Everything going on in washington, it was a historic evening last night with the the of the matus mattis essay in the atlantic. Jonathan it was quite the contrast for the president of the United States. No question about it. I know we are going to go to kevin in a moment, but it is an. Xtraordinary moment the number one thing is the president s response has pretty much been on radio silence. Looking to hear from him a little bit later this morning. Ecb and Christine Lagarde. Lisa the interesting thing to me as we are not necessarily seeing the emergency in markets. As tom was sand, we are going to get the release. We got thoseget, u. S. Initial jobless claims every thursday morning. How quickly are some of the people getting rehired . How much are these numbers understating the situation given the discrepancies we are seeing . So many questions, but hopefully we will get a glimpse into potential recovery. Jonathan we will bring that data to you at 8 30 eastern, just ahead of that News Conference, with ecb president Christine Lagarde. We had down to washington to catch up to kevin cirilli, chief washington correspondent. Of course general mattis gets the headlines, but arguably, the substance came from secretary esper. Precisely. I spoke with a source who is very close to former secretary mattis yesterday, who reminded between ention that the tension between matti s and trump predates this. Secretary esper telling reporters there were some disagreements in terms of how the president communicated the use of military and u. S. Communities. Telling reporters at the white house that the president still is standing by secretary esper, despite these disagreements. Also yesterday, i spoke with a republican lawmaker in the house of representatives who told me the president still does enjoy widespread conservative support. However, folks have been increasingly skeptical of the president s tone on this issue. In president has been silent terms of Public Comments over the past couple of days, a stark contrast from what we have seen from former president barack obama, who called out for there to be meetings and reform, and also for there to be a sense of calm and peace in the protests. All of that as the situation around the country continues continue to have these to have more calm. Thatnk theres no question in terms of what you are noticing over the past 48 hours is an open disagreement in terms of the advisors around the president , both current and former, and terms of how he has discussed the military. I would go a step further and presence around the president , he still has the report, whether it is senator ted cruz or Senate Majority leader mitch mcconnell. Cities are is the still very much different than rural and to some extent suburban communities. However, i think it is too thatture to look at polls suggest how this will play in november. Tom thank you so much. The most extraordinary thing i was not the lincoln memorial, but the tight written memorandum from the chairman of andjoint chiefs of staff, yes, he took the walk to st. Johns church with the president , with a handwritten memo at the bottom to his officers about what his military should do. That is a document that will be in the National Archives for decades. Not the first time we have seen division between the secretary in the cabinet and the president himself. I think we will may be here speaking about getting a new defense secretary because the government is on two different pages very publicly. Om good morning in washington threw two simulcast with you. Abramowicz is having so much fun doing this that we are going to keep the simulcast going. We are thrilled you could be with us on tv and radio. It is still about economics, finance and investment. David lebovitz joins us right now. He is with j. P. Morgan asset management. Good morning. Telus simply how you have changed your asset allocation. How do you change your equity belief after up 40 . David i think what is most interesting from our Vantage Point is that we havent really changed things too much. From the beginning, from the start of april, we were really of the view that we wanted to center portfolios in Higher Quality assets like technology, like health care, but we didnt want to completely abandon cyclicality because if markets came back quickly, we wanted to participate. We havent been fully positioned , so we have been looking a bit over the past couple of days, but our exposure to things like financials has been helping. I think when we look at where the market is today, clearly things have moved very far, very fast. There is room for markets to continue climbing higher, but now may be the wrong time to materially change asset allocation. Has continued to deteriorate, that backs me nervous about the direction of travel for markets. Jonathan sometimes you got to take a step back and look at the position we are in now. If i told you 12 months ago that in 2020, we would have a job sprint of negative two point million,int of 2. 