that maybe we could have expected. When will you make the cola what kind of, you know, recovery we will see the call of what kind of, you know, recovery will will see . Frederik i have stopped making forecasts. [laughter] we are doing our best to track the recovery. We are encouraged by the recent news. On the other hand, we need to get pmis, they make the best prediction, and they make little sense, for instance, we are not above 15, whereas the month of april should have been better, but there are mixed signals. Lets not lose sight of the bigger picture. The ecb stop production, as you said, will be revised lower, because christie and others said so. Christine lagarde and others said so. Ofs is something that is historic proportions. It suggests that the ecb would need to cut rates by 500 basis points and do several trillion euros in additional qes. It is not that simple, but the conclusion is very clear in the sense that they need to do more to be proportionate, to use the german constitutional term, relative to the Economic Conditions that we are facing. Francine great, thank you so much. Frederik ducrozet of Banque Pictet stays with us. Coming up, the german chancellors spending package, but the Auto Industry fell short of its goal. More on that. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. I am Francine Lacqua here in london. Now, lets get straight to the Bloomberg Business flash, heres leighann gerrans. Leighann a reshuffle of the ftse 100 is out. Meggett hass maker been demoted. Kingfisher, the owner of the thank you, will now be on the benchmark, as will security form avast, boosted by more people working at home. Changes take effect june 22. Standard chartered is joining hong kongs security law, saying it will help maintain economic and social stability in the financial hub. The move comes despite critics saying the legislation violates the one country, two systems principal. Rollsroyce expects to cut 3000 jobs in the u. K. This year. It is the first wave of reduction to survive the downturn in the aviation industry. Is offeringr redundant tree to all of its aviation workforce and part of its office staff. And that is your Bloomberg Business flash. Francine . Francine thank you so much. Prosecutors have upgraded the murder charge against the Minneapolis Police officer accused of killing the george floyd, and other charges for the three officers accused of aiding and abetting. Comes as President Trump calls in new york to crackdown on unrest. Meanwhile, we also get u. S. Jobs figures tomorrow. The Unemployment Rate is expected to rise 19. 5 . Still with us is Frederik Ducrozet from pictet wealth management. Toughe been going through times, with those huge unemployment figures, which are, frankly, absolutely incredible. What does that mean for what the fed can and must do next . Frederik i think the fed is in a different position right now. They have clearly deployed massive measures, most of them in terms of main street. They could look and reassess and say the right tools are in place, we can always expand on that. Indeed, the labor market Situation Requires a huge amount of stimulus, and we are here to provide it. I do not think there is much innovation right now that they could do on top of everything that they have been doing, and really the market is looking at fiscal policy, politics, as probably a more important driver in the future than Monetary Policy itself. Francine where do you see the recession in the u. S. Going . I do not know if it will gradually pick up like we saw in china or whether these job losses will recover quite quickly from covid19, or is it just too difficult to tell at the moment . Frederik i think it is very much about jobs and about the stage of job losses that will be recovered down the road. If you look at households, confidence surveys, there is actually quite a high level of optimism, in that most job losses should be recovered down the road. Case, then youe will face longterm damage to the economy, lower potential growth, all of those things that are still a risk to the longterm outlook in the u. S. , but in terms of the gdp recovery, it does look like a vshaped recovery when you look at the consensus, perhaps, growth expectations, but not in terms of level. Again, that is what matters, even if you get a 10 rebound in the coming quarters, you will not get even close to the levels that was prior to the crisis, including jobs, as i said, investments, and overall activities. Rederik, what do you do with the u. K. . The u. K. Negotiations, officials from the bank of england also seeing that they are studying negative rates at the moment. Is this maybe the more exciting place for markets right now . Frederik exciting in the sense that we are getting a bit more worried. We went from neutral to underweight on the pound, for instance. Obviously the risk of a no deal brexit is rising again. Ift wouldve happened, that were to happen, we would be lacking a plan, but still, you have to go through this very kind of stressful thing again for potentially both the u. K. And the eu to come back to the table, so that is a risk. Also, a surprise, i have to say, the idea of negative rates being floated by the bank of england governor, chief economist. That may be another drag on the pound. And then i think, to me, as an economist, looking at the broader picture once again, the risk that i would say, use this crisis as an excuse as a way to defuse the effective brexit. Lets face it, and six months, who will be able to say what was the effective brexit and what was the effect of the covid19 crisis . It is almost impossible, in economic terms. So that will be another risk down the road that the u. K. Will face and ultimately will see potential growth much, much lower in this scenario. Francine thank you so much, Frederik Ducrozet, global strategist at pictet wealth management. Coming up, we will get the latest in the u. S. And protests continue. We will also talk about scathing from president but also former defense secretary of donald trump. This is bloomberg. