Industrial data out of germany. Desha back to that euro. Within back to that euro. We have seen Christine Lagarde speak for the first time. She has been talking about the impact that the coronavirus has had. She said that the policymakers that the ecb have done what is justified but she continues to push for this idea that we do need this fiscal pop package to come through. The european commissions proposal for a revised financial train work and the next he generation eu are decided in this regard. It it is association it is associated with the proposal and could have an impact on the International Role of the euro. It will important to adopt that package quickly. Christine lagarde speaking a little earlier today. She will speak at the bottom of this hour as well. Speaking to us from washington is adam pozen. Banks,alk about central particularly the ecb given the fact that Christine Lagarde has just been speaking. Herhe doing enough and are calls for greater fiscal policy out of europe ultimately going to be met this time . Adam president lagarde is and the right choices in the public call for the European Union and the euro area to step forward on fiscal. Theres only so much Monetary Policy can do. I would not say they have maxed it out, but they have done most of it. The next step is fiscal. My concern is it is part of the European Unions multiyear budget process. The commissioner explained at an event last week, until the First Quarter of 2021. That will be an issue. But this is a huge step forward in design. Guy as tothere is a debate where that money goes, to what country, what qualifications do you use daca do you have best qualifications do you use . Do you have best practices . Adam you essentially should focus on the dependence of the economy on sectors like tourism and that would be the way to do it. It would kind of be like an automatic stabilizer. You get more response in the economies that have greater need. It should be relatively straightforward to do that. The issue is threating this neat needle of the frugal four. The other side, which is grandson the case of something that was nobodys fault. The other way to do that is to exposed countries most with their tourism or hospitality, countries who have suffered more from covid should get more. Guy that is not the way they are going to do it. At the moment the commission is saying theyre going to work on guidelines. That means that the less welloff economies will get more regardless of how hard they have ultimately been hit. There is a battle ruing here adam. Do you think it will get resolved rationally . Ultimately this will determine whether europe has a decent response. Europe is starting to put this together but it feels incredibly fragile at the moment. Adam i must admit a few weeks ago i felt europe was incredibly fragile i was starting to worry about a month and a half ago. Now i am actually optimistic. I think there is contentious debate but if we end up with some of the countries in Eastern Europe who locked down early and had less covid damage get a little bit more money, it is analogous to what happened during the financial crisis. They were not bailing out the banks in order to make the banks wealthy, they were trying to save the economy. That some bankers got money along the way, was an acceptable side effect. Itthey get some extra money, is a small price to pay versus worse not putting the money out. I am reasonably confident that eu will get there. Lagarde course, speaking out in the most recent headline how many times can she say exactly the same thing before it gets done . I want to get your take on what it means for the bond market over in europe. How much issuance are we going to see if countries are smart and take advantage of low Interest Rates and then use that wisely . Point. Hat is a very good what we are going to see is essentially because germany has announced a very important package for the from their point of view, it gives more room economically in terms of the rules but also room politically for others to issue. Blanche hard and others argue blendnche hard shard far worse than southern europe. There is a lot of money that it needs to work because unfortunately money is coming out of the poorer world and looking for a place to go. Youll see a lot of issuance and not much will happen. Guy ultimately though do you , kind of back to Christine Lagarde, do you think the ecb will have to do significantly more . Adam,d has done so much, and while the ecb has done significant amounts, and it has buying upp eat s will the gap between them and the fed have to close . Can the ecb do it . Adam i think you are right, but i do not think it has to be thought of in terms of the gap. There are fundamental reasons why the european monetary authorities would do less than the u. S. First and foremost is on average overall in europe they have done a Better Public Health job of containing the crisis than the u. S. Has. Public health is the main impetus. Not the economic. There is less need for the ecb. A second issue is the automatic