7 6 there is no way that you would believe me that that is what would happen. That is what happened in the last 24 hours. How do you explain that to clients . David theres a real technical nature to everything going on ise, and Market Structure part of this. When we look at cash balances of nonbank investors and things like that, they still look underweight equities, but where we have really seen money come back into market is where we have seen systematic strategies. We have this enormous spike in volatility in march, and as volatility has trended lower over the past couple of weeks, you have seen signals triggered that bring the momentum traders and risk parity funds back into the market. I think as quickly as we went down, it actually with some hindsight doesnt necessarily surprise me, the speed at which things have bounced back. But i do think this is a function of the way markets are structured today, and that has created pretty significant disconnect between what we are seeing in the Economic Data and the performance of equity markets, particularly u. S. Equity markets, which have really led the charge. Lisa how long can these technical factors overwhelm the fundamental factors, which are an increasing bankruptcy rate, and increasing unemployment rate, and concern that we could get some kind of w shaped recovery or some kind of second wave of the virus . Highyield bond yields right now are 1. 5 from the alltime low at a time when the bankruptcy rate is climbing beyond what we saw in 2009. How does this make sense to you . The market is very much focused on direction rather than level, and with things reopening, that does seem to be overwhelming the marketability to look forward. We have seen commercial mortgagebacked security delinquency rates begin to pick up. Theres a lot of evidence of stress in the economy, but the market seems much more focused on the direction of travel of the virus itself and the ability of the economy to reopen. To my mind, there are really two big risks investors need to monitor. The first is the potential for a second wave. I think it is an unfortunate reality given the protests over the past couple of days in the u. S. To my mind, that risk has increased as social distancing seems to have been put off to the side temporarily. The other thing i think we need to Pay Attention to, and you guys were alluding to it a bit earlier, is the amount of stimulus that has been pumped into the economy, and more importantly, the expectation that there is more stimulus coming. We have the ecb later today. The ecb historically has tended to pull out the bazooka when things arent looking good, not when we are in the midst of a rally, so it will be interesting to see what happens in just under an hour, whether they go through and increase the size of the emergency programs or whether they hold off. But i think there is inherent expectation on the part of the market that there is more stimulus coming. Jonathan david, fantastic to catch up with you, as always. David lebovitz there of j. P. Morgan asset management. That decision around 40 minutes away for ecb president Christine Lagarde. Expectations are high, and she has done little to push back against that. Widely expected to expand quibi. To expand qe. Tom what flavor would you predict they will act on . Jonathan more qe. I think that is the more printable start. Much more still to come on the European Central bank. So only program, we will catch the head of with the new york Lieutenant Governor. Ritika former defense secretary jim mattis is criticizing his former boss, saying he is dividing the nation. He says we must reject those who make a mockery of the constitution. President trump responded on twitter, saying he didnt like his leadership style or much else about him. The president appears to be unhappy with defense secretary mark esper. Opposed the idea of deploying the military to contain protests. Privately asked top advisors if they thought esper could still be effective in his position. In germany, chancellor Angela Merkels coalition has agreed on a stimulus package to get the economy going. That has exceeded the top end of expectations by 30 . The deal includes a cut in the a fund tod tax, plus build out 5g networks and improve incentives for electric cars. 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. Im ritika gupta. This is bloomberg. Pres. Trump i dont think too. We have very strong powers to do it. We have a very powerful national guard. Over 300,000 men and women. Want. Do whatever we we can go beyond that if necessary. Jonathan the president of the United States. From new york city, good morning. Alongside tom keene tom keene, im jonathan ferro. This is bloomberg surveillance. A point of massive discussion this week, the most effective way to protect cities across america. Question about it. Politicians front and center. The Lieutenant Governor of the chul,e state, kathy ho joins us this morning. What will yield you thats what will you do to move the trend forward what will you do to move the trend forward . What is next for you and the governor . Hochul then ask thing is to address the concerns of the community that have come to the forefront. It is a tragedy that it took the murder of an unarmed africanamerican in the streets of minneapolis to get the national attention, but it is where we are today. We are talking about how we can that wethe injustice now have, that africanamericans are subjected to in white americans are not. So we have an agenda of National Reforms we believe should occur. I believe when we start taking concrete action, that will address many of the concerns of the protesters. They will feel that they have been heard, and this conversation has to begin in earnest. Excessive force. We need investigations of police abuse. These are things the governor and i have proposed in the state of new york, and they should be