Different tone. The tone to me this morning, jon, is fascinating. The crosscurrents in the market, i can honestly say, in a zillion years, i have never seen how odd it is right now with the pandemic news, and of course some of that, china and beijing, wrapped around the reaffirmation of wall street, for some form of vshaped recovery. I was thunderstruck over the weekend, some of the optimism coming out of wall street houses. Jon we will talk about that later in the program. A fresh outbreak in beijing very much the focus this morning, the disappointing data as well. The data does not validate the exuberance we saw in the market as we saw in the month of june. Lisa that is the problem, that demand is not picking up. Even though we are seeing manufacturing pickup and production online, we will see perhaps production the consumer is not buying it. Junell be getting the u. S. Manufacturing press and we will take a look at what else in the day ahead we are also going to be hearing with from dallas fed president Robert Kaplan. This date is fastening. Investmentef invasiv officer is going to be proposing a new strategy to increase risk, to invest more in private debt, private credit, and increase leverage to as much as 20 of assets because it is so difficult to meet a bogey of 7 in a no yield world. This is an example of what all pensions across the world are going to be facing as Government Bond yields head to zero in an era of financial repression. Jon and lisa, not just a problem for the fund managers, but tom, a problem for the broadly, you are forced to take on more risk to get returns. This is a raging debate. We brought it up with gilles moec about an hour ago, actually assumption actuarial assumption that is supposed to be out there. What Lisa Abramowicz just said, it is striking folks as a 20 average overlay on pension assets. That is not in the textbooks, that is all there is to it. Jon we need to rewrite those textbooks. Good morning to you all. Equity futures down hard, off by 65 points on the s p 500, off by 2. 2 . I am pleased we can start this morning with al ruskin of deutsche bank. Youvshaped hedge fake focused on that. Talk to us about it. Al it is going to be in good shape in terms of a v in june. I think the data could be extraordinary. Just in the same way as when you twoin reverse from an open lockdowns. I think initially in june, the data will look good, or the data for june will look good. In august, that factor will be normalized as such and will be back into a year that is unfortunately where living in a world somewhere between lockdown and open. Some sort of halfway story. And the new normal is nothing like the old normal. Tom if that is the case, how do you express it across assets . You are an international strategist, and we can look at equities, bonds, currencies, commodities. What is the Productive Play given your ambivalence about a strong vshaped recovery . Get i think you cannot ahead of yourself. People say we could trade this may be on a three, sixmonth view. It is difficult to do. You have to focus maybe on one week ahead, two weeks ahead, which is tough for longerterm asset managers. It is easier for the Leverage Fund guys. In general you have to say it felt like a week ago it was really gone, right now it does not look great. And you effectively have got to play in a much more defensive mode. Not only are you thinking in terms of ok, because of the v shape in june, it is going to be risk on for the next six months, for example. I think that v will be help for for risk in the next month or two, but it will not terribly be helpful for risk three to six months out. Lisa looking across wall street houses, you are getting some pretty bullish calls. He comes on the heels of expectations for some fiscal stimulus. Yet over the weekend we heard from larry kudlow, chief Economic Advisor to president trump, that he expects Unemployment Benefits to expire next month as planned. Do you buy that . Do you think it will have a material negative impact on the potential recovery in the u. S. . Alan the answer to the last part of the question is absolutely. I think what you are seeing is that when you look at the breakdown of gdp, the big plus is really on the government minus taxation side. The physical piece of it, which is building the bridge effectively from lockdown to open and Everything Else is looking extremely weak. Consumption not too bad. Income from the government side is very helpful, but employment is so bad, and precautionary savings are kicking in, so consumption is not looking good. On the investment side, commercial real estate will get walloped. On the export side, you have a global sacred iced depressed that global synchronized depressed a global synchronized depressed i wouldnt say recovery. The government will have to keep kicking in with i would not say i think it is in both parties interests to do that. Whether you can get republicans and democrats to come together with a Bigger Program is going to be tough because they do seem to be quite far apart. Jon at the moment what we hear again and again is the following phrase policy fatigue. I do not see that, i just see the composition of the policy effort changing, and i wonder if they just get it wrong. Is that what you are focused on . Alan not so much, jon. I think it is less fatigued than they have done a remarkable job in front loading policy easing both on the fiscal side you cannot