stabilizers in terms of unemployment and how money gets to Small Businesses and workers. It seems to be more efficient in large parts of europe compared to the u. S. , which makes sense. They have more experience running a welfare state than the u. S. That offsets how much more the europeans do. The ecb is a much more bank centric system with much less issuance of securities for the size of the economy than the u. S. The feds budget sheet is the result of them intervening in many markets whereas the ecb are there. Ou kind of took us that is a good segue to talk more about the fed. Germany and the u. S. Are dealing with unemployment it very much feels like keep people employed. It is a different story in the u. S. How did that change the recovery for both of these countries . Who did it right and when will we know when that happens . For while this is good policy analysts, i dont think we will ever get a clear answer on who did what right. Policy, of the recovery the difference in the unemployment schemes in terms of the germans, the french, and americans, europeans have a tighter tie to the ongoing job. The have written about differences should not be exaggerated, but we may see there is easier taking backup or fewer longterm job losses as a result of this framework in europe. The central bank the fed, like the ecb, is looking for another big plug of fiscal policy. Lagarde is right to talk about that in the u. S. Context, the unwillingness of the senate to to state and local governments. It will be a big drag on the reopening and a big drag on the economy. Alix hang tight with us. We will break down more stuff. Adam posen will be staying with us. World bank sees the Global Economy contracting the most since world war ii. We will break down more details with the author of the report. That is coming up. This is bloomberg. Live at from new york, i am alix steel with guy johnson in the london. The big story was a steepener in the u. S. Yield curve. As treasuries began to reflect steep curve control how does the fed address this . Adam i think they will broadly accept it. Do you normally do worry about the yield curve steepening because you think it is a sign of a recession. In this case it is a good sign. They may not bluntly say it, but i think they will be more accepting of the yield curve steepening. In terms of forecast, i think perhaps try to push back expectations about an announcement of a new measure or yield curve control. It is possible they will surprise us and they have an interest in not tipping their hand when it is market Sensitive Information but i do not think the fed is yet ready to move to yield curve control since eight yields uncertainty over fiscal policy and they do not want to be seen as playing in that political debate. As governor reynard and others in the community have spoken about, i think yield curve control is a very sensible way looking at say the 10 year or 30 year, but more likely the 10, to wheniscal monetary you will have sustained deficits and not much ability to affect inflation expectation. If they are going to move toward yield curve control i think they are more likely to talk about controlling the 2, 3, or five year, which is i which i think is a mistake. You wonder what the benchmark is for the Global Economy now. A used to be the 10 year, but if we are going to be targeting that, you wonder where we are going to go. Lets talk about what happened with that payroll number. First, your thoughts on that payroll number . Do you think that is an accurate reflection of where the economy is right now . If we continue to see data like this do you think it will make the fed back off a bit . Adam i dont expect the fed to back off at all, guy. At normal times it is crazy to put too much emphasis on one months surprise number in the jobs theories even though this extreme,urprise was so it is not clear how much information there is in that surprise. I would not expect the fed to react much to it. In terms of what the number really tells you, my colleagues jason furman and lily pearson have a very nice piece on our website talking about what is real unemployment numbers, obviously higher than what the bls says. When you start taking account of the klein in terms of the decline in terms of people not working for weird reasons and the total people working it came down definitely, but the other benchmark people should be worried about is even if everyone who is furloughed could get their jobs back, which seems unrealistic that would only which to 7 unemployment, is still bad, but realistically it is going to be worse than that for some time. Guy i was alix i was just going to go that. We could see a low slow slog when it comes to unemployment. What do we do about it . Will i trillion dollar stimulus be what fixes that . Do we just deal with it in a weaker growth environment . Adam i think it is yes to all of the above. At some point it is just not realistic. Nothing we do will get us back to below 7 within the year. If we are lucky, i think we can get below 10 within the year but that is pushing