national. So that is what we do. We start giving people hope that we are going to go forward. These moments have focused the world and we can come out better from it. Tom the tension between governors and mayors goes back in new york state to at least governor clinton and the three day trip up the hudson to albany. Give us the update on the tension between your offices and mayor de blasio of new york city. It is certainly issue by issue. There was a joint press conference with the governor to comeabout how far weve with eradicating the virus and reopening new york city. Monday. T phase starting they truly do have a working relationship. They can disagree with each but they are able to get it done. That was intensive teamwork from the state and city officials, and our teams have worked together for the last three months on a daytoday basis. Lisa lets talk more about the reopening that is supposed to happen monday. Theres a question of if you reopen, more will come. Will the subway system be prepared to take an increased number of riders . We gov. Hochul we knew could not reopen society, reopen without keeping people safe. We have done unprecedented cleaning. They have been sanitized top to bottom by individuals that have been working fully through the night. We know there will be increased capacity, but people are going to be anxious. People be using hand sanitizers, and to an extent possible, social distancing. But if you have a mask on, we now know that will protect you. Theres more information out there that we didnt have three months ago. Three months ago, we did not know masks where the primary way to stop the spread. We are learning a lot, and we are cleaning the surfaces, requiring masks, and we will get people to their jobs in new york because when we start opening, it is going to be in a safe approach with manufacturing, limited retail at first as people start getting acclimated to the new system. And wewestern new york, just started phase ii this week. That is all retail shopping, office spaces. You will see a lot more of that, but we have talked about this before, theres going to be a different mindset when we have the ability to continue working from home, at least perhaps for a couple more months. Suddenwont all of a this end, but if that is the case, we are prepared. Jonathan i want to wrap up the conversation by talking about Lessons Learned with you. Im a guest in this country, but new york city is my home, and i was shocked to see the looting that took place on fifth avenue, a place you cannot walk down without usually bumping into a police officer. What happened the other night, and what have we learned from it . Lt. Gov. Hochul the governor addressed this, reminding everyone that new york city does have the finest police force in the nation. They are well trained. Theres 38,000 of them. Were astion became sufficient number deploy on these early nights when there was looting going on. We dont want to remind anyone about the Boston Tea Party, but by nature, we are going to stand up to oppression and stand with each other when others are oppressed. That is in our dna as americans. It is enshrined in our constitution, but that does not to donyone the right criminal acts. We must protect the safety of peoples lives and their businesses. It since a message to the rest of the world that we also support agenda met protest. People have the right to bring grievances to their government, to society, and we have a responsibility to address them. Jonathan fantastic to catch up with you. Thank you for joining us. I am not sure what the Boston Tea Party was. That is something we werent taught in schools back in the united kingdom. What happened . [laughter] tom jon, you know what you need to do . I think over the fourth of july weekend, and i am sure everyone listening on radio and tv would really agree with me on this, jon ferro, you need to read Johnny Tremaine. I just think a budweiser in your hand or a sam adams. Sam adams, anda you need to read Johnny Tremaine to finally become a gentleman. Jonathan that was a lesson of how to deal with a rude british journalist live on air. Live on bloomberg tv and radio, good morning to you all. With an ecb Decision Just around the corner, looking forward to being with you through the morning here on bloomberg. Jonathan from new york city, this is bloomberg surveillance. We are live on bloomberg tv and radio. Ferro,m, im jonathan together with lisa with tom keene, im jonathan ferro, together with lisa abramowicz. Looking forward to forecast coming from president lagarde in a News Conference 45 minutes after the decision. The forecasts are not supposed to be pretty. Tom really glad you mentioned it. The forecasts that come out around these meetings are very important, and you really wonder how they will forecast price change of inflation or disinflation and the fear of deflation across europe. It is decidedly different than the challenge chairman powell has america. Jonathan and i would argue it is likely to forecast pushing this ecb to consider qe, and pushing the market belief that that is what is coming in around 15 minutes. Theres been very little pushback, if any, from the ecb ahead of this decision that that is what we wont get. Many people think it is what we will get. If we dont, i think theres massive scope for disappointment and a downside surprise and a series of markets in europe. , 1. 