Fed set 2022 and what the chairman will say and what i assume will be a Virtual Press conference today. Ofncine we will have plenty market action. We will look at the markets every 15 minutes, including what is happening in treasuries. We had the oecd coming out with their economic outlook. That was released about an hour ago, and the oecd, it is a smarter way of doing it, tom. Forecasting the pandemic would cause a Global Economic slump of 6 here, but if there is a second wave, that becomes a seven point 6 slump. It is a good way of visualizing percent comes a 7. 6 slump. By thewas taken aback differentials between the bar charts of europe and the United States. I did not have in my head how much worse the guesstimate is for gdp decline in the europe verses in the u. S. It is a very good report. Francine it is also because of where europe was in the economic cycle. Lets get straight to first word news in new york city with ritika gupta. Ritika good morning. A warning from jeffrey gundlach. He says that Central Bank Policy may return if long dated bond yields continue to rise. The chief Investment Officer at Doubleline Capital says that Jerome Powell may have meant yields could have control if rates on treasury securities drive much higher. Secretary of state mike pompeo is blasting hsbc for backing chinas move to impose new security legislation in hong kong. Pompeo includes a quds the ofk of accused the bank backing bully tactics in china against the u. K. The bank is not commenting. President trump is undermining is undermining germanys chancellor angela merkel. Saying they will withdraw 10,000 troops from germany. To ban. Navy is moving public displays of the confederate battle flag from its ships. That is the militarys latest response to address racism. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, ritika gupta. This is bloomberg. Francine . Tom . Tom thanks so much. Equities, bonds, currencies, commodities. What an extraordinary day yesterday in the market, back to that momentum in trade, tech trade as well. I want to go through the equities here and the data carefully because i did think it is something that global wall street cares about. 27. 45, butflat, futures are interesting with dow futures 55. Againtures, and once nasdaq futures, the nasdaq futures, composite futures green on the screen which is really extraordinary to see that switchback yesterday. It is fed day. We will look at bonds all through the morning and we are particularly off of our special coverage at 2 00 p. M. I would note, we can talk about this through the show, but the currency dynamics this morning are extraordinary as the euro 1. 14. Another run at francine u. S. Equity futures, equity futures are waiting for the fed. The dollar heading for a threemonth low. You also mentioned treasury yields edging lower and crude oil retreating. I am looking for tomorrow, for example, euro area finance ministers discussing the recovery package but also the succession of the euro group. The oecd made an assessment in its quarterly outgroup outlook. That the pandemic would cause a slump of 6 this year. A second weve theres a second 6 e could mean a seven point contraction. Joining us now is and how gurria angel gurria. Think you for joining us on bloomberg. A seconde know it is wave . Could this come in the next 12 months or could it gain attraction with the economy, and then we need to go back and lock down . Vaccinentil we have a or a medicine, we are in danger. Beobviously the focus has to on accelerating the research in order to get the medicine or the vaccine as soon as possible. Meantime, whene you look at the economy, do you worry about deflationary pressures . No, not to worry about inflation. Right now you throw everything youve got at the virus. You hit it, you kill it, you win the war against the virus. You throw everything in terms of finance, in terms of budget resources, in terms of health resources, because the sooner you beat the virus, the less expensive the recovery will be, and also you will be able to cure the consequences of the virus itself in terms of sequelsment and other that it will leave us. Tom angel gurria, good morning from new york. I am absolutely fascinated with what people say at oecd about stimulust of fiscal compared to gdp. The variations are extraordinary. Who is getting fiscal stimulus right . Is that inquestion many of these cases, what you to agovernment stimulus is very great extent guarantees, or liquidity loans, and therefore those will not become what i would call deficit numbers, or they will not become fiscal officially until there is some kind of payback or, in some cases, facilities are old to become deficits to the extent that, for example, the companies can maintain the employment. Those are meant to become basically taken up by the government, but in many cases, in most of the cases, these large amounts, 20 , 25 , 30 of gdp are meant to be paid back to the banks or to the development banks, and they are only guaranteed by the government. So the numbers are not comparable in that