To gains ahead of todays fed decision. Investors consider the possibility of a return to 1930s era yield curve control. Kowtows. Teaus mike pompeo accuses a company of bowing to beijing. A top investor adds its voice in the rebuke of hsbcs decision. Time is running out. Cerberus is tired of waiting for a turnaround at commerzbank, calling the banks performance an abject failure, the activist investor seeking two seats on the Supervisory Board to turn things around. We are just an hour away from the cash in europe and the u. K. Let us take a look at futures first. We have turned from losses to gains, now looking at green arrows on european futures after dropne to two plus percent we saw in cash trade yesterday, we are also looking against in u. S. Futures, right now 0. 5 , no matter which contract you look at across the dow, the s p, and the nasdaq. Anna . Of breakingle bit news coming through on the spanish clothing retailer inditex. Delaying its dividend for 2021, but we are waiting for the full set of earnings information coming through. Will there be a loss reported . We are watching out for sales trends. Watching out for what they say about the way the business is structured. Looking for signs of resilience, any signs of resilience in that business. Detects,cused on and but lets jump to the desk into tech focused on inditex. We have had moves to the upside. Equities in asia around 4 0. 4 . We are waiting for the fed, what kind of guidance for the fed, even if there is not a great deal of move on policies. You mentioned yield curve control and whether that will be part of the conversation or not. The dollar does resume its downward trend. Something of a theme of late. We saw the s p down by 0. 8 . Perhaps that is no surprise given how we have gone back into positive territory for 2020. We see positive sentiment. Matt that was a fascinating read and it will be good to talk about with our guest today. Let us get the first word news. Todays top stories from the terminal, the World Health Organization is walking back its comment on the a symptom attic spread of the coronavirus. A day after saying people without symptoms passing on the illness was very rare, it now says it is still unclear. The head of the agencys emergency diseases units has previous suggestions were a misunderstanding of her comments. Hsbc and Standard Chartered are facing a backlash for their decision to back hong kongs controversial security law. Investors say it is uncomfortable with the decision and the Parent Company for its Parent Company is one of the biggest shareholders in the two lenders. Hsbc,ompeo has blasted describing the move as a corporate kowtow. A Corporate Finance minister will not seek another term as president of the euro group. The announcement triggers a race to replace him leading one of the blocs most powerful bodies. Top roles are often divided along geographical and political lines, that puts spain in position for the drop, making the finance minister a strong contender. Global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Anna just a quick update on inditex. When we were going to see the first ever loss on record, and we do. First quarter loss coming through at 409 Million Euros. The first loss on record we are informed. We also get the numbers on sales. Inditex delaying its dividend for 2021. Let us get back to the picture across these markets. Asian equities are mixed. Investors take stock of a rally that has seen the s p 500 wipeout losses for 2020. Hedgery had fun Fund Managers as it has confounded those who were doubtful. If there was a franchise for humble pie, there would be a milelong line. Anna big names perhaps eating humble pie. Let us get into the conversation. Worth remembering of course we have seen u. S. Stocks back in the black for 2020. Nasdaq in particular doing very well. Even the broad measures not looking too bad for 2020. Emerging markets lag behind. Is that something you see catching up or is underperformance justified . Underperformance is justified to some degree. If you take u. S. Stocks and use contract and you subtract those companies, u. S. Stocks have not done quite as fabulously either. It has been a rotation into technology and away from growth. Of course vm has a little bit of a discount because it is perceived as riskier. Subtract tech versus nontech is not as great. Now seeing this seeing this trade war between the u. S. And china reemerge. How is that affecting markets right now. I actually think people are more confident and they should deal, atthe trade least for the time being. We have had larry kudlow and Robert Lighthizer making it clear the trade deal between the u. S. And china is safe for the time being. Have hadink given we strong asset Market Performance in the u. S. , phenomenal payrolls tober, it allows politicians focus more on the positives. Donald trump can now spin a story about his success in domestic markets without having to point the finger so aggressively at china. For the time being, things are better between the u. S. And china, and that is one of the reasons the chinese yuan could do reasonably well for the next couple months. Things china exports a lot of things, but one of the things it does export is deflation. When we see chinese backed deflation, that has an impact on the rest of the world are we expecting that once again making life more difficult for those who would like to generate inflation in developed markets . Definitely. We saw today with the cpi and Producer Prices in china. These were significantly below expectation. It is clear china will continue to explore on the producer side deflation margin. The world is perilously close to deflation anyhow. Thats one of the reasons the Federal Reserve is unlikely to say anything positive at this meeting this evening. Matt just want to quickly ask you about this big new wager. What are the chances the hong kong dollar peg is broken . Close to zero. It is unlikely they would let the peg go under the mild pressure we see today. The hong kong dollar peg has survived worse than this. Heending on the way structures his trade, he can still make money if the market probability. Igher it is not necessarily a bad trade. It is unlikely the peg will break. Matt thanks for joining us. Bloombergs emerging market strategist. Coming up, we are going to get closer to home, focusing on german optimism despite the deep divisions within the eu. Olaf scholz believes the block can reach a recovery deal quickly. Quickly. Manus matt welcome back to Bloomberg Markets. This is the european open. Futures higher across the board on European Equity indexes. Coronavirus unions recovery packages facing stiff headwinds from the budget hardliners. Germany believes an agreement can be reached quickly. We are joined by a european economist at ubs. There is a lot of talk about the frugal and budget hardliners, but do you think we are going to see this package in the same size be passed in some form . The size of the package came as an upside surprise for the initial proposal. The size itself does not seem to be the biggest problem. Where we are seeing more grain 10n is regarding loans. This is the area where we think we might see watering down of the final agreement. Anna is that something other European Countries should think about . Obviously they are going to