12. Lar we had a huge move higher. We unwind some of the moves this morning. The dollar gets just a little bit stronger. Eurodollar sitting right on top of that level. In the equity market, futures still negative, down 13 points after a monster cyclical rally over the last three days. We are down 0. 4 . In the market, 10year treasury yield. We had a real lift to this treasury curve. Your 10 year yield basically unchanged at 0. 74 . Jon. Very good, as we prepare for the ecb and what Central Banks will do now and when this crisis of pandemic is over, the Unemployment Crisis as well, we need to speak to experts steeped in the history of what central banking do. The Peterson Institute has put together a terrific set of economists. You know often, adam posen joins us. We are thrilled to have with us david wilcox today from the Peterson Institute, with his wonderful work at the fed, particularly in statistical research. David wilcox, how do you perceive the path about any central bank will unwind themselves from this great accommodation . Me. D thanks for having Central Banks around the world, particularly here in the United States, have made clear their determination to use their tools to the fullest. Roomed has more operating for taking action that some other Central Banks around the globe. The ecb on the bank of japan, for example. The fed really needs to be careful not to let up on the accelerator to fast. We are coming up on about a halfdozen years where inflation ran below the 2 objective. The fed really doesnt what to allow that to perpetuate. Tom you are channeling professor blanchard, who has appeared with us many times. He said the same thing. There cant be fear of wreathlaying. Evidence ee any of reflate thing. But do you see any evidence that we can, policy wise, reflate in the future . David i think weve got a tremendous amount of practical experience from the real world. This isnt just theoretical stuff that takes place in the graduate seminar room. Banksw that if central put their foot on the enoughator pedals hard and make clear they are absolutely determined to achieve their objectives, results will follow. Banks havet central to take responsibility for the outcomes, and if they persist, they will achieve those outcomes. Criticallyw how important it is that those objectives be met because the lived experience of tens of millions of individuals in the United States today, particularly low income individuals, particularly persons of color, is that they are bearing the brunt of this downturn, and it is incumbent on policymakers of all kinds to do their utmost to turn this situation around as rapidly as possible. Jonathan the answer is always do more on the Monetary Policy side. At what point does that become counter objective does that become counterproductive . David i dont think we are there yet. Not a dramatic about left. The burden is on fiscal policy makers. My concern really is not that. He fed will give up my concern is that fiscal policy. Atigue may set in need tohe time they understand that the cost of servicing debt is historically. Ow now if the time to make sure this downturn is limited in scope, limited in duration. Jonathan talk to me about how the nature of the fiscal stimulus needs to changed now that the economy is reopening. What do we need to see in the next several months . David my concern is the looming fiscal cliffs written into legislation. The federal supplement for on employment insurance is slated to expire on july 31. That is the 600 per week surplus payment on top of the normal state Unemployment Insurance benefit. There are tens of millions of people at this point relying on this to carry them through this period. The ppp program for Small Businesses that was under ions to convert into a grant, the spending from that program in aggregate, that spend out will come to a close here sometime for most businesses in the third quarter. The fiscal impetus we delivered already is having a positive effect now, as bad as conditions are. The thing that is pretty scary is that positive fiscal effect will dissipate pretty quickly here as we move into the second half of the year. Davidwe are speaking with wilcox, Peterson Institute nonresident fellow. Given the fact that you spent almost two decades at the federal reserve, trying to get a good read on the situation, can you tell us how difficult it is to get an accurate sense of how deep the job losses have been . A lot of questions about the cumbrian of this of the data. How clear a picture do we have . David we have a very clear picture in that the bottom has fallen out of the labor market. You have seen the fed to its utmost to exercise the full range of tools available to it. We have never seen unemployment claims accumulate to 40 million claims over a handful of weeks. We have seen unemployment rise from a historically low 3. 5 now into the midteens, according to the official number, but closer in last months report. We have not seen Industrial Production dropped by the amount it did. That was on top of a decline of more than 6 in the prior month. These are unprecedented adverse , so they need to be moving with all possible speed, force, and vigor. Lisa adp numbers were still terrible considering the people that lost their jobs and may, but vastly below the expectation , less than 3 million versus 9 million jobs lost. A lot of people saying perhaps this indicates a lack of visibility into how quickly people are being rehired, and they are getting rehired faster than some people are expecting. Have you seen any evidence to that in the indicators you are looking at . David its possible that is happening yet lets keep in perspective how bad a job loss of 2. 