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua here in london. U. S. Ets get more on the protest. As demonstrations continue for the ninth night, defense secretary mark esper has angered white house officials by publicly distancing himself from the president. Anile, the exdefensive end very jim mattis wrote, donald trump is the first president in my lifetime who does not try to unite the american people, does not even pretend to try. Instead, he tries to divide us. President trump, meanwhile, says he does not think he will need to deploy u. S. Troops. Pres. Trump the National Guard is customary, and we have a very overful National Guard, 300,000 men and women, and we can do pretty much whatever we want as far as that. But as far as going beyond that, sure, it is possible. Should only be used as a last result in only in the most dire resort, and only in the most dire situations. We are not in that situation now. I do not support invoking the insurrection act. Appliedetta i secretary esper for the leadership he took, because military leaders, almost in unison, do not believe our military should be used to fight our own people. It ought to be used to fight foreign enemies. Francine lets go now to new york city and bloombergs emily hord on annmarie hordern. Wereresidents comments not only rebuked by his former defense secretary but also by the current one. How to those comments reflect what is going on in the military right now and the turmoil . Annemarie this is going to be a lot of pressure on the president , as you say, francine, not just his former defense secretary, and absolute castigation from former defense secretary james mattis, that statement in the atlantic, but also marke mark esper saying point blankly i did not see the need to use the insurrection act. You should not be putting activeduty troops on the streets. President donald trump says this is going to be something that democrats are going to run with it, and it is going to be played out through the entire day, this pressure. Already, we saw him take to trigger twitter to say that general mattis committed was an honor to fire him, that he is the worlds most overrated general. Thethen with esper, question everyone has been asking is what does this mean for his job post . The press secretary kind of tiptoed around that plan, saying he remains in the post. But white house aides did tell our teams in dz that they would have liked him to moderate his tone, to come more in line with the president. The president saying he wants to put activeduty troops around the streets of the country that are dealing with protests. Francine thank you so much with the update. News flow has0s been unrelentingly bad. U. S. Stocks keep on rising. It is being called the most hated rally in history. That is coming up next and this is bloomberg. S bloomberg. Finance, economics, politics. This is bloomberg surveillance. Thats get to first word news here in london with leighann gerrans. Leighann good morning, francine. Prosecutors have a. Have upgraded the murder charge against the Police Officer accused of killing george floyd. Chargedher officers are with aiding and abetting, donald tomp calling on new york crackdown on unrest. Next week china plans to ease the ban on flights to the country by foreign airlines. Officials say it was in retaliation for beijing barring american carriers from reentering the country. The u. S. Said china broke the rules by not allowing delta and united to review flights. Later today, the European Central bank will decide if its massive monitoring a massive stimulus is enough. Economists suspect an increase of 500 billion euros to pandemic emergency purchase program. Islys Pandemic Loan Program under fire, so far delivering 0. 1 of the 400 billion euros it promised to businesses. The delays are partly due to some banks dragging things out because of strict regulations. Government squabbling and bureaucracy have not helped the situation. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, leighann gerrans. This is bloomberg. Pandemic,a global deep recession, millions unemployed, the headlines have been unrelenting. Yet stocks, especially u. S. Stocks, keep rising. A Bloomberg Opinion piece, john authers says the rally is about 10 weeks old. He says stocks are soaring despite valuation metrics screaming they are too expensive. Joining us now is Christian Nolting from deutsche bank. Great to have you on the program. Do you think equities are too expensive . For invitinganks me. I think if you look at valuations, the next 12 months, pe, for example, do indeed would see that if we look at the s p we are at levels that we were at in 2000, 2001, and that same highue for p e ratios at levels. I think we have to differentiate between the u. S. And europe. Europe can be considered more value, i would say. There should have been some indices like the german index that have more value. If you look at valuations, equities are not cheap. At this point in time. I think what we see from a market perspective is that the , celebrating the reopening of economies, there is a lot of stimulus from the fiscal side, from the monetary side, and we hear from the ecb today, and we hear germany putting up another package this morning. However, i think down the road there will be some realization this is probably not the vshaped recovery. I go back to john authers peace and he writes beautifully, and he says the reaction to the rally has been polarized. Our Market Participants looking at Different Things . What does it actually mean in terms of how people analyze the market . There are well, different ways to analyze it. If you look at the recovery and you say there is a massive recession, and now there is a vshaped recovery or at least stronger growth because of these measures, that could justify higher pe levels, probably also due to low Interest Rate levels globally. Market is now pricing for a perfect vshaped recovery, and i would is not pricing for a perfect vshaped beovery, and i would surprised if it happens. Thenere is a massive drop, a substantial recovery, but it will probably be a bit lower. Once the market is realizing this one, because of unemployment staying relatively high for quite some time, i dont think it is a vshape. Realizethe market would that it probably was a bit too positive at this point in time. Francine when you look at european stocks, where do you see value . European stocks are not rising to a threemonth high as economists start to reopen. As economies start to reopen. Do you break it down by