keep up that level of momentum and you have to look and hope that actually you are, as i mentioned earlier, building this bridge. When this all started, i felt that if the virus was going to depressing growth longer than three months, the fiscal policy and of things would not be sufficient to build that bridge. They have done so much effectively that i think now we can cope with a virus extending three to six months, and maybe even toward year end, really. But it does need some of those elements. It does need the rollover benefits. That is going to be crucial. There are certain elementary pieces that are going to be brought. Your dollar call. You have to put up with George Saravelos my deepest sympathies on that what is the rush right now . Needed. Sympathies over time i think the dollar will weaken. It is subject to three main forces in the shortterm, all about risk on, risk off really. The dollar does better on risko. Thean term, it is whether the dollar does better on risk on. The big one will be the current account, where the dollar really goes down hard or not. Thank you so much. Tom keene, why are you trying to cause trouble in each and every central bank in the Research Department . Tom i am just trying to spread the hate around everywhere i can. My chart of the year two years ago come on between deficits lets be clear, those vectors pandemic, before the before the economic shock that we have seen. It will be fascinating to see where the summation of the fiscal deficit as a percentage of gdp and the trade deficit as a percentage of gdp. It is a mystery. Jon i agree with you and that is the phone that is the focus of the research over the past three weeks led by alan ruskin. The alphabet soup at the moment is driving me insane, and i will tell you why. The vshaped recovery being pushed by some governments feels like a Marketing Tool. Ask for the forecast. When you get the forecast on things like unemployment, they are not out of sync with the federal reserve. The administration is looking for something around 9, 10 at the end of the year. That by definition is not a vshaped recovery in any way, shape, or form. When people start to use that term, it becomes a Marketing Tool, and a Marketing Tool for policymakers right now that i dont really like. A marketingot only tool. I think it was led more with the bank of england with the shocked call that we had on vshaped when mr. Bailey stepped out. Over the weekend, i was flabbergasted by the number of wall street houses reaffirming optimism. It is going to be one of the great calls of the year if they get that right. As mr. Ruskin said, if june is better than good, and maybe it carries forward into fourth of july and the early fall. That would be something. It was the tone over the weekend from many shops. Shops isof those morgan stanley. We will be checking up with the chief economist over there on that vshaped hope. In this market, hope rose a little bit. Equity futures down 62 on the s p 500. Down 6 on the s p 500. Later this hour on china, the pandemic of the Economic Data, George Magness of the university of oxford china center. The Research Associate joining us later. From new york this morning, good morning. Alongside tom keene and Lisa Abramowicz, this is bloomberg surveillance. Moscow called for paul whalen, called guilty and sentenced him to 16 years in prison. He said he was set up by a Russian Security officer who owed him money. Moscow says he was caught redhanded with a flash drive with secret information. And a more cautious outlook for the economy, larry kudlow says there will be a chance for a vshaped economy. He told cnn the Unemployment Rate will fall and 2021 will be another solid year. Kudlow also said the 600 a week on his payments made to some unemployed americans would end as scheduled july 31. He said that would event a disaffected or the a disincentive for the unemployed to return to work. China industrial output rose 4. 4 in may but that missed estimates. Retail sales declined more than expected, and so did fixed asset investment. British Prime MinisterBoris Johnson is encouraging consumers to shop with confidence. Shops reopen in england today. And johnson says the requirement to stay roughly six feet apart could be relaxed. Chancellor of the exchequer said it could be a cut in sales taxes. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in im than 120 countries, rich. This is bloomberg. I thought the chairman was a little morose when he give those statements because actually the forecasts were pretty good for 2021. In fact, they wanted unemployment probably dropping 24 by year end. Reassuret should people in business. Kudlow, National Economic council director, speaking to fox news from new york this morning. Alongside tom keene, i am Jonathan Ferro. This is bloomberg surveillance. With equity futures rolling over, down 68 points on the s p 500, we are down but down 2. 