need some way to pay back debts at some point. Should be cutting taxes in the shortterm. How does the tradeoff look across europe . The key element of the fiscal stimulus package that was announced last week. When we think about the implications, clearly that its going to be something that should support consumption in the near term. The last changes in germany, essentially a mirror image of 2007. The biggest impact was on bigticket items. Consumption of that should be supported by this temporary tax cut. At the same time, the tradeoff thenen consumption now and having a drag on consumption in the First Quarter of 2021 once the tax cut gets reversed. Fiscal think about stimulus across the euro zone, this is something other countries could potentially consider. So far we have not seen any announcement. Measure, we will need to take into account near term longerterm impact. Matt what do you think about the nearterm impacts of the ecbs move . Talk about a bigger package than expected in terms of the eu or the ecb. Now we are seeing a bigger increase in the tech program that had been expected. We saw that last week. Is that going to move the needle on inflation . Of 600 billion and the extension until june 2021 came as an upside surprise. Given this upside surprise and an absence of escalation of the crisis, the ecb might not have big policy decisions before later in 2021. Ecb adding more to the system and what it means for inflation, it is not just about the level of liquidity. What could actually push inflation higher, if banks were to use their increasing reserves , created as a result of purchases, if they were to use them to create new loans. , an immediate pickup in demand for credit, liquidity needs, we expect credit to actually decline, which is what happened during the previous recession. From a sovereign debt perspective, we see the essential for a prominent comeback in inflation. That is interesting. Looking at a fiveyear expectation chart, those breakevens seem to drop in the month of march in the euro zone. Moving higher with some stalling in there. Generally they have been moving higher, almost to prepandemic levels in terms of Inflation Expectations. How high can inflation get . You dont think very high. Inflation toexpect come back significantly in the next few years. When we think about what has loyal flation lower, lower oil prices. Time, a temporary negative drag on inflation is also likely to come from this in germany. That is going to push inflation in germany lower in july. It is going to be of a temporary nature. That is going to be a significant drag on the euro zone inflation in the near term. What i would say has driven Inflation Expectations since march is the fact that mobility restrictions across the euro zone started to be lifted. Data, such asme electricity consumption, all of this these indicators are suggesting activity has started to pick up. How much isnt, going to translate into growth is still very hard to say. Matt thanks for joining us. Latest in through the the blocks efforts to reinvigorate the economy. Let us get the Bloomberg Business flash news stories. Todays top corporate stories from the terminal, time is running out for commerzbank. To fix itself. That is according to Cerberus Capital management in a confidential email seen by Bloomberg News. The letter says leadership is too focused on on profitable Revenue Growth and lacks the sh a bloated cost base. The fund is seeking two seats on the Supervisory Board. Crossfits ceo is stepping down after comments on the George Floyd Protests. In response to a tweet calling racism a health issue, he 19,ribed it as floyd mirroring covid19. The tweet cost the company a partnership with reebok. He says he is resigning for creating a rift in the crossfit community. A company has persuaded lenders to grant it more flexibility financially. It is a key step for keeping its sale to lvmh on track. Flexibility includes raising the limit on the companys debt to earnings ratio. Any breach could have given tiffany a loophole to alter the purchase or back away. That is your Bloomberg Business flash. Ing up, bond markets europes bond market slides through one trillion euros worth of sales. We will discuss the record debt issuance both here and in america next. Anna welcome back to the European Market open. Equity markets looked to be heading for a positive start to trade this morning. Up by half a percent on euro stoxx 50 futures right now. Lets get into a different conversation. Europes bond market has surpassed one trillion euros in sales. Takingandmark event place, hitting the milestone at the fastest pace ever. What has fueled this rush to the debt market . ,ho is it raising this money doing this borrowing . Same is almost part of the story we were talking about yesterday. Yesterday we discussed stock issuance. Bond issuance is another phase of the same coin. That surviveddity the pandemic, but this is not just companies, it is oftens as well sovereigns as well. Ireland had a record day. This is what Central Banks were hoping to accomplish when they started to go into the corporate debt market. When they cut Interest Rates as low as they are, hoping to spur this exact action. It is not only the supply, we have this big source of demand. It is happening on both sides of the atlantic. The u. S. Passed their 1 trillion mark a couple weeks ago. For europe, this happened three months quicker than it did the prior year, so this is a record pace getting to that one trillion euros mark. How much longer can the pace of this issuance continue as a function of supply and demand . At least the point we are at the moment, there does not seem to be any signs of corporates and countries leading up. The u. K. , there has been a huge source of demand for u. K. Bonds given that the boe looks like it is set to undergo quantitative easing. That continue to look strong. At the same time, the risk for these bonds is that a three month low. Basically levels before the crisis. That should tell you it is likely to get complicated from here. We have seen unemployment is still in the double digits, not to mention a second wave of coronavirus is at risk. Record issuance, but troubles may lay ahead for these issuers. Matt thanks very much for that. Dani burger talking about record debt issuance in europe and the u. S. Next, esp provided shelter for the storm for some investors, but flows turned negative for the First Time Since march. Why the sector is still next. Tive wit you doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Anna welcome back to the European Market open. Half an hour until the start of European Equity trading. We could see a bounceback, positive for global equities. The Asian Session has been moderately positive. The european session indicated up. Futures suggest we will be higher. At 10 00 a. M. U. K. Time, the oecd releases its economic outlook. Its twice yearly analysis of the prospects of member countries. Later, the ecb Vice President speaks during a webinar organized by the institute of International European affairs. Concerns around inflation and watch out for u. S. Inflation data. We will get the cpi number. We had the number out from china overnight. We will be waiting for a Rate Decision from the fed at 7 00 p. M. U. K. Time. Matt let us get the bloomberg first word