it, not because i am saying we shouldnt push it but realistically i do not think we can. Can go on . That as chair powell has said, there is something about keeping people in the labor force and still tied the industry so where they have viable jobs, trying to keep those connections. That might be part of the stimulus package. You also dont want to keep making it that much harder for people to compete for jobs. Proposalhy the new about bankruptcy issues but just more broadly, in order to keep get good news next month about unemployment, you dont cut it off now. The more you push hard at the front end, the less lasting damage you have. This time in the labor market as opposed to the credit market. You dou said moments ago not expect the fed to back off. You continue to see Financial Markets and some way dislocating from the reality of what that Economic Situation looks like. You said you dont think the fed is going to back off. You expect liquidity to remain there for. What do you make about the gap between Financial Markets and the economy . Do you think the Financial Markets will have a positive effect on the economy . Adam some people feel more confident. N it comes to medical middle class folks like you me, we are like you or we are like oh are part folios are back up to where they used to be our portfolios are back up to where they used to be, so it has some good side effects. What does the market represent . There are two ways of looking at it. Well, there are 1000, but there are two i think are important. One is that the market is forwardlooking. We are seeing the bottom of the worst of it. They are confident there will be a successful vaccine or treatment, combined probability, therefore we are back to where we started. Does isule the market it represents the profitability prospects of the companies that are the other rule the market does is it represents the profitability prospects of the companies that are represented. An environment in which wages will be killed, in which incumbent firms and Network Firms of the amazon type will have incredible advantages so profitability goes up, and which rents are going down, which might hammer state and local government, it is all good for profits. You can have something that the market is telling you is good forprofits that is not necessarily good for everyone else. Guy thanks for your time today. We appreciate it as ever. This is blumberg. Bloomberg. It is biggestat some of the business stories in the news right now. The target price has been boost to 3300 dollars a share. Amazon started the day at just below 2500. At the survey suggested that amazon is likely the best global play in online retail. American auto demand is back. On the f1o production 50 pickup in michigan and that has some workers on edge. They will make more money due to over time that ford is adding. Ford once the union wants ford to do more to protect workers from the virus. A British EnergyCompany Plans to cut 10,000 jobs as part of its reorganization. It that is roughly 14 of its workforce. A Senior Management jobs will be cut by one third. Alix thank you. Covid, put that aside for a second, this is what bp was already going to be doing. It will be a german different company. Im not sure you can even call it a major oil company. More focused much on investor returns. What covid may have done is accelerated the plans. That is something with the new ceo coming in, he has the opportunity with the backdrop that we have to push the plans a little harder. What do you think . Alix yeah. They will have a stronger stomach for that potentially with covid. Guy bp is one of the stocks in focus. The close is next. This is bloomberg. Guy welcome back. You are watching the european close. Guy johnson in london, alix steel in the united states. 30 seconds away from the end of trading in your. Europeising to see taking a breather. That is what we are seeing in terms of the headline numbers in the major indexes. The stoxx 600 off its session highs. Earlier on, we were more positive. We have faded from that. Off our lows. Only down. 2 . In terms of the composition of the market, it is still the banks that are the prime drivers. Some of the travel stocks are doing well. The ftse, the dax, and the cac all lower. The major markets doing better than the peripheral markets. The ftse 100 flat, as is the dax , the cac 40 down. 2 . In terms of the sector breakdown, we had many more positive sectors earlier on, but we do still have the banks leading the charge. The banks have been they got performers and that continues. The oil and gas sector is trading higher. We talked about what is happening with bp. Some of the more defensive names are coming back into the mix. The utilities and the food and beverage sector. Tech, real estate, and retail at the bottom of the market. Been amazing in terms of their performance. s take a look at what european banks up by 20 . That is eclipsed by some of the travel names that have done incredibly well, especially in the united states. Names like american up over 100 over the last few days. Lets take a look at the breakdown of some of the individual names. Weve been talking about this astrazeneca gilead story. The market cannot make up its mind and it has sold astrazeneca, but not by much. Iag doing a little bit better today. Reportedly are pushing back against the government in the u. K. Threatening it can fire all of its pilots as a result. Up 1. 