26 . The biggest weekly loss going on the way back to march 20. As we start to get to some downside risk, a little bit more of a move lower in the equity market. It sharpens the focus again on the next policy move down in washington. Tom it really does. We can see a real shift, backtoback weeks of challenges. We spoke to fred keller of the pennsylvania 12 district here. He made clear they are watching the opening of the rural pennsylvania down to state college. There is a Small College there in state as well. The tensions that we see on this monday, jon, i think are extraordinary. Joining us now, our chief washington correspondent, Kevin Cirilli. There are moments when all the politics and all the discussion is pushed aside by the president s health. That came up yesterday after observations as he spoke at west point to the graduating class. Kevin, for me it hearkened back to the second term of Ronald Reagan, where there were repeated bouts what i found fascinating is they are pretty much the same age, and i thought Ronald Reagan was extremely open cancers andrious noncancers that he had. Is the president being open about the quality of his health . Kevin the president would say yes. The president and his doctors have released public forms and whatnot saying that he has not had the coronavirus. But i think it could speak to a broader issue over the weekend with the president speaking at west point, just another illustration of how the administration is trying to turn the corner from the conversation of last week and the week before relating to some of the divides between secretary esper and president trump. Jon how on earth has this become the topic of the moment . A gentleman in his mid70s going down a ramp without a handrail. I challenge anyone in their mid70s to go down a ramp without a handrail. Are there bigger issues in the then puttingow that video on repeat again and again . Kevin i think it is a good point, in the sense that this is now, with the president hitting back on the campaign trail, going to essentially two sets of conventions in the next couple of weeks. All of this is something that i think republicans, quite frankly, they want to have this debate because they want to say that they are on the inside of reopening the economy. That said, there are those concerns about there being a second wave of the virus. The president is about to head out on the campaign trail. He wants to get back by his reelection campaign, back to some type of normal schedule. I will just say that i hope there was a sidebyside of tom keene and Jonathan Ferro talking about the walking down the ramp, and jons face as he received that information and how to go with it. The other burning issue of the weekend other than walking down the ramp, which is what we heard out of larry kudlow, the chief Economic Advisor to president trump, that they were not going to ria the enhanced Unemployment Benefits. I really think this is pivotal for markets. Extension oft of these benefits. The argument being that it disincentivizes people to go back to work. What is on the table in terms of continuing some of the Unemployment Benefits that have been enhanced with that in mind . Kevin three things. First and foremost, im not entirely sure that every republican in congress is going to get on board with Larry Kudlows comments from over the weekend. I think there is a large appetite for there to be another round of stimulus, project early in suburban districts and more moderate districts, swing districts. Republicans even representing those. Think back to the salt debate of the state and local tax deduction. That coalition of republicans, even new york republicans, i think will be very wary of not passing some sort of Unemployment Benefits. It is a broader conversation about how the reality of the virus is different at different parts of the country. Where states have reopened and where covid19 fortunately has not been that detrimental from a health perspective, that is where you are seeing that conversation. Again, the third point i would make your, i still think we are going to get another round of stimulus, late july, early august. The im interested in second week of june, or the first week of june. Time is flying. What is Kevin Cirilli going to look for this week in washington . I mean, it is sort of into the summer. Summer starts may 30. Is this about the tragedy of atlanta and the followthrough of that . Is it about fiscal stimulus . What will you focus on most, kevin . It is economic stimulus. More geopolitically speaking, as conversations from an International Trade per step give trade perspective start will see more conversations about how the administration is going to work with u. K. , for example. I will that trade deal come to fruition, from a more international perspective, everyone with the reopening, trying to get to some type of normalcy amid this, and the economic pressure is palpable. Cirilli in washington. Always great to get your thoughts on the program. Here are the issues i have right now in saying that these enhanced Unemployment Benefits disincentivize work. How on earth can you take the huge upside to price for the payrolls report, do a victory lap, and then say there was a disincentive to return to work when quite clearly, if you believe those numbers, they are inaccurate reflection of the recovery and this economy, then you have no evidence to back that up . I put that to larry kudlow two fridays ago and he accepted that. So i want to understand why that has changed in the last week or so. No question about that. I think the roll of these benefits, and france and and francine mentioned the same issue in the united kingdom. There are three tranches of benefits that go away. My basic take is people want to get back to work, period, and i know in new york it is palpable in new york to look for a reopening much like what they are having in london this morning. Jon i would agree with you. Lisa, this is the issue for me. It is not fatigue, the lack of willingness to do more, is what do you do next, the composition the effort we should be focused on the next few weeks. Lisa i agree. I also think this speaks to the election cycle, and that is going to be an increasing focus, with the voters are looking for. Come, equity futures down 58 on the s p 500, down 1. 