news. Yields drive much higher, the fed may implement yield curve control according to billionaire money manager jeffrey gundlach. Haver dated treasuries sold off in recent weeks amid growing optimism the economic damage from the coronavirus has bottomed out. The next fed policy decision following the meeting is at 7 00 p. M. U. K. Time, 2 00 p. M. In washington. Legendary Hedge Fund ManagerPaul Tudor Jones says many investors have been confounded by the recent rally. He was among those to avoid downturn stocks in the pandemic. He was looking for havens from gold to bitcoin. Now he says it is time for humble pie. If there was a franchise for humble pie, there would be a mile long line for that because we have all had huge gulps of it. Recordritain has gone a two months without burning coal. The longest the fossil fuel has not been used since the start of the industrial revolution. Reliance on coal has slumped amid renewables. Coronavirusrelated lock towns hit demands for electricity as industry and commerce remain shut. Global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Anna quite a statistic in terms of the u. K. Reliance on the coal industry or not. Takes us nicely into our next conversation. Esg have been one of the best love segments during the upheaval as stimulus proposals greenovernors including criteria as well as the lowest risk profile esg companies have shielded these companies against hit a, but flows into esg low not seen since march. You. To speak to what is the link between covid19, the way we were caught off guard by this pandemic, and concerns around Climate Change . A lot of people talk about a link, but what is it for you . Good morning. First of all, environmental awareness has not gone a way. We argue it is higher. But we understand the link between human health and planet health. Also, some people do not want government to leave the environment out of the recovery packages for the post covid economy. Call, this as a wakeup that our economy is not as resilient as it should be, and that it should be more in harmony with nature. Int we are seeing outflows esg etfs. You see for the first time in some time. Why do you think that is . Seen quite consistent strategies, but they are we accelerating right now. What we see also is impact among our clients. Withequests for engagement the companies, we are expected to do more on that front. For example, disclosure of environmental metrics. Two sustainability kpis. Our client base is very longterm focused. It is also willing to ride out shortterm volatility. Some people raise questions about whether esg companies, those that score strongly on esg criteria, whether they can create jobs in the same way that more polluting businesses have done in the past. About jobn issue creation in the space or not . The old Economy Industries such as oil and gas sectors, they employ a number of people that cannot be replaced one to one. That is fair to say. Term, the impact of covid will be felt across the economy. In the long term, just a great rescheme theo labor force. We have been surprised. The great opportunity is there. The capital has never been cheaper. We are at a turning point here. Hopefully, other regions will follow the european lead. Stringsmplement attached to different sectors to gear the economy toward more sustainable power. Matt i got a great message yesterday on nikola energy. Somebody suggested the government was paying what he 7. 5 billion for the first 27. 5 billion for the first truck off the line. What is going to happen once the subsidies from states are removed . We prefer technologies that do not rely on subsidies. Spacelook at the hydrogen with a lot of fascination. Example, it is a huge sign for me of the appetite from investors for solutions. This is with oil prices at 40. It is really astonishing. Also, it is down to technology and Management Team to deliver and execute. The risk of subsidies is always there. Start with those and quickly make sure the technology is costefficient enough they are not needed anymore. Matt got it. Pleasure having you on the program. Thanks for joining us. Talking about esg. Coming up, trade talks between the eu and the u. S. Appear to have stalled. Phil hogan says washington has shifted its focus. We are live from brussels next. Matt this is the european open. We are 19 minutes from the start of cash equity trading. Marathon Asset Management chairman Bruce Richards says the highyield market has come back with record inflows, but there are problems brewing. He spoke in an exclusive interview with vonnie quinn. In march, running through mid april, the fed added to their Balance Sheet to trillion dollars. The Balance Sheet in total now, 3 trillion, 4 trillion. Thats a lot of mortgages. What will come out of tomorrows meeting as they will slow down the pace to 100 million per month coming down from 2 trillion in one month. Markets have started to do their bidding by normalizing. We will also get Forward Guidance and rates will be zero for a long time. You have been talking about the yield curve. I think most of his comments will be around the fundamentals in addition to monetary policy. The fundamentals is all about jobs. We have a bunch of fed programs aiming to help companies do your job for you in some ways. Right now, it is Something Like 4. 5 . What happens next . Do we get another leg lower . More fallen angels . More distress . It is a good point. When we spoke last the highyield market was yielding 12 . Now it is yielding 6 . We have had record buying for highyield bonds with 50 billion of inflows into markets like mutual funds, etfs, and others. With that, the market has been a lot better. Below that market and below the surface are these funding currents you are talking about. Although markets are somewhat healed, the real economy is not an companies are not. There are a lot of problems brewing. Recorded cap marathon since the beginning of covid, since midmarch, we have recorded 60 bankruptcies in the United States totaling 100 million. We think that 100 billion number will grow to 400 billion. The rate will grow to 800 , which takes you to an annual default rate of about 10 . Default rate is measured in 12 months. Before this is all over, it will be accumulative rate which is four times the 4. 