sense. If you take what i would call the hard expenditure measures, that changes all over the place, from very little to very large. Trulyngel gurria, you are one of the experts in the world on your mexico, on latin america, and the challenges of south america. The pandemic statistics from mexico are horrific, led by she chile, which is falling apart. Bet does oecd think needs to done to assist a Greater South america interning around this crisis . Need first of all, they to be aware, and that means the leadership has to share these views. They have to act accordingly, and within the constraints that they have. Within the constraints. This is very important. To then apply measures like confinement, social distancing, etc. The question, again, will not be medicinetil we have a or we have a vaccine. But the problem in latin america , and the problem in africa, and the problem in asia is that you have it is very difficult to confine these people. They live in very close proximity, they have to go out every day in order to make a living. That makes it more difficult. Francine what does that mean, angel gurria come out about the prospects for emerging markets over the next 12 months . Because they are going to be hardest hit and we always said this the problem with this crisis is that, again, the most vulnerable are the hardest hit. That includes the people, but that also includes the countries. The groups of society. There growththat is going to be affected, and that also not only as much as the developed countries, the oecd countries, but also that the impact will linger for longer. That is aggravated by one particular element, which is very high levels of informality. Even if you have the capacity to write the checks to all these people, you would not even know where to send them because half the workforce are not registered anywhere. They are not paying taxes, they are not on Social Security come etc. That is a great problem. Francine we have never really seen a crisis like this. Its a Health Crisis that also turned into an economic crisis. I guess it is finding the right balance between saving lives while at the same time reopening safely an economy. Who is getting it right . Who do you. 2 and say they have the right mix on how you do this . Point to and say they have the right mix on how you do this . Angel the choice between lives and livelihood is a dilemma. Health and the economy go handinhand, and you have to first, as indemic said, with everything youve got. You throw everything youve got at it, and then that will allow you to beat that enemy first, and then that will allow you to pay a lesser price or a lower price for the consequences of the pandemic itself, but also to set up the basis for a sound recovery going forward. Angel gurria, thank you for joining us today, secretarygeneral of the oecd, with a challenging and original forecast. It is going to be amazing to see how the other raider institutions come out with their adjustments to Economic Growth as we go through the summer. Coming up, weve got much more for you. It is a fed day. Please stay with us through the day. On economic, investment, and of Course International relations. From london, from new york, good morning. This is bloomberg. Tom bloomberg surveillance. Good morning, everyone. Tom keene in new york, Francine Lacqua and linda. In york, it will be london. In new york, it will be interesting to see what happens after the scarlet fu leading our coverage with a lot of good voices, really pleased at the mixture of voices that we will have for you not so much about this meeting, but the mystery of the fed will proceed through the summer. Francine . Francine tom, we will have plenty more, of course, on the fed policy, of some of the things about negative rates. We will also get more from guests in that show. Former fed that is starting at 2 00 p. M. To talk about the fed a negative rates but also currencies, George Saravelos, Deutsche Bank head of fx research. Note that tomthe and i really enjoy when they come into our inbox. What does fed do today . Wide range ofis a outcomes, and i should say good morning, francine and tom, first, it is great being on the show again. There is a wide range of outcomes as far as the fed does. Our expectation is that they announced a qe program of 75 billion a month, but the risk around that expectation is that the entire package decision is delayed until they feel like they have a bit more currency on the old stop structurally, im not sure the fed decision is a dollare changer for the think there is dollar weakness, and we will slowly transition from this first stage of the dollar move, which has been about the removal of the safe haven and risk premium toward a second stage of dollar agnes. Of dollar weakness. Francine if you look at eurodollar, you said the u. S. Economic response has been suboptimal to the pandemic. How much more weakness can we see in dollar until year end . George we have been arguing the dollar can weaken by at least 10 from where it was a few weeks ago. If you look at