1 today as we are likely to see an acceleration in some of the changes at ridge petroleum. At british petroleum. Alix market still seem to ignore the economic data. And the economic outlook. World bank is out with part two of its economic prospects report and is forecasting a 5. 2 contraction in gdp this year, the deepest recession in eight decades and risks tipping millions of people into poverty. Kose,g us is ayhan director of a group at the world bank. His team wrote the report. Pick three of your highlights you think it is important for audience to know when it comes to moving out of the covid pandemic. Ayhan the first highlight, we are expecting a historical contraction in global gdp. Not just the worst episode since the second world war. Worst episodeth since 1870. Second, wherever you look, you see the contractions in economies. Economiesg markets will contract 2. 6 this year. This will be the first contraction since 1960. In the case of advanced economies, the contraction will be about 7 . If you look at per capita growth numbers, those numbers are also disappointing. 3. 6 andll contract you do not have per capita Income Growth it is difficult to have durable improvement in standards in emerging markets. Lets pick up on that point. You just reeled off a load of numbers in terms of what the Economic Impact will be. In terms of your ability to forecast, how bake is the top and youom of the chart think the risks are still skewed to the downside in terms of your forecast . Ayhan that is a very important question. Obviously we are going through unprecedented times. This is the first global recession triggered by a pandemic. It is not just a forecast. You need to think about possible scenarios. There is a possibility we might see a much faster, much stronger recovery. That is what the Financial Markets are pricing in right now. Then you expect growth around 4 . That is two times larger than what we saw during the Global Financial crisis. It is still a significant contraction. There is also a downside scenario if we see a second wave , if we see these containment measures employed for an expanded period of time. Then youll end up around 8 contraction global gdp and hope we will avoid that. We still think Downside Risks dominate, and the main reason for that, as much as you see gradual opening up in advanced economies, and the cage of emerging markets in the case of emerging markets, the pandemic is in full force. ,n africa, in south asia infection numbers are rapidly increasing. What we have seen in response across emerging markets and develop markets has been Central Banks plus stimulus. Emerging markets are doing both at the same time. It is something we tend not to do together. Can you get a read on what the best practices are to combat covid and help to set up an economy for recovery . Important issue right now is to address the health crisis. We have a reasonably good idea how to do that. Measures starting with testing and isolating and tracing, all critical. Patientstreat these tested positive as soon as possible. Need to of policy, you reach out to vulnerable groups. The households who lost their jobs, corporates that are still valuable but need liquidity to support. We saw around the world, governments have been doing that. And Central Banks there has been extraordinary support and this has made a huge difference. We avoided the worst of the crisis. If we did not have these extraordinary measures, we were looking at a much worse downturn in terms of global growth. Have you baked any Debt Forgiveness into your numbers . Are you assuming any Debt Forgiveness, particularly for the most vulnerable economies . 00 what we are assuming more than Debt Forgiveness is what is on the table right now. That is what g20 g20 countries got together and implemented in response to Imf World BankInitiative Debt suspension for this year. , and weld be extended see Downside Risk in terms of payments down the road. We believe countries need more help. In our current forecast, we incorporate this debt relief initiative. That, toed on piggyback off of that, what we have seen is a lot of Central Banks and governments issuing a to deal with covid. What we are seeing is a push for social justice, which will lead to income inequality, which will hurt portions of the population most hurt by covid and governments will have to pay for that. How do see that evolving . Ayhan that is a very important question. Social justice issues are and in emerging market economies these issues are at the center of our programs. Whenever we think about adjustment, whenever we think about reform in these economies. One of the important consequences of this pandemic is there are going