5 we have seen. As it relates to downgrades, the downgrades are coming ferociously. We have 20 downgrades. Close to 30 for every upgrade. That ratio is so much greater than we saw in the great financial crisis. The ratio was more like 10 to one. In terms of fallen angels, there have been about 200 billion, about 185 billion thus far. Investment grade, it is onto highyield. Plays outhat number the next year and year and yearandahalf. Revenues and ebit. Despite the fed injecting all this liquidity. Markets should improve because the liquidity gap has been healed in a very big way. The u. S. Is a 21 trillion gdp and the fed has added 3 trillion to its Balance Sheet and fiscal spending has also been about 3 trillion. That is 6 trillion on a 21 trillion gdp. That 400 billion, will that be the liabilities on the Balance Sheet . What will that be . Outstanding on the companies that file for bankruptcy. Billion. Rently 100 we think it is a fourfold increase from here. Anna Bruce Richards speaking to my colleague. Lets talk about global trade. Eu efforts to soothe transatlantic tensions have stalled. Washingtons intentions have shifted. Bloc is seeking a deal with the u. S. To cut industrial tariffs. Maria tadeo joins us with the latest. Phil hogan spoke to eu trade ministers. What is the message . What he is saying is that getting a trade deal has been very difficult with the u. S. He would also point to that this year is an Election Year and it is going to be difficult to get anything done with an election pending. He is also saying this year has been complicated because of coronavirus. The protests that are happening. Before that, there was the impeachment situation happening. The trade conversation was moved to the backseat. The problem is there is ongoing litigation tied to that airbusboeing case. There are tariffs that could be triggered in july. We could see an escalation in the story. Europeans have said we do not want to see an escalation in the trade relationship. Aswe see tariffs kick in early as july, we have no choice but to retaliate. We have already seen the list of items that could be targeted. Matt phil hogan has said he wtos top to job. What are his ambitions . This is a job a lot of people are keeping a close eye on. Someone who has worked directly with the brexit negotiations, he has been going to d. C. For a year now trying to get something out of the u. S. , so he is well respected. He is someone who has a lot of experience. This is something for sure the european officials would love to see, someone with that background in that post because is not thecome he only one. There are other names being thrown around. The Spanish Foreign minister, the dutch trade minister. Perhaps someone who is not european, someone in the u. S. Who says we do not want to see an eu official because it is not neutral enough. It is a key job when you look at the trade system and the bigger picture. Matt thanks very much. Maria tadeo out of brussels. It is great to have somebody on the ground there and go indepth into this news that is so important for the eu and the global economy. We are minutes away from the open. Next, your stocks to watch, including commerzbank in germany. Shareholder cerberus has demanded seats on the board saying time is running out to turn the bank around. We will discuss why and how they want to do it. Matt less than 10 minutes until the start of cash trading. Corporate todays top stories. Crossfits chief executive stepping down after controversial comments on the George Floyd Protests in response to a tweet calling racism a Critical Public Health issue. Floyd 19,ed it as a mirroring covid19. The tweet cost the company a partnership with reebok. He is resigning he says for creating a rift in the crossfit community. Tiffany has persuaded lenders to grant it more Financial Flexibility in a key step to keeping its sale to lvmh on track. The flex ability includes raising the limit on its debt to earnings ratio. A breach could have given the luxury diet a loophole to alter the purchase or back out of the deal completely. Softbanks vision fun preparing to cut as many as 80 Staff Members after a record loss for the last fiscal year. Sources tell bloomberg the planned number of layoffs has expanded in recent days and now sits around 15 of the workforce. Softbank reported a loss of 13 billion last month. That is your business flash. Lets talk about the stocks in focus this morning. Quite a bit of news flow around individual corporate names. Annmarie hordern is focusing on the banks and commerzbank specifically. Whats the story . We heard from cerberus investors and they are blasting the company talking about their performance. Now they want two representatives on the Supervisory Board. The board is meeting today, so this is going to be a hot button issue. This was outlined in a fivepage letter Bloomberg News saw. They say the window to address these challenges is closing. Say leadership has focused on unprofitable Revenue Growth and they raise the possibility there could be a shareholder revolt if they refuse to put representatives on this board. , a spokeswoman declined to comment. The shares are called higher about 3 or so, so maybe the market likes this letter from cerberus. Matt talk to us about the inditex story. The First Time Since they went public, they had a loss for their quarter. Quarter itthe first came in at 409 Million Euros. They are also delaying their extraordinary dividends. That will be paid out later. Dropped local currency 51 in may and they say the first few days of june, 34 . They are still dealing with the pandemic. The lockdowns are only just starting to ease. They had to close 6000 stores. Ecommerce revenue almost doubled in april. Not surprising. Into text was probably one of the best places to deal with the pandemic. They are not dealing with this buildup. Also, a sickly, every single piece of clothing item, the technology, they are able to track it almost to the. That is something that is helping them, but the shares called down this morning. Anna what about hsbc . We have seen certain banks with big asian exposure speaking out about the moves from beijing in hong kong and that has attracted the confusion or the ire of shareholders and also u. S. Politicians. We are hearing that from the side of the atlantic. Mike pompeo is criticizing hsbc. He says they are assisting the Chinese Communist party. He says, quote, coercive bully tactics against the u. K. This comes after we heard from aviva investors. They discussed their discomfort with hsbc and Standard Chartered with their decision to back china in its move for the National Security legislation in hong kong. It is getting difficult for banks to be able to walk that line of Political Risk and miss what we are seeing as growing tensions in beijing and washington. Matt very interesting conundrum indeed. Thanks for giving us some of the stocks to watch at the open, in less than five minutes time. Time. A minute to go until the start of the European Equity trading day. Good morning. The fateful debate. Futures turnaround from losses to gains ahead of todays fed decision as investors consider the possibility of a return to 1940s era yield curve controls. Does our owner reports its First Quarterly loss on record after most of its key markets were hit by coronavirus lockdowns. Time is running out. Waiting for a turnaround at commerzbank. The activist investor is speaking about seats on the Supervisory Board. Matt lets take a look at futures here. We were down in early trading after the big losses we saw yesterday. We then turn higher, but you can see ftse futures have dipped back down under the zero level again. That as the pound rises. Lets take a look at the life cash trade now as they come out of the gate so to speak. The ftse is little changed here. The ibex showing some gains in madrid. There is the euro stoxx 50. Benchmarke narrower gauge of the biggest, the bluechip european stocks. Typically, we will see amsterdam start to trade. There is the french cac out of the gate up 0. 5 as well. For the most part, with the exception of, well now even the see green 0. 