trade, it has moved about 3 , so that suggest at least another 6 move. I think it is important to understand what is going on. In recent weeks the dollar had a huge safe haven premium that built in in march, but remember at the same time, the fed cut rates to zero and engaged in very large Balance Sheet expansion. If you take that risk premium away, the dollar should be much weaker compared to where it was in march. On top of that, i think as we go into the second half of the year, the market will start differentiating a lot more economies based on growth outcomes. We are very worried about the u. S. Versus the rest of the world. We dont think the virus approach has been as good as in other countries. There are quite a few pieces falling into place with dollar weakness. Saravelos, on euro strength, it is clearly nonlinear. 1. 09, 1. 10,hrough 1. 13 where does strong euro begin to impinge the european economy . Do you have a number on that . George i think you have to thet moving above 1. 20 for ecb to start being concerned. At the moment what youre seeing is the movement being much more about a broader dollar move, so if you look at the euro tradeweighted, it has not been appreciating that much because other countries have been strengthening against the dollar as well. But you do have the potential moves. E positive euro the Recovery Fund proposals have been a very big institutional leap for europe. It is important that the momentum around those negotiations is maintained. I think if we were able to see a conclusion at the launch of this Recovery Fund as we go through the summer, on top of the very large backstop, which mrs. Those ares provided, two important developments the political backstop and the Central Bank Backstop that can allow the euro to trade while the market has been focused more on weaknesses. The sum tom very interesting. Onrge saravelos, debt on euro strength as well. I think this discussion on eurodollar is important. Scarlet fu leading our coverage on the fed. I guess the fed decides today. Maybe the fed decides how to manage the message in the next meetings and into 2021. Please stay with us. Dollar weakness today. This is bloomberg. Ritika this is bloomberg surveillance. Service Capital Management once a turnaround at germanys calmest. Or slams the tope leadership and they wanted two seats on the board. On unprofitable growth. No comment from the bank. Of ceo of crossfit is out the Fitness Company he cofounded. Greg glassman stepped down days after tweeting about the black lives matter protests and the death of george floyd at the hands of minneapolis police. To endweets led reebok its Longtime Partnership with crossfit. That is your Bloomberg Business flash. Tom thanks so much. Lets do a data check now. I told you about the equity markets at the top of the hour. On bonds it is real simple the yield curve steep this that we have seen has come back. I dont want to oversell that, but there has been an adding of the higher yield tension we have seen. The backdrop here, with George Saravelos joining us, is weaker dollar this morning. Francine i am looking forward to hearing what george has to say about pound and a lot more on euro. If you look at what the markets are doing, the oecd gave a pretty grim warning on the economy. The dollar holding a near three month low. Treasury yields edging lower and crude oil retreating. Coming up, a conversation with the bank of italy governor, joining me for an exclusive conversation on the economy after the pandemic and the response of the European Central economyting the italian on better footing. That is at 9 00 a. M. In new york , 2 00 p. M. In london, and this is bloomberg. Good morning, everyone. Om keene in new york , Francine Lacqua in london it is fed day. We have a terrific lineup of guests, and particularly speaking with a former Vice President of the federal reserve. Histhoughts really out of classic princeton course on this fiscal impulse we are seeing in america. Us, george sarah bellus. He writes shockingly acute notes for Deutsche Bank. What is your unknown unknown, george . It has got to be into this fed meeting and into the summer, a great fx unknown unknown for you. What is it . Difficultat is a very question to answer but i guess i will start with the low numbers, if you will, the questions we are seeking answers to. The first one is how this virus will evolve in terms of second waves. I think there is going to be a critical difference with the first phase of the crisis, which was global, universal, you had a shock everywhere in the world. If we are thinking about this debate on second wave, i think it will be very different. I think it will be differentiated. You will see Different Countries responding in different ways. Are worried that the new when you compare it to other countries is less prepared to manage that. This concern is part of the driver of our weaker dollar view. Unknown isnown the outcome of the u. S. Election. I think that will pick up as a focus for the markets through the summer. Thesesk is you have all large