91 million is. During the financial crisis, we had job losses that were in the. Eighborhood comes on top of a catastrophically awful figure the month before. Outill take a while to sort isctly how bad the situation. Situation is, the that the fine details dont really matter here. What is known is that the economic devastation is vast. Jonathan david wilcox of the Peterson Institute, fantastic to catch up with you here ahead of this ecb decision, just moments away. That decision around about four minutes away. Mistakexpensive when Christine Lagarde said we are not here to close spreads. That feels like a lifetime ago, and now they are throwing absolutely everything at our european bond market. Remember, and it is a history lesson, the fame of jon ferro on the lawn in frankfurt is well known, but the truth of the matter is it is 27 fractious countries. Its not the United States. It is 27 fractious countries led by the core of austria, germany, i guess the netherlands in there as well. It is a whole chemistry she has to face. Jonathan i have to note that when you bring up where i used to live in europe, youre not giving me a compliment. It is you trying to get me to go home. We will talk about that in just a moment. From new york city, good morning to you all. The ecb decision minutes away. This is bloomberg. Ritika with the first word news, im ritika gupta. A stunning rebuke to President Trump last night from his First Defense secretary. Jim mattis said he has divided the nation and misused to the military. Theme attired marine general said that americans must reject those who make a mockery of the constitution. President trump responded on twitter. Primarythat mattis strength was not military, but personal public relations. Against the officer who knelt on George Floyds neck has been upgraded to seconddegree murder. The other three were charged with aiding and better his death. To 250ngeles, up million will be cut from the Police Department budget. The money will be used to reinvest more into the black community. Los angeles spends almost 1. 9 billion a year on its police force. The mayor also said he will support another demand of review Police Misconduct cases. Saudi arabia and russia have april a merry deal to extend curbs, but it is conditional on other countries making deeper cuts to make up for their past noncompliance. Atroup of warehouse workers amazon is suing the Online Retail giant. They claim that working conditions put them at risk of contracting the coronavirus, as well as their families. Focuses on a Distribution Center in staten island, new york. Amazon says it is reviewing the claims. 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. Im ritika gupta. This is bloomberg. Jonathan from new york city for our audience worldwide, this is bloomberg surveillance. Moments away from an ecb decision, widely expected to announce a bigger qe package, with a Christine Lagarde press conference just 45 minutes away. Unchanged,te call expected to stay right there. This all comes as we have seen a massive moving eurodollar over the past couple of weeks. Eurodollar now 1. 12. Two weeks ago, 1. 08. Some real enthusiasm on the continent over the past couple of weeks. Lets get the ecb rate decision. It is 7 45 eastern. Its head over to Frankfurt Germany and catch up in berlin matt miller. This comes out a little bit late. Matt and by the way, during this coronavirus lockdown, berlin and frankfurt are pretty much considered safe. The deposit facility rate unchanged at 50 basis points right now. Euros added 600 billion to the pandemic emergency purchase program. 500 was the number that markets had priced income us as the ecb adding in an extra 600 billion euros to its purchase program. So it is extending the time is well out to at least june of 2021. Always good for the central bank to leave itself some optionality. At a time when so many are saying it is not really , they want to deliver a signal and maybe give some of that to try a little bit more for reflation as the ecb has been doing for the last 10 years. Jonathan makes you wonder how bad the forecast will be in about 45 minutes. Actually seeing the euro strength and off the back of this. That is interesting. I think the italian bond market is pretty selfexplanatory. Just the idea that the euro is positively correlated with more qe from the ecb. Matt we saw the euro strengthen when we got wind of the fact that germany was going to pass it bigger Stimulus Program that had been anticipated. They came out with 130 billion , so i thinkmulus what the market wants to see in order to add strength to the currency is strength to the economy. Tom we say good morning to all of you across america with us. This on the ecb, and as we move to the press conference here, Carsten Brzeski scheduled to be with us in a bit as well. Ive got to rip up the script and go to chancellor merkel and the flap we have seen on the g2, the g7. One of your charms is your encyclopedic knowledge of the german press. Matt she has gotten a real boost in her popularity, not so much because of the way she deals with donald trump, but because of the way she has dealt with the coronavirus. Hardny has not been hit it all. We have been out of lockdown for a number of weeks. Everything is