3 , we do arrows across European Equity indexes this morning. Bute is not a lot of size, there is definitely a direction to go with. If you look at the sovereign bonds, there is not a lot of direction. There you have yields down in the u. K. , up in switzerland, down in france, up in italy. Really not a lot of action this morning. Equities in general are on the rise as European Markets open up. That is as the regions bond , it is arpasses milestone that we have seen hit at the fastest time ever. Joining us now is the head of. Ixed income it is interesting to see, weve had this massive rally. We were back above the waterline in terms of the s p year to date. Yet, you see companies rushing. O market is that a worrying sign . It is good news the companies are able to do this. They need the money, they need the cash to fill the revenue gap that the virus has caused or the lockdown has caused. I think it is encouraging the markets are able to do this. Im not sure it is a worry. I think it is a testament to the Massive Central Bank for market liquidity injections, which is keeping them alive. And the very low Interest Rates that companies are able to borrow at overall. I think whether theyre going to need more, whether that is enough to stop companies defaulting eventually, i think time will tell, but i think we are concerned that some Company Still wont be able to make it through the next six months or so. Good morning. I know fixed income is your focus. I wonder about the wealth created by the bounceback we have seen in global stocks or u. S. Stocks in particular. I was talking to a former policymaker at the bank of england and he described the stock market bounce as delusional, but useful because of the impact it can have on the wider economy. What is your take . That is a pretty useful phrase, isnt it . The wealth inequality story is one that is a symptom of the whole centralbank, qe zero think it ise, i definitely a concern. What we are seeing this time around is a focus on main street as well with the focus of the fiscal packages with the director targeted lending to Companies Rather than straight out through markets through qe through qe3 bond markets, etc. I think it is going to help the economy. Assetsf owners of these are pension funds. It does help them fund future liabilities. Nonetheless, this is the kind of policy people point to is one of the sources of growing income inequality. Serious,e any negative, unintended consequences from this massive centralbank liquidity injection, paul . I suppose one of them is that income is going to be hard to find. It was already hard to find before we got into the crisis, before we saw Central Banks get involved aggressively once again. And it will be definitely an issue going forward, whether it is income from the safe haven asets, which has evaporated yields have collapsed. Whether it is income from companies where you would get the steady, reliable dividend income. That has been under threat through this process and will continue to be. Funds are going to struggle to have the same level of income that they have had in the past. That has been dropping for many years now. Of these that is one unintended consequences of the liquidity injection. Ultimately further down the road it could lead to inflation. Weve got no inflation threat at the moment. You dont really get inflation while you have high unemployment. As that starts to be removed over time and as you start to see growth picking up, some of those longterm deflationary courses that have been in play for a long time such as globalization, demographics, employer strength over workers, those will be reversed for will reverse over the next couple years as we get reduced capacity, we get baby boomers working through to retirement, the social agenda driving employers and employee relationships, and of course just the shortened supply lines. Is inflationary. If you get growth, you get inflation. Then you end up with no income but by higher inflation and that is a real dilemma. It is difficult to see how savings can be used to maintain spending terms. Is inflation a real concern . Some of the conversations ive been having, people are saying what Central Banks are doing at the moment doesnt have to be inflationary if they have an exit task out of the more extraordinary policies then they dont necessarily need to lead to inflation. Would you not share that view . Do you not see any exit . I definitely share that view right now and at least for the next 12 months that is definitely the case. Youve got high and employment, a need for Central Banks to supply liquidity, a need for governments to fiscally stimulate economies. That is going to be in place for a while. Those qualities and the slow unwinding of those policies will cause the problem later on. It is unlikely that the Central Banks will rush to reduce liquidity, to taper liquidity too soon. It is unlikely governments will find it able to step away from support for economies very quickly. If economies are recovering once bein, lets jump forward may 1218 months, we could be seeing economies recover and with less capacity than they had before this. That is the point where you should start to get worried about inflation. Definitely not for the next 12 months. Unemployment,h less spending programs. Im not concerned now. Bonds, notve double going to her and very much in terms of total return. But they are there. Happy to do that for a while now. Highyield securities will be much better bets further down the road. Matt all right, paul. Thanks very much for joining us. We are going to keep you around. Paul brain, Newton Investment management had a fixed income because it is a huge day for this issue. A huge time for this issue. When we come back, we are going to talk about the lack of change even with vigilance. That is the expectation for todays fomc meeting. The central bank all but certain to keep its benchmark rate on hold. We will discuss that next with paul. Definitely a conversation you dont want to miss is that is probably the Biggest Issue facing Financial Markets today. We are also going to have full coverage of this weeks fed decision from 7 00 p. M. In london time. Tune in for that. That is 8 00 p. M. Here on the continent. Of course to 00 p. M. In washington dc this is bloomberg. Control of yield curve as a cap on bond yields. The fed usually cuts shortterm Interest Rates. The fed toc lead restart bond purchases for around four of quantitative easing. With the economy on track for its worst recession since the great depression, the fed can go even further by targeting a longterm rate. Central banks across asia already do this. The boj begin picking tenure rates at zero. India also manages its yields. The fed has gone down this path before. During world war ii, it successfully capped yields in 30 year bonds without having to buy large amounts of debt. This explains why the value that was our colleague scarlet fu reporting explaining yield curve control for us ahead of todays Rate Decision by the Federal Reserve. Lets get to paul brain who is still with us. How do you see the conversation around yield curves curve controls developing today with the fed . Paul i think it has got to be a conversation. I think Central Banks do like to get close to it. The best way to do it is to talk about modest amounts and let the market do the work for you. Essentially, they didnt have to do very much buying and very much issuance to control it. Because yield curve control is all about Central Banks buying the bonds, treasury issuing the