fiscal clips coming up over the next several weeks out it is the. , whether expiration of Unemployment Insurance or the ppp program. The risk is the market starts building some risk premium and uncertainty premium into those events. Tom what is fascinating here is that it is really a binomial distribution. You have the outcome of the pandemic on the second wave and the nuances of that. Dollarat lead to lassitude or renewed dollar volatility . Which would you guess it would be . Phase i think the second of the crisis, the management phase will have a very different impact on the markets. The first wave was, in some sense, the speed and depth was unexpected. You had a massive flight to quality in the dollar. But the second wave, in some sense, is more predictable. We have already experienced what an academic curve looks like. So more predictable, people that are better prepared, but also much greater levels of country differentiation. It could lead to high volatility as well. It will be a lot more concentrated in those asset classes, regents, and countries regions, and countries that are less vulnerable from being exposed to the shargh. Latin america shock. Latin america is one region we are favoring. Francine how much in some of these emerging markets, the brazilian riau has been going lot, will it allot, will depend on the pandemic . Would a second wave [audio drop] . What a second wave would look like is very important for the second half of the. I think also how it interacts with the u. S. Election. This does not only relate to bidenr it is trump or that ends up in the white house, but whether you have unified government, which in turn can have extremely different consequences for fiscal policy. Our baseline is that you still end up with the divided government the u. S. , which restricts the capacity for fiscal easingh out of the u. S. , in turn leading to more u. S. Underperformance versus other countries. Francine what is your take on pound . U. K. , so i think the unfortunately, is the weak link in europe and the currency as well. You have seen sterling rally in recent weeks as the market has been taking out the swiss premium on the dollar, but we are very concerned about the pound in the second half of the year. It is one of the currencies we are most negative on for a couple of reasons. The risk is the u. K. Economy underperforms, the management of the virus crisis have been less efficient than in other countries. The composition of u. K. Gdp is more geared towards sectors that would suffer from social distancing. Beyond that, you have this new discussion around negative rates from the bank of england. If negative rates go ahead, it would be transformational for the currency, which is already deficits. From the risk is you see much larger capital outflows. Finally, you have brexit. There is a very long list of headwinds. I think the pound underperforms over the next over the second half of the year. Francine thank you so much for all of the insight. That was the Deutsche Bank global head of fx research. Lets get straight to the bloomberg first word news. Republicans are drafting their own proposal for practices. Olice it includes racial bias training, increased use of body cameras, and enacting the First Federal antilynching law. House democrats have already come out with their proposal. They want to make it easier to sue and prosecute police accused of wrongdoing. All of this comes in response to the killing of george floyd in minneapolis. U. S. Authorities are investigating a vast hacker for hire scheme traced to india. It involves attempts to steal confidential information from investigative journalists and advocacy groups fighting climate change. It is unclear who funded the hacking operation. One of the beneficiaries apparently was the embattled German Tech Firm wirecard. The company says it has not been in touch with any hacker groups. The u. K. Has not seen a time like this since the industrial revolution. Britain has gone a record two months without burning coal. From 40 just seven years ago to 2. 5 in 2019. One specific reason, cheaper , u. K. And gass plants are meeting demand. The paramount network has canceled cops. It was entering its 33rd season. Cops ran on fox for 25 years before the network dropped the program. Global news 24 hours a day, onair and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine, tom . Tom it may feel like 25 hours a day on fed day. We have coverage at 2 00 p. M. Today leading up to that great conversation. We are thrilled to bring you in currie ofeffrey goldman sachs. We will talk about this huge move in oil, what it means for russia and saudi arabia. This is bloomberg. Tom good morning, everyone. Bloomberg surveillance. Francine lacqua in london. I am tom keene in new york. What we are trying to do is give you conversation to set up what has been an extraordinary bull market, extorting their recovery in oil extraordinary recovery in oil. With us now is jeffrey currie, head of Commodities Research for goldman sachs. I want to get this out of the way because