9 . We take the focus to china next come on a fresh outbreak in beijing. Economic data overnight. That is next from new york. Good morning. This is bloomberg surveillance. Jon from new york city, this is bloomberg surveillance. We are live on bloomberg tv and radio. I am Jonathan Ferro with tom keene lisa abramovitz. Two hours away from the opening 61 onequity futures down the s p 500. We are up by 2 . We take more weight off the s p 500 after a loss. The s p getting battered. Small caps underperforming by even more than that. We touch on that later in the program. Foreignexchange, Risk Appetite, roads away dementias once again this morning. The swissie on top. A stronger swiss franc on the bottom, underperforming. The aussie dollar reflecting that diminished Risk Appetite this morning. On the bond market, the curve flatter, yield lower on a 10year down by four basis points lower. The yield this morning on the 10 year, 6. 7 . Retail sales tomorrow very much and focus. Chairman powell in front of the senate tomorrow, and the house on wednesday. I suggest we are at important Technical Levels for yields. Going 0. 67 to 0. 6 cents 0. 66 is a big deal. ,ight now jon opened the show the question is what kind of recovery will it be . For all of us in the west to understand china, interpreted through reading. The best book through the ages is George Magnus red flags. It is not a grim book but a cautionary tale. Dr. Magness joins us from the oxford china center. Wonderful to have you with us at this important time. How big a slowdown are we observing in china . George the worst of it was probably in february and march, and actually since march. Remember, china is about eight weeks ahead of us in terms of the evolving coronavirus phenomenon. Certainly from an economic point of view, and from a lockdown point of view. Nowctually since april, may, we have two months worth of data getting on for a full set. The economy, parts of it are recovering pretty well. So if you look at the production side of the economy, electricity, steel, cement, heavy industry, we are now at or above 2019 levels. Of the economy hasnt done so well. Tom this goes back to ubs, your calibration of chinese and Global Demand. That is the challenge for beijing. And for that matter, for washington as well. The domestic demand for china, or even more important, the lack of Global Demand of chinese products. George in this respect, with thees demand, construction sector. With these areas, hammered 2020, the first months of to the extent that these sectors , we shouldback a bit be quite cautious in looking at levels. Levels are better because there bounceback. It of a the growth rates, infrastructure, real estate, consumer demand are really much off the pace that were recording even in the slowdown years of 2018, 2019. So we have got a long way to come back on. That is the dilemma in my jon that is the dilemma at the moment. What is worth our while right now . Out forwe had data industrial production, infrastructure, investment, so on, and the one thing that really stands out amongst all of these data releases that we have had out is construction. Construction, construction. That is the sector that is really taking a bit of a slack in the economy at the moment. Unemployment is something that the numbers are not particularly reliable because they dont include migrant about a fifth of Migrant Workers have not gone back to work yet. Rate, evenyment though it dropped from 6 to 5. 9 in may, the actual rate of , so we need to watch the numbers that we cannot see in the official stats. Also credit creation. About we are not going to repeat the mistakes of 2008, 2009, and 201420 15. But there has been more critic creation during the first five months of this year than there was by a long way in the first five months of 2018 and 2019. So over the last six months, credit creation is running at about 15 annualized, which is the highest it has been since 2017. This is kind of a little bit of the old playbook of infrastructure and construction credit creation. We have to be careful. We are not blaming the chinese for doing this. Chinas preexisting bad loans and such, these things have to be watched quite carefully during this year and 2021. Lisa lets tease out some of what you just said a 15 to 20 Unemployment Rate perhaps explains why it is running the way it is as china tries to boost the economy. Can you give us some perspective lasts off how much pressure this puts on xi jinping to come up with new stimulus efforts . George the unemployment and labor market stats in china, like a lot of emerging companies, like a lot of emerging countries, are not that good. Last time we think there was anything as alarming as this in terms of joblessness was probably just after the cultural revolution in the late 1960s. The numbers were worse than they are today. Single state council and politburo meeting held since january of 2019 has always been dominated by one major issue, jobs,is unemployment, joblessness. Look at every state counsel meeting, the National Peoples congress, which was