sectors or by regions . Christian a good approach is to look at growth value, and what we have seen especially over the last rotation out of growth into value, growth has outperformed value by so much, i such a distance over the recent weeks and months, and that we see rotation. Looking to value, i would look at space, where you see the recovery in place, but you could also look at some parts of financials. Just yesterday we discussed in our forum looking at u. S. Financials, including insurance, which would also be value stocks, could be interesting. I think to build a portfolio, some value stocks with predictive cash flows is something that makes sense. Nevertheless, i would say that what we have seen in technology, this trend is still there, and i think what we see with the crisis here is that this trend will continue. Toould not say you need switch everything from growth. That is not our view. Talk aboute will this later, but just to get what you think of u. S. China trade tensions and whether we could see a correction of that. The u. S. Verheard that may relabel china a currency manipulator. With that change where you put your money . Christian first of all, i think we have seen quite an escalation traden the u. S. And china conflict. Probably much more than we have discussed with the market feeling stressed last year, at the beginning of this year before this crisis came in. I say this escalated quite a election coming up in november. I would suspect that probably President Trump is trying to push with china even closer to the election, so i would not be surprised to see even more tensions. On the other hand, i would say china is playing time and probably has more time than the u. S. President. I would not be surprised if there is further escalation with this. Reopening up the economy would cause more. That would be a topic for the next month to come leading into the u. S. Elections. Christian nolting stays with us. Coming up, the german chancellors spending package tops expectations by 30 . We will discuss europes biggest economy next. This is bloomberg. Francine this is bloomberg surveillance. Lets get to the Bloomberg Business flash leighann gerrans. Leighann good morning, francine. Says it wont by tiffany shares on the opening market after the luxury giant discussed a deal with the american jeweler. There is speculation the French Company wont complete the deal in part because of the coronavirus pandemic. Softbank is being sued over investor fraud over the companys the suit alleges we executives downplays losses. Softbank was an early investor in wework, and investors are also named in the suit. No comment from wework. South american prosecutors are foring an arrest warrant samsungs j wiley. J why lee. The news agency. The report of the executive was under investigation over a controversial merger between two samsung units. That is the Bloomberg Business flash. Francine . Francine thank you, leann. Angela merkels coalition has agreed to a sweeping stimulus package for germany. The bigger than expected plan is designed to spur shortterm Consumer Spending and get Consumer Spending going again and get business investing again. There are double incentives for electric vehicles. Joining us is Christian Nolting from deutsche bank. Looking at the monetary side and the fiscal started to come through, do you think europe is say from a very bad procession, or is this still a risk if something goes wrong or if the money doesnt get deployed fast enough . Kristin deploying onthink the monetary side and the fiscal side, i think a method of change now is on the fiscal side we see a second layer. The first one was more on the supply side to support companies to survive the shutdown. Now what you see is support of the demand side so the Consumer Spending starts after the lockdown with companies opening up. The tax in germany for the next six months from july to the end of this year, just one of the largest spending bills in europe. I think that is a positive sign. There is see if perhaps i think b. A. T. Has everyone because that is the product you could imagine. I think that is good news from that perspective, and it has worked in other countries as well. From the tools, it is the right direction that we see. Eventually it all needs to be seen whether we are Getting Better relatively quickly. A second lockdown, of course, is certainly not enough by then. And i think what you also need to understand is that these measures are now for the second half and Going Forward into the beginning of 2021. We expect the economy to be back at 2000 nine levels only in 2022. So the question is back at 2009 levels only in 2022. Is, is thation enough . There is a lot of effort to keep this going. Eventually we need to question who is paying for this and how, but that is not the debate at this point in time. Francine where do you see the most value . Francg at yen and swiss and gold, i dont know what your position is on that right now, or whether you are a little bit more you have more appetite for risk. Christian well, first let me start with the yen. I think it is a good hedging in the portfolio. We have yen in the portfolio to balance we think the eurodollar come out forecast is 1. 10. We have seen 1. 12 now. I think if the market is getting a bit trickier, i think there would still be money going for the dollar. We see euro strength because of the packages we discussed in germany. But i think down the road as the u. S. Economy should still be in a better position. Close to i would say the dollar a little bit. On swissie, it is like the yen stabilizing and portfolios. Where is the best value . I dont know if there is something in the market that you think is being misvalued or thised or mispriced, or is not the right time to be too bold . Christian if you look at the fixed income side and you look at credits, the good news is you are looking at Central Banks, looking at the fed, supporting the market as well, probably the ecb is doing you talked about this. I think especially emergingmarket credit, asia credit has some value. And that is something secondly i think it is also interesting to look at gold, because no matter what outcome you see, it is still very positive for the gold price. Debate, allssive leading to further deflation or ending up in a