i know there is a lot to talk about in oil and thats really the reaffirmation of a gold call. We are here at 1700. A lot of people are really on board the by gold call buy gold call. Reaffirmed that. Is it still a buy gold call . Jeff yes. Real rates as well as gold have remained very particularly as we start to think of upward pressure on nominal rates will likely be translated into lower real rates. That will push gold higher. Also, we think about what people are focused on his tail inflammation right now. Willhat they think there be inflation in the next 12 months, but the outlook going forward, particularly with all the stimulus in the market. One negative on gold is the consumer demand in emerging market asia. The numbers out of india were very weak. China has been very slow to return to these markets. Once you see that combat, this can easily go above 1800. Tom with all of the dynamics out there, what is the marginal centralbank appetite to buy the next bar of currie gold . What are the Central Banks going to do here . Joseph the Central Banks jeff the Central Banks have been absent. They have liquidity issues, they are trying to raise cash. They do it typically through the lease markets, as they did in april. In terms of our outlook going forward, we have taken out that Strong Demand for Central Banks from Central Banks. It has been replaced by strong investment demand. If we get the emerging market consumer, thats whats really going to take you up to the next leg. Francine how much do you look s, orme of the other metal the global iron ore market . Many mines had to close down because of the covid19 infection. Does it bring that . To a brink are we on a knife brink . Are we on a knifes edge . Are the. Metals star performers one of the key reasons is not only what you are talking about in terms of supply disruption, but chinese demand. Chinese demand was up 29 in may. Ore steel on eel demand, it is up. Those numbers are astonishing. Whats driving . Local government driving it . Local government policy. As a result, we have a very strong Property Construction and Infrastructure Market going on in china right now that is pushing these markets higher. I want to go back to your point about supply. Right now, you dont have scrap because the world is not creating scrap. Ou have the mine closures both of those are likely to reverse. We think that will put downward pressure on iron ore at the end of this year, not on copper. Copper 12 months out, 6500. Francine are you raising your target on copper but also aluminum . , it is muchluminum more of a macro dynamic. Metals are very highly negatively correlated with the u. S. Dollar. The one thing with the daughter that we have seen is a normalization in demand dollar that we have seen is a normalization in demand. Because of that normalization, the dollar has traded off substantially. You look at metals in markets like aluminum, they are very much tied to the dollar. Tom this is great. We are talking to jeff currie here. We have to talk to him about oil, and particularly, the renewed tensions between saudi arabia and russia. We are going to come back with a jeffrey currie. It is fed day. Stay with us through the day. This is bloomberg. Francine this is this is bloomberg surveillance. Deutsche bank warns that provisions for bad loans will rise in the Second Quarter to the highest level in more than a decade. The german banks says the money is being set aside and will reach about 908 million. Rising loan provisions are a threat to Deutsche Banks restructuring plan. Morgan stanley expects to make acquisitions in the Asset Management industry. James gorman told the firms virtual financial conference he is not shy about doing deals spot. Therer sweet has been a rush to consolidate in the Asset Management business. Hundreds of thousands of tiny investors are flocking to stocks like and petroleum. Both companies have filed for bankruptcy and each saw their shares double to start the week. Many day traders are buying shares through the robin hood app. That is the Bloomberg Business flash. Tom, francine . Francine thank you so much. We were talking about metals. Lets get back to jeff currie and talk about oil. We all followed with great therest what happened over finalized agreement for the extension cuts to be extended by a month. How is Oil Demand Going globally . If you look at the recovery, it is well underway, slightly above expectations but not nearly as exuberant as you would think by looking at the markets. In terms of looking at where we are right now globally, we are down relative to precrisis about 12 Million Barrels per day. At the peak, we were running 23, 24 back in mid april. We were just talking about the Strong Demand for metals out of china. The chinese demand for oil has been very robust. I want to be very careful here. It is not in use demand. A lot of this is being stockpiled. When prices drop below 40 per barrel, they put a petroleum a floor on that so refineries have an incentive to purchase the cheap oil. 40, thatwe are above dynamic has