to be longlasting scars. When you think about these , the are not just recovering immediately after the crisis. Diverse impact impact on potential growth for an extended period of time. What is the basic message . Policymakers cannot postpone the types of measures necessary for the future. There needs to be some set of reforms in place to improve longterm growth prospects, and that starts with policies targeting health, policies targeting education, policies targeting productivity growth. That is basically the big discussion down the road we will crisiscause we think will have an adverse impact. Policymakers. Now they need to address the health crisis, they need to address the immediate decline in growth, but they need to also look forward in terms of understanding reforms to improve longterm growth and address the injustices that reflect themselves in terms of inequality, in terms of poverty. Alix thank you very much. Of theose, director Prospects Group at the world bank. We want to give you update what is making headlines outside the business world. Here is ritika gupta. Ritika the u. S. City hit hardest by the coronavirus starts to reopen today in the initial phase. Will allowty construction, agriculture, manufacturing, and wholesale trade to start operating. Retail stores can offer curbside pickup. If all goes well, new york would expand the reopening in two weeks. More than 7000 people in the city died from the coronavirus. To tient trump is trying joe biden to activist calls to defund the police. The president s goals seems to be to portray joe biden as weak on crime. Protests over the death of george floyd have the president on the defensive. Iran is dismissing president trumps offer of a better deal with the u. S. Over its Nuclear Program as nothing but political showboating. Trump made that offer in a tweet celebrating the return of an american citizen imprisoned in iran. The Prisoner Exchange indicated a rare sign of diplomacy between washington and iran as washington continued to news to ramp up sanctions on iran over its Nuclear Program. Boys johnson is finalizing plans to ease the u. K. s lockdown and hoping to rebuild support for his government in opinion polls. Boris johnson will meet with the cabinet on the next stage of lifting restrictions. He will promise increased spending on roads, hospitals, and research. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. I am ritika gupta. This is bloomberg. Guy . Guy thank you very much, indeed. This is where the u. K. Market has finished. A little bit of a fade toward the end of the day and a bounceback in the last hour. We did finish in negative territory, 64 point for the ftse 100. 6472 for the ftse 100. Digesting some of the gains from last week. A similar situation on the continent. Incredible numbers last week. Ritika gupta was mentioning Boris Johnson and his government under huge pressure regarding the quarantine. If you are returning or coming to the country, the press conference from 10 downing street at the top of the hour, we take that live and in full on the cable on dab Digital Radio and the bloomberg terminal around the world. This is bloomberg. Guy i am guy johnson with alix steel in new york. This is the european close on bloomberg markets. Lets head back to one of the deals. Two drugmakers heavily involved in the response to the coronavirus pandemic are said to have considered a megamerger. Bloomberg has learned astrazeneca made a preliminary approach to gilead. Y may faceay the political holders. Joining us is tyler van buren, Senior Analyst at piper sandler. He has an overweight rating on gilead. It will be interesting to see where we go. The price target, 19. Regulatory News Services in the statement out of astrazeneca on the london talksge, which implied are not ongoing. What you think the prospect of the deal are . Tyler thanks for having me do it as you state thanks for having me. As you stated, it looks like folks are poll are throwing cold water on a merger. , there are a few points we think are worth making in favor of a deal. The first is the lack of overlap with commercial products will allow regulatory ftc review. Both companies have a significant shared interest in immuno does knology. In immunology. There is also covid19 overlap. It is my understanding that astrazeneca does not have the best balance sheet, as they had to raise money last year to do the 7 billion deal with iag. They barely generated 100 million in cash last quarter, which is minuscule for a 100 billion company. Gilead is at levered and is generating 1. 