bonds to maintain a balance and a certain yield curve, so you do need a bit of that supply and demand at the same time, it will be interesting to see how they change the rhetoric to see which part of the curves theyre going to go for. Are they going to go all the way out to the long bond . Between fivedo it years and 10 years. I dont think they will need to specify a long bond rate going forward, but that is certainly the way we expect to see the conversation move on. I think today is the day where they talk more about it. The next meeting could be when actually put it in place or start to put it in place. They dont necessarily need to rush. Matt i just want to quickly some deutscheers bank headlines that are crossing the terminal before we get back to the fed. Is chief Financial Officer ating that they are looking an eight hundred Million Euros loan loss provision in the second quarter. However, they still are reiterating their full year loan loss vision guidance. Numberh it is a very big , they have alerted the markets to this before. They just want to make it clear they expect an 800 Million Euros loan loss provision at Deutsche Bank and they are reiterating a full reiterating a full year of loan loss. Tearingeurope, we have that is supposed to help banks out to some extent deal with negative Interest Rates. Over in the u. S. , they are not negative. How do you think the banks are faring from Interest Rates at such a low level . For most of the banks, it is the shape of the curve, how positive that is, do they have the availability of cheap funding to finance their lending . I think for europe and the u. S. , that is the case. These loan losses are just a testament to the fact that the real economy is still in trouble. The asset markets may be able to ignore that but the real economy is still in trouble and he still have Companies Going to the wall. Losses on loans banks are having to make. We need the cheap funding and an abundance of it to fill the gap. It comes from losses from the real economy. You do expect the conversation to move to yield curve control. We have seen dollar weakness as stock markets have recovered in risk assets have recovered since mid march or late march. We have seen the dollar falling. Willyearold curve control signal a longer period . And drive down demand for treasuries overseas . Paul im not sure about that. We are short the dollar because it has an abundance of liquidity. That was needed during a very poor liquidity environment. Into theve through recovery phase, you have a surplus of dollars overseas. That is why the dollar should be declining. I think the yield curve control is something that other Central Banks are doing and will continue to do and others may get involved, as well. The interestrate differential is still slightly positive so the dollars should be supported across the curve. ,ertainly for some investors some of the surplus countries such as japan or even europe find the price of owning treasuries is a lot better now because the cash rates are close to zero, so hedging costs have evaporated while still getting some positive premium from owning 10year treasuries and also longer. Do you think jay powell is doing . How do you think the market feels about the job jay powell is doing is incredibly difficult as it must be right now . Thing a lot of people wouldnt necessarily want his job given what has been happening with the lockdown economies, the legacy from the gse. I think on the whole, he has respected the markets. I think that is probably the best way to put it. Therefore he has trusted hes not going to make a mistake. Time will tell. When you have these extraordinary situations and history tends to judge further down the road and i think it will be interesting to see how he fares in that environment. For now, i think he has trusted and respected, he is not making errors as far as the market is concerned. I think the speed of the Federal Reserve action in march was impressive. Nd very much needed maybe they learned lessons from the gse and are able to move a lot quicker. They have more programs and structures in place, im not sure there is more they could do. Matt a lot of experience they can draw on. Paul, thanks so much for your time this morning. Great to have your insight on such a huge moment for the fixed income markets. Fixedrain is the head of income at Newton Investment management. Lets get to the Bloomberg Business flash. Todays top corporate stories from the terminal. Time running out for commerzbank to fix itself according to Cerberus Capital management in a confidential email scene by Bloomberg News. The letter says leadership at the bank is too focus on in profitable Revenue Growth and acks the resolve to slash bloated cost base. They are seeking two seats on the Supervisory Board. Hsbc and Standard Chartered are facing big backlash for their decision to back beijings controversial Hong Kong Security law. Aviva investors says it is uncomfortable about the decision. Its Parent Company is one of the biggest shareholders in the u. S. Lenders. Mike pompeo has also blasted hsbc, describing the move is a corporate kowtow. For more has persuaded Financial Flexibility. The is a move to keep purchase of lvmh on track. Any breach could have given the luxury giant a loophole to alter the purchase or backup completely. That is your Bloomberg Business flash. Anna . Anna matt, lets talk about one corporate story that has caught our attention this morning. We will be talking about feeling the tech next the pinch next. Aboutra owner talks feeling the pinch. Many stores having been closed. This is bloomberg. Anna welcome back to the European Market open. 24 minutes into the trading day. Acrossseeing gains markets. Its firststed quarterly loss on record. The zara owner was more than 400 Million Euros in the red for the three months through april after most of its key markets were hit by coronavirus lockdown. Lets get to bloomberg from madrid. How serious is this . You might have thought this h on the start today. But i guess we were expecting mess. The stock is up by a fraction. Obviously, this was expected, as you pointed out. Still, the numbers were a bit weaker than analysts were expecting. That is in the negative side. Maybe there is an explanation. There is a clear sign of recovery. The company is maintaining its dividend policy coming forward. Clear about how they see the road for their strategy in the next years. Seemsso, their strategy to be invest, invest, invest. Are they taking invest of low rates are they taking advantage of low rates to fund this . This company has very little debt. They have a huge cash file. Pile. This is not really the reason they are doing this. Looking to invest in their new outlet. Anna thanks so much. Roderigo in madrid bringing us the latest on inditex. Shortt, we will bring to capitals nonexecutive chairman of Capital Markets. About thek him exuberance we have seen in markets of late and what he makes of that. We will talk about other subjects beyond. Dont miss that interview next. This is bloomberg. Anna welcome back to Bloomberg Markets european open. We are 30 minutes into the trading day. European equity markets making gains once again today. We are back from the rebound of the covid19 lows that we saw. We see the cac, the ibex and ftse mib all up by more