cooled off somewhat. One last point that is important is the community demand. People are afraid to take the subways or public transport more broadly. So in places like asia and europe, we are seeing a surge in commuting demand. We are also seeing it in the purchase of autos. People are buying these cars over the internet. The big one you need to keep your eye on his jet. I dont see that coming back anytime in the near future. Francine will opecplus have to do more in terms of extending the cuts again . What is exactly priced in the oil price right now . Jeff when we think about what they announced last week, it was very interesting and makes a lot of economic sense. They did the onemonth roll over and said they are going to be datadependent. Oftries to keep the prompt the market really tight, which back creation. It gives them the ability to retaliate or punish in the case of when its telling you they are going to be watching the inventory data, watching that dementieva, dachshund demand data demand data, its going to be month by month in terms of how they are going. They are going to reassess at the end of the month. Tom is there any evidence, jeff currie, that saudi arabia can controlled cheating controlled cheating control the cheating . Ok, weheir ability to go are going to reverse this really quick because you are not doing your part, a message to iraq or other producers that are cheating is much more a credible threat in the current environment than has been the past. Lets be careful about the fact that it is not in their interest to do these big, structural cuts. I dont think they would do it again. Both times, it ended in tears. Both of those times, it was to get away from these longterm rebalancing views. Longterm cuts were very detrimental to the industry. Equity and bondholders, it cost them 1. 3 trillion dollars and opec countries 220 billion per year in lost revenue. To. Nt see them going back that will strategy again they are going to be much more focused on maintaining the market near term and looking at market share going forward. Tom ok, but it is 40 per barrel. Can they get away with that . My rating is they need a higher price. Is that right . Jeff yes and no. I think in terms of looking at the social aspect of it, the answer is yes. From a cost basis, the answer is no. If 40 plus at 40 plus a barrel, we start to create drag on the rebalancing process. Youve heard of the news reports coming out of the u. S. Oil patch. At these prices, they are willing to bring supply back onto the market. You need to keep market prices around 35 per barrel right now to maintain the rebalancing process that was already underway. Our concern here is that if prices go much higher and stay at these levels, you will derailed rebalancing process. I would like to point this out over and over, commodities and oil are spot assets. They cannot price in expectations. Every time they tried to price in expectation, it ends in tears. We need to see prices in the 30s again to get this rebalancing process back on plate. Francine jeff currie there. The markets focusing on what we will see from the fed. The oecds assessment also for bal growth or global remind investors that the risk from the pandemic is far from over. We also saw u. S. Employment numbers seeming to signal this recovery was underway in the u. S. That was last friday. It will be interesting to see what jay powell does with those. I am looking at treasuries. 10 year treasury at 0. 8. European stocks down a touch, down 0. 3 , tom. Tom thanks so much. It is fed day. We are going to drive forward the conversation. Lots of good guests. We have a wonderful 2 00 led by scarlet fu, including alan blinder of the fed. Next, joseph amato. Hes with Neuberger Berman group. Are you in the equity markets are not or not . Maybe he will give me the courage to make an investment in this stunning bull market we are in. Futures next this morning. Still some moments of energy there versus value. Stay with us. This is bloomberg. Save hundreds on your wireless bill without even leaving your house. Just keep your phone and switch to xfinity mobile. You can get it by ordering a free sim card online. Once you activate, youll only have to pay for the data you need starting at just 15 a month. There are no term contracts, no activation fees, and no credit check on the first two lines. Get a 50 prepaid card when you switch. Its the most reliable wireless network. And it could save you hundreds. Xfinity mobile. Tom this morning, Mission Accomplished for chairman powell and the fed. The trillions of dollars of early and often aid has stabilized america in the depth of the pandemic. What will the economy look like six months on . The january 27, 2021 meeting. Mission accomplished again from j. P. Morgan. 17 to hertz rentacar. The powell put has vanquished the bears. The secretary of state of the United States of america says the hong kong and Shanghai Banking Corporation has assisted Chinese Communist party in tactics against the united kingdom. T is aompeo says i corporate kowtow