held recently, the annual meeting of chinas socalled parliament. Basically told us reconfirmed again that unemployment, joblessness is the one issue that the Chinese Government leadership care about more than anything else. Ad we should expect to see lot of activity from the government to try they have done it already, actually. Monetary and, treasury policy is expansionary. But this is the thing that could undermine the legitimacy of the government and its kind of reputation for doing things right all the time. If this does not get sorted out quickly. We know in the western world, it is going to take a long time to get on top of this chronic issue that we have about joblessness, particularly in the economy, china having its own economy. This is something that we really need to pay a lot of attention to, because they are. Is in a placessue like china, a high Unemployment Rate would be considered by some , as an existential risk. How does the shape Foreign Policy . They have domestic problems growing at home, what do they do abroad . George every International Relations expert in the world obviously when china has been feeling in the past very confident about its economic position and its economic heft in asia and in the world, it kind of comes across as confidence. Of assuredness and in terms its Foreign Policy. And of course the converse of that holds true as well. When china is feeling insecure and threatened because it has not got total control over the domestic economy or over aspects of the domestic on ami domestic economy with Political Tension and political problems, than there is a nationalism in the way, or an extreme version of the nationalism which we can ittinue detecting the way conducts itself with the United States and other countries as well. I think probably we all understand. Probably uniquely, chinese phenomenon, but we will understand that in china, and certainly this year, there has been a marked kind of tilt toward a more truculent nationalistic kind of bias in terms of the conduct of International Relations, which i think stems from Rising Economic and security, which i think is something they will find very difficult kind of pushed to one side for some time. Really fascinating. We appreciate your unique perspective and i look forward to catching up with you again soon. George magnus of oxford university. Tom keene, this has got to be one of the biggest issues in Foreign Relations right now, the domestic instability and what it means for chinas approach on the stage. Tom no question about it. The Unemployment Rate, you wonder how the economist how publishing 10, 15, per 20 as well. I cannot say enough about George Magnuss books. Coming up on this program, much more on the market as we break down more. Up next, Stephen Gallo of bmo capital markets. And the Global Economy with equity futures down 55, we are 1. 8 percent on the s p 500. A big week of losses last week. We add to them this morning. From new york, this is bloomberg. Jerome powell will ritika Jerome Powell will deliver a cautionary message to congress this week. He will be on capitol hill tomorrow and wednesday, expected to echo the mostly downbeat assessment he gave last week the whiteakers house criticized him for being overly negative. Questions arose about president trumps up health over the weekend, taking to twitter to explain what look like a slow but steady dissent on a ramp. It had no handrail and was slippery. President trump turned 74 yesterday. The oldest u. S. President to be sworn in for a first term. In atlanta, prosecutors will decide whether to bring charges shotst the policeman who and killed a black man outside a wendys. The official autopsy says brooks died from to gunshot wounds in the back. One Police Officer involved has been fired. The Atlanta Police chief has resigned. Owners of the philadelphia 76ers and new Jersey Devils now have a toehold in the nfl. Josh harris and David Blitzer have required a stake of less than 5 in the pittsburgh steelers. They may have paid as much is 140 million. They are rivals on wall street. Harris cofounded Apollo Global management. Blitzer is at blackstone. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in im than 120 countries, ritika gupta. This is bloomberg. Depending on however fast how fast the Service Sector comes back, we will depend on my forecast of 8 or more, and it means that some people will not be able to go back to their old jobs and we will have and will have to find new jobs. Jon dallas fed president Robert Kaplan speaking to cbs over the weekend. From new york, good morning to you all. Alongside tom keene, i am Jonathan Ferro, along with Lisa Abramowicz, counting you down to the opening bell, one hour and 42 minutes away. 1. 62 on the s p. As lisa pointed out, will speak later. Tomorrow we will hear from the fed chair, and we will hear from them again this coming wednesday. Tom Lawrence Kudlow called it morose. You wonder how they will readjust the message. Everybody is going to have their own opinions on this, but the market talks. To me, it is fascinating to see the volatility. Gina martin adams publishing moments ago on that. You ever seen someone call the fed chair morose from the administration . That one is new to me. This is about delivery. They are unhappy with his delivery. If you are a politician, you have a message to market, something to sell. If you are the fed chair, youre not worried about the election campaign, youre just thinking about being pragmatic. It will be a tough slog. Tom i remember, i think it was 3. 