than 1 in todays session. Deutsche bank and commerzbank moved to the upside. You see both of those banks up by more than 3 . The bank sector as a whole is the biggest gainer today. No sectors in a negative territory. Health care fairly flat today. Matt . Matt cautious investors have been left reeling after a stock rally saw the s p 500 index wipeout its 2020 loss. The index has never been this monthto analysts 12 price target. Joining us to talk more is xavier rolet, nonexecutive chairman of Capital Markets at Shore Capital and former ceo of the lsc. What lse. What do you think of this rally . We have seen big rallies in europe as well, even as Companies Governments around the world intentionally shut own economies. So many investors must have got this wrong. Xavier thank you for having me on your show. Indeed, this is a question i get all the time, illegitimate one a legitimate one. There are a few things that drive the demand for equities. You are right, we have seen an amazing rally of the stoxx and the s p. Demanding, pretty pricey range. But keep in mind today that over a quarter of all that outstanding just debt outstanding corporate and sovereign debt outstanding corporate and sovereign has negative yields. Youre looking at a fixed income market even in the long end that basically yields very little. The world bank is forecasting a 400 trillion global pension deficit in the next 30 years. Where are you going to find yield . Where are you going to find returns . Equity, for once, stands in pretty good step. That is. 1. There are definitely macro elements that make equities more attractive. We are always looking at the big indices and they essentially favorite blue chips. That is the way it should be. When we look at the overall economy, we see much more contrasted figure. But if you look at the shape of intervention, monetary, you know, government instruments, they have privileged debt in general and bank debt in particular. We know that smes are a loss lets add for debt a lot less avid for debt. What are analysts saying today . They are saying that the blue chips are probably going to make it. Of course, some sectors are looking at difficulties. You talk about retail, airlines. In that area, some companies have done very well. There is probably going to be some consolidation. We are already seeing some signs that the availability of cheap money and the protection given to some Large Companies gives them opportunities for consolidation. So that is part of point number two. Number three, that is obviously going to lead to a concentration seearket share, as we both as a result of regulatory, fiscal intervention in fewer hands. Some companies that have the correct Business Model, tech in particular, are benefiting from this. Anhink because they are such indices, weight in big markets are reflecting that. If you look at smes, if you look at midsize unlisted companies, their picture is much much tougher. I think the likelihood of a stronger recovery, because we are looking for advanced economy probably for 6 downward gdp spirals this year, the recovery bethe sme sector is going to very important to the recovery of the job market. If you are in a laborintensive industry you are not going to have to many problems. Anna you make a lot of good points about why we are seeing this rally in global stocks. That does not preclude t we still could see we are storingng up for the future . Xavier i think that is a good point. It is likely we will see a cackle of bankruptcies, depending on the bankruptcy regime. The u. S. Regime is far more advantageous, favors a recovery far more than the more fragmented european bankruptcy regime, which according to everyone in the space needs reform. It has not been achieved. I think the Legal Framework is also very important. We are going to see some of those. Lets not forget that cheap money is available. We have seen the recovery. Distressedupport investing. That will support large pools of capital that are looking at opportunities if management is able to articulate a Good Business plan. Ng trend,nderlyi and this has been accelerated but not generated by covid, is that there are some Business Models that are old, there are some Business Models that will be replaced by new technologies. In that case, we are less likely to see recovery. Now inary focus right terms of bankruptcies if i were a microeconomic manager would be the sme sector. There are going to be thousands, if not more, tens of thousands of bankruptcies that are not going to essentially attract attention that are going to impact employment. The lower cost of labor clearly is going to benefit some businesses. I think this is what we are seeing in the rally in some indices today, notwithstanding the valuations are high. Matt by the way, what do you think you know, Jeff Gundlach said a lot of things yesterday. He makes sometimes dramatic claims, but he did warn about increased whitecollar unemployment. He says a lot more people with 100,000 per year jobs or more are going to lose them and they are going to have to accept offers for much less pay. What do you think about that . Xavier i think that is right. I think the first wave and the focus and the tension in economies has been on lower labor, in terms of the unemployment that has resulted from lockdown of economies. By the way, not all economies have been locked down. You look at taiwan, for example, theyve done pretty well without a lockdown. Thats another debate. I think it is right to focus now on a lot of these more skilled jobs and that essentially were economic the previous growth. But are not necessarily the jobs of tomorrow. The pace, technological the pace of technological changes tening that change is change is hastening. Think companies are going to be looking, whose Business Model perhaps was not already profiled for the future, they are going to be looking at this particular set of circumstances to recalibrate their employment. It will take, i think, many years for the Economic Impact in terms of employment to be felt and to reach a full recovery. , areasng for sure is that use technology, are very sensitive to technology are going to change very profoundly. That is indeed a worry. I concur with the analysis. To you inve spoken number of times in the past about brexit. I wanted to get an update from you on that subject. We see we are in the transition and receive negotiations to a new relationship or not taking place. You have said that thousands of jobs could be lost from this if we do not get any kind of a future trading arrangement. Do you still think that . Has the virus changed your assessment . Or what is your latest thinking on this . Xavier yes, i think this issue is not resolved. The comments i have made in the past were based on independent studies who look particularly at the potential impact of clearing, if clearing were to leave the u. K. I think that was the base of the study, how many thousands, in that case, a couple hundred thousand jobs, would be impacted. This was theoretical but the threat was still real. There is still a significant political desire in europe to repatriate the clearing, particularly of euro denominated instruments, to european financial centers. These issues have not been resolved. Already has been making decisions. I have seen statistics out there. In