5 billion to 2 billion a quarter, 10 to 25 times that of astrazeneca. Sheet is one of the most significant reasons for the deal and would be the basis for allowing such a merger to occur. Alix i am glad you brought that up. Astrazeneca does have a lot of debt, where gilead has a ton of cash flow from their hiv drug franchise. Do they need to merge at all, even if it is not with each other . Does astrazeneca need someone that has better cash flow to offset the debt versus gilead does not need another company that has a better visibility in their pipeline . Tyler yes. Need this toot occur from a cash flow perspective. I would argue that astrazeneca needs this more. s theyblem with gilead walked into a situation where prior management fumbled the football with response to building the pipeline. In the event of gilead chair for would be required. Our target as a Standalone Company is 90, which some investors would argue would be optimistic. I think there could be significant support for gilead shareholders for maximum potential for Value Creation in the event of a merger. What is gilead worth if we get a vaccine . How much is remdesivir baked into the price . How much of the price is around remdesivir . If we would see demand falling because there was an effective vaccine, would that change the arithmetic . Tyler good question. , i thinkof the base most would argue gilead is worth about 70 per share, may high 60s. Probably five dollars of that is remdesivir. In an optimistic scenario, depending on if youre willing to ascribe multibillion revenues , maybe if you get into the mid80s or 90 per share. I do not think there is a ton of value in the stock from remdesivir. If a vaccine does not come along, i could argue they could both exist. A vaccine, even if it is effective but it is likely not to provide coverage for every single person. There will still be a need for an acute option. ,rom a covid19 perspective this combination could make a lot of sense because unity the acute treatment with remdesivir and a vaccine. Companies going to make any money on the drugs . Are they saying we will do it at cost and make it widely available, whether it is treatment of the vaccine . Will they make money or lose money . Tyler they are both being very careful because of the obvious potential for a public crash. They will be donating a bunch of doses, and they will do the best they can to give it away a cost to get the pandemic under control. The question is whether this recurs year after year, and certainly based upon how widespread it is it appears that is possible. In that scenario is phase two of the business model, where they do need to start making money to make it sustainable. I would argue the need to be able to turn it into some sort of a business to encourage other companies to develop nextgeneration medicines, to continue to try to eradicate covid19 or at least get it under control. The white house has talked a lot about gilead over the couple of months. Would that be a political problem if a u. S. Company that is still at the forefront of this process of providing therapies for covid19 or to fall into foreign hands . Tyler that is a good question. I think there is president to suggest that, especially in the past, when you have seen vaccines or drugs developed, there is political pressure based on the country it is ioped to use it towards guess with respect to other types of political deals, as you may be aware, earlier in the decade there were a lot of Financial Transactions for tax reasons. This would also surpass those thresholds. Alix tyler, thanks a lot. Biotechn buren, Senior Analyst at piper sandler. Appreciate it. This is bloomberg. Alix coming up, there still a lot of fun things to Pay Attention to. Billions and billions of dollars worth. Im interested to see how it plays out in terms of investor interest, when you have a selloff in bonds and you have the fed on wednesday. Guy absolutely. There is a lot of issuance coming out this week as well. The economy issuing quite a lot of paper. The german starting to issue a lot more than previously anticipated. It will be interesting to see what chair powell ultimately says and whether or not we start down the road towards curve control. I think claims on thursday will be fascinating. Any confirmation around fridays payroll numbers will be worth paying attention to. I think the number thursday will be a big deal, plus the euro finance minister meeting to discuss the ongoing saga around the rescue package. Pga has thently the first tournament. For golfers, there you go. That wraps it up for us on bloomberg markets. Powerup, balance of with david westin on Bloomberg Television and radio. He will be talking to the Lieutenant Governor of michigan. This is bloomberg. David from new york to our tv and radio on since worldwide, welcome to balance of power where the world of politics meets the world of business. We check on the markets where they are on their way north today. Abigail doolittle is here. I see the nasdaq is lagging behind the continued rotation to cyclicals. What does that tell us . Abigail it is interesting the nasdaq is lagging in cyclicals. But it an interesting market environment. ,elative to that rally rotation that is the main theme we have been looking at, not just today but over the last couple of weeks as investors moving to the Strong Economy and recovery sectors such as the industrials, energy, financials, subsectors itinclude airlines comes at a price you have the doubt there outperform the s p 500. It comes at the price is some of the other sectors