5 weeks ago at midnight, you called me morose. We were out having a beverage. Jon i call you morose. It, jon. Member you called me morose. Right now, never morose, stephen bmo, bank of montreal. We are thrilled that he could join us. Synthesizing all of this together. Stephen gallo, what does f of x tell you about the crosscurrents that are so evident this morning . I think overall, big picture, what investors know now is that the economic Playing Field has become a lot more evenly balanced over the last one to two months. I think that is why there is a great irony and the fact that the virus, the covid19, has come from china, because an evenly balanced laying field is a lot better for you if your Economic Situation is notforprofit, state directed, and debt dependent. What i think the economic Playing Field being more evenly balanced means to medium growth output outlook will be shaped by Government Intervention and fiscal policy experimentation, they sickly mmt. That is a lot more important for fx then the next marginal reduction in Interest Rates or the next marginal increase in central bank yui. I think it is important that we whereving into a period u. S. Economic data is going to be more important for the dollar as investors uncover what the shape of the u. S. Economy looks like. Jon lets talk about the policymaker and whether that is successful or not. Markets are not waiting for that. There is a ton of optimism. In europe the policy effort is very real and people have become very optimistic on europe and the single currency. Do you share that confidence . What we have learned over the last decade or so, the leaders are good at appeasing Financial Market pressures. They are less good at heading off mediumterm risks. An esm credit line for italy will create loads of interim Political Risks, bickering over burden sharing creating mediumterm Political Risk. The fiscal impact of the recovery fund, especially on socalled weaker euro area member states, is going to be the fiscal impact will probably be low. That also will create mediumterm risk. So i think you have got to look at the mediumterm. Financial market pressures are one thing. Political pressures are an entirely different one. Lisa there are a lot of Downside Risks to the euro, but there are a lot of Downside Risks to pretty much everything. I am wondering about Stephen Roche of yale university. He roadies series of columnists columns talking about how the u. S. Dollar is going to lose supremacy as it engages in an increase in the deficit. The euro faces risks, but is it a better potential insulative risks compared to the dollar . Do you expect the euro to continue to strengthen versus the greenback . Our riskk short run rally i think our view is oft the size and the pace that Balance Sheet expansion is something that puts a floor under Global Equity markets. Short run we think the move that we have seen over the last few weeks in the eurodollar can extend a bit, but i can toss i can cautioned that we dont have a huge amount of conviction around that call. The main reason is that we are so unenthusiastic about nondollar currencies. We have been saying that for a long time, that covid19 is not clearly increase the attractiveness of nondollar currencies. I alluded toough, the Economic Data coming out of the u. S. A short while ago, you need to watch that closely. Also on this side of the election, due to the Political Risk in the u. S. , it does not look likely that significant depreciation of the dollar is going to occur. Fx markets are probably in a waiting period right now. Jon Stephen Gallo, i hope youre doing well. It is great to catch up. Stephen gallo. Of bmo capital markets. Lisa, how many people question dollars for prep and see dollar supremacy over the last few years . Dollar demand through the end of march was through the roof. Once again we passed the test. When things hit the fan, people go to the dollar. That did not change in march, and if you believe the dollar supremacy will end, you have to believe that will not play out again. No one was writing those articles in march because they were dead wrong. Lisa you are absolutely right, and i will say this has been a call that has been very hard to get right. A lot of people are saying it is different based on how much deficit is running to increase. If you look at debt to gdp ratio, it is past what we saw in the aftermath of world war ii later this year, raising questions about sustainability, especially if you believe a lot of productions that europe as well as china will come out of the pandemic faster than the United States. Jon it is not a judge about the future, it is an observation about the present. We have had the deficit blow outcome of the fed stepped in, and we had a 10year yield on the 6. 6 . This is not what the doomsday people said would play out. Once again, wrong on the bond market, wrong on foreign exchange. Tom i totally agree. I really am concerned in that i see all of these people calling weak dollar. Is it a oneway bet . No, but it is a huge tilt toward weak dollar. Maybe what we get is dollar resilient. We will see. Jon from new york city, good morning to you all. Ise from new york, this bloomberg surveillance. Ahen you support the markets, turning point in world history. Good morning, everyone. Bloomberg surveillance