pretty much back to normal. I went out to a restaurant a couple of nights ago and it was pretty full. You can go to a restaurant, you can go to a bar. We have the German Economy starting to home along now. The german people on handling this coronavirus. Tom thank you. I dont mean to get into the ecb discussion here, but theres now. So much in mix right the backstory in the headlines of american newspapers is extraordinary on how european leaders have given up on this president. Jonathan not just that, but maybe now, lets talk about what is happening in the euro zone with this Monetary Policy. Carsten brzeski is joining us now. Just to see the euro positively correlated with more qe come up talk to me about that. Initially, this is putting a lid on redenomination risk. Does that achieve that . Carsten this is a bit of Economic Policy fireworks we are having. We have the German Government within a normas stimulus package. With an enormous stimulus package. Thatreally reassures german policymakers from both fiscal and monetary are working together. Theres this weird tension Central Banks are facing right now over delivering, overpromising when theres not the degree of market stress that would necessitate such intervention. We are seeing the fed not even deploy a lot of the firepower they have. The ecb perhaps poised to do the same. Can you talk about the logic there, that is signaling that the signaling can be so loud that it doesnt necessitate that firepower . Do you expect that to be the reality for the ecb . Carsten i think what theyve learned from the past, what they learned from the 2008 crisis, you announced big numbers so that there is no speculation at as theinst the ecb lender of last resort. That is the lesson they drew from the midmarch episode, and which lagarde was a bit more cautious to say that she once whatever it takes. That she would be there to limit spreads from widening. So they are now going out and it doesnt make sense at all to speculate against the ecb, against the euro zone. They have now bought time until mid2021. Jon, thanks for listening today. He says stay on the ecb, not trump politics. Ill do that. As we look to the ecb and the press conference, what will be the key distinction Christine Lagarde will try to make . Needle, what is going to be the key thing she is going to try to do today . Carsten i think what she is going to try to do today is really show her commitment, so the ecb is now president everyone should listen to. That there is no doubt at all about her commitment, her determination to do whatever it takes. If she manages to do that, i think we are pretty much fine here, and she can get some compliments to the government leaders who came up with a fiscal policy response to this crisis. Jonathan clearly the Main Objective here is to keep the door wide open for fiscal stimulus on the continent. We have had a lot of happy talk over the last several weeks about a plan that was announced from chancellor merkel and the leader in france. I think it is absolutely remarkable that we have so much happy talk when they have announced a plan that hasnt been agreed and is nowhere near being enacted. Is that going to happen . Carsten it is going to happen. Weve also had these discussions in the past. We all doubted that they would ever change. I think it is remarkable that the germans have changed. It is not only they are engaging in the enormous fiscal stimulus for the sake of their own country. But they have also turned around and they see that they have to carry this responsibility for europe, for european integration, for transfers. Therefore, i think this Recovery Plan will also happen because the most of the market change over the past few months has happened in berlin. Jonathan fantastic to catch up with you in an important moment for the continent. Ing. En brzeski there of 1. 1250 now. T quite clearly, the objective of keep the door on any issuers who want to get out there and boost fiscal stimulus. Tom for a nonglobal wall street audience, let me just ferro just said. Pointsast two decimal really matter. When i looked at my terminal, it and even those little decimal point moves really matter. Would suggest it means good news for Christine Lagarde. Jonathan if it holds, i think that at the story. I think theres enthusiasm for the continent because of what the ecb is doing. What we want his followup from fiscal. That is what is going to make the difference. Looking at this market, beyond the euro, i would say just look at the front end of the italian yield curve. Twoyear yields in italy down 16 basis points on todays session alone. We are basically cutting them in half as a more supportive, flexible ecb flexes its muscles on the asset purchase side of things. That News Conference is 30 minutes away. Well hear the start of it here on bloomberg tv and bloomberg radio. Economic data in the United States moments away as well. From new york, this is bloomberg. I would find it very difficult to argue that we are going to have a vshaped recovery. The closest anyone has come is china, and it doesnt look like a v to me. Theres a risk that the whole system will come crashing down. Toolsetary policy are really about driving economy to higher levels of them women higher levels of employment. This is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. Tom good morning, everyone. This is bloomberg surveillance. Thrilled you are with us on bloomberg television, bloomberg