terms of jobs, you want to think of the ones that are left, but also the ones that would have but never have been the created. We still do not know if we are going to have a deal or not. I think the next few months will be critical. Deal,k in the event of no i think some businesses have already articulated that this would have an impact. Yes, i continue to be worried about that. Londonsn mind that reputation, success has really been to attract global efficiencies, Capital Formation in risk management, clearing, Asset Management, so it is essential that london retain passport access, whichever way you describe it, to the eurozone. Because it is not Just Services financialnominated users, but a combination of euro, dollars, yen, and other global currency. Anna let me ask you about something italian before we let you go. There have been reports in the Italian Press about the government possibly eyeing bolstering a teliana itali ania. Be interested in selling its italian assets . Xavier thats a difficult question. I cannot speculate on what they would want to do. It may or may not come out of the competition really. But what i do know certainly is in the last decade or so, the italian assets within the lse group have been extremely well developed, very wellmanaged, and have made a great contribution to the bottom line of the lse. And in fact, have enabled the funding of acquisitions across the spectrum. 10 years ago, lse group did not have any clearing, and in this is. Part of the retooling and improvements and upgrade of many systems and many products we had in italy have paid for some of these acquisitions. I think, you know, if we my own humble, in italiana were to leave the lse group, i dont think that would be a good thing for italian markets in the long run. Having access to a global, worldclass financial facility is really important. We dont talk about this enough for the corporate sector. Midsize companies, Global Companies look at the elite program that was created out of boars i italiana for the lse group, which is a Global Program for the Equity Funding of small, on listed companies. This is the sort of innovation that matters and i do think that italy has benefited substantially from access to global foinance provided by the group. I cannot speculate if it were to happen or not. In my view, it would not be a good thing for the lse notr for italian Financial Markets. If for some reason that alliance, that union were to be broken up, matt it was great to get your take on a lot of these issues. I hope when this lockdown is lifted, we can get you back in the studio at bloomberg. Xavier rolet is the Shore Capital nonexecutive chairman of Capital Markets. He is also the former lse ceo, which is why we love to ask him about those issues as well. I want to quickly break some news here on a very old murder mystery. Abouth prosecutor talking the murder of former Prime Minister olaf palma says that he believes the killer is olof palme says he believes the engstrom, but the man is deceased. It is an incredibly complex story about the decadesold killing of a swedish Prime Minister. You can follow the case right now. Those were live pictures. You can follow the headlines on the bloomberg terminal. Up next, the green recovery. 25 of its fences budget and Pandemic Fund for climate projects, but are other nations following suit . We will discuss. This is bloomberg. Anna welcome back to Bloomberg Markets european open. Dayinutes into a trading that is broadly positive. Thatu is trying to ensure its environmental ambitions are not lost in the upheaval of the coronavirus pandemic. The commission has ensured that 25 of its total budget over the next seven years, or hundred 63 billion euros, including additional stimulus, must be dedicated to green projects from housing renovations to electric car charging points. The European Union is focusing on building Green Infrastructure to last about how does it match up to other stimulus plans from other parts of the world . Europes is it Recovery Plan when you dig into the details . You are right, 750 billion euro stimulus plan. As much as 100 billion of that could go to green things. Was ties into what the eu already planning before the coronavirus. A switch toipating cleaner energy, transport, less leaky homes. , lets use this opportunity to Power Forward our green agenda and have a green recovery. The eu agenda is bigger than anybody else has planned. It has only been proposed by the european commission. So far, other countries have not agreed to it. That is going to happen next week, i believe. We have seen some eu countries already make commitments. Big on, which is already the green agenda, has subsidies for electric cars, for example. Matt so how does this plan then compare with other green plan, like the one so often talked about by aoc and President Donald Trump . We have seen in south korea there is plans for money to be poured into rooftop solar. Ambitious plann for Energy Efficient infrastructure goals that at the same time rollback regulation on coal plants. What is important to think about is the timing of this. Lots of countries are still doing rescue packages, which are not really going to be so green. It is more about making sure people can continue to live day to day. Over the next few months, we are going to see countries like germany moving towards recovery packages. That is where we are going to see some of these green measures come into play. You have spoken to nicholas stern. What did he have to say about how climate fits into covid19 crisis planning . If you are going to spend a lot of money building a new coal that is create jobs, not going to be very useful in countries that are phasing out coal and 10 years down the line, people are not going to have jobs anymore. You want something that has a very rapid, Effective Response now, something that is laborintensive that creates jobs and you want big multipliers as well. Green infrastructure fits in very well to that, things like retrofitting buildings, building cycling lanes, even improving broadband connections. Because so many of us home now. I am sure lots of people are struggling with bandwidth. It can improve productivity if youre able to have a productive zoom call. There is lots of Different Things that are around the sustainable story. Matt thanks very much for joining us. Just shankman reporting on our bloomberg green reporter reporting on the progress being made. Bloomberg green launched this week. The first issue focuses on the wave of stimulus being announced across the globe and how to balance the two biggest threats to humanity of the 21st century, the coronavirus and Climate Change. According to bloomberg green. This is bloomberg. Anna welcome back to the European Market open. A strong session for European Equity markets. We have got commerzbank moving to the upside. Activist investors demanding change. Andsche bank up by 2. 9 , detects up by more than 4. 1 . Moresay inditex up by than 4. 1 . Matt that is why we see at least partially gains in markets. We also see big bank gains, you an see, as cerberus emailed threat to commerzbank. Or maybe you can call it offering help. This is bloomberg. Francine jay powell will take comfort in the payroll port, stay in dovish. Negative rates could be fatal to the banking system. A plan to