liquidity trap, or is that eventually inflationary . On both sides i think that is positive for gold, especially if you think there is down the road some inflation coming in. From that perspective it is thereng to look at is some upside as well. Francine what do you do with u. K. Assets . There is exit, there is the prospective negative rates. Are you just monitoring for now . Christian our forecast for the quite a is at 6300, distant return from here. Youre seeing similar returns and a demand for equities. Nevertheless, i think the focus is coming back to the u. K. With brexit negotiations, and there is an important deadline by the , and will wenth get it over the end of the year . Probably not. Negative for the ftse 250, but at this point there is massive overweight in our portfolios. Francine quickly, when you look at emerging markets, and a lot of Market Participants were quick to say covid19 will affect them adversely if not more than some of the western economies. Is there value in some of these , ones thatonomies are faring better than expected . Christian two things from my point of view. You have seem some outperformance of the developed world, compared to emerging markets. Better from here it is than many have been seeing in emerging markets, especially if you look at asia, and that is why we think in the asian market there is quite some return potential. If you look at asia, japan, over the next several months you see quite a decent number. Looking at emerging markets, we favor asia ahead of latin america, but i would say no surprise we have seen the outperformance of markets so far, but that could change down the road if we get two or more normal situations down the road. Francine thank you so much for joining us. Mr. Nolting from deutsche bank. Christian nolting from the shipping. Hong kong is gathering to remember the Tiananmen Square crackdown. We will bring you that story next. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. Lets look at key events happening today. The ecb publishes official projections for growth and inflation along with policy decisions later. The central bank is expected to boost its emergency stimulus package. We will address the Global Energy crisis with the Oil Industry Leaders from 3 00 p. M. London time. U. S. Jobless claims for may are due to be published, and hong kongs annual vigil commemorating the 1989 Tiananmen Square massacre has been moved online after police banned the gathering for the first time in 30 years. Lets get more on that story. Hsbc and Standard Chartered, two british institutions that hong kong that are part of hong kongs backing system. On to shows called support. This does imply how hong kong business is being threatened by beijing. It is critical not only to secure for the support of the general public, but this is also important to have Business Matters support us. Francine lets get more with stephen engle. How much of a surprise worthy statements by the two banks . A fascinating story with a huge and long stretching technicals for all businesses that do business in hong kong. Because it also came on the same day that the british open day controversial canned by saying he is willing to make strides to allow up to 3 million eligible bno, a path toward possible citizenship in the u. K. If beijing invokes these National Security laws on hong kong. Beijing already lashing back at that saying it will backfire. That comes at a time when hsbc and Standard Chartered, two londonbased banks that get the bulk of their revenue and profits from asia, 31 of from hongr hsbc comes kong, about 40 from Mainland China. They are in an awkward position. While this was being debated, hsbc kept its head below the parapet. They did not want a repeat of the score that they got last year when they froze a number of accounts, and a number of different branches got torched and vandalized as a result. So hsbc has been keeping a low profile. But authorities here, including the former chief executive last week, blasted hsbc, saying you get all your profits from asia, and you are not coming out in support of this National Security law. Signed the has petition, along with Standard Chartered, in support of the proposed security law. It begs lots and lots of questions. Like joshua wong broke up, brought up, how far do companies have to go to show support, and if they are being forced to show support, is the big question. Will never guess we know, right . Do they have anchoring licenses in Mainland China that they need to protect . Stephen they have banking interests with mainland clients that they need to protect for sure. Alastair carmichael, a british lawmaker im sure youre familiar with, he is a chairman, he is brutal on what hsbc just did. In bending torred chinas will. He says it is a colossal misjudgment because you cannot be seen to be advocating for a fairly flagrant breach of international law. He called it tactically clever but strategically stupid. Banks rely on a rulesbased system. Banks and international companies, local companies have to be asking themselves this week, next week, next year, forever . Stephen engle there. We will get stephen back to talk about the protest in Tiananmen Square that has been put online. Coming up, bloomberg surveillance. Tom keene joins me out of new york and we will have a discussion on the latest in the oil markets. And dont forget bloombergs live event. This is bloomberg. Francine another shot from the ecb. The central bank is seen boosting its emergency bondbuying program by 500 billion euros. Some investors say anything less would cause a shock similar to marchs selloff. Esper breaks with trump. The u. S. Defense secretary opposes using activeduty forces to confront protesters, as his predecessor issues a scathing attack on the president. And falling in line hsbc and Standard Chartered back beijing when it comes to the proposed security law in hong kong, the latter saying it will maintain stability in the region. Hello, everyone. This is bloomberg surveillance. Tom and francine from london and new york. We look at data and the u. S. And the jobless figure which frankly, our people which frankly are people, not just numbers. We look at the protest and we look at the ecb, with so much priced in on what the European Central bank will do today. Tom