We welcome all of you today. A most interesting day. Chairman powell to speak later on. He managed the message yesterday to say the least. I am thrilled to tell you, particularly those hammered by whiplash, a quiet data check this morning. , nottle lift in the market question. The vix with a 33 level, much better than the agony of thursday and friday out at a 44 level. Coming in sprightly and maybe take a pause. Lets view the Economic Data within the data check, which was a shock of the unemployment report, and then the huge shock yesterday of the nice rebound in retail sales. We had good conversations on that as well. Within that is what yield does. All in all i would say yesterday was remarkably quiet versus the gyration of the equity market. There is substantial news this morning. Lets go to our first word news. Here is ritika gupta. Jerome powell is sticking to his message that there will be an uncertain path to u. S. Recovery. He has the second day of Video Conference testimony before congress today. He told the Senate Banking committee the economy may be of significantod improvement, but will leave the labor market short of where it was before the pandemic. Growing concern that some of the biggest u. S. States are facing a new wave of coronavirus after lifting lockdown orders yesterday will stop texas reported a Record Number of new cases on a weekly basis. For newset records infections. Governor desantis says he has no plans to roll back the states reopening. Koreas warning kim jonguns regime against further provocations, saying they with end troops into areas set aside for joint projects between the countries. The north destroyed an office set up in 2018 as a symbol of reconciliation. South korea paid for the office. The Ministry Wants to renegotiate americas commitment at the wto. Lighthizer will Tell Congress that many other countries maintain high tariffs and the u. S. Must make sure its own tariffs protect exporters and workers. The administration has argued trade rules are against the u. S. Global news, 24 hours a day onair and on quick take, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Tom gold, like fixed income has been quite stable. Good 14. Wn a brent crude gets my attention today. I want to point out swiss franc is a bit off the radar, but with the 1. 06 handle. Want to i dont make a big deal of it, but to 106swiss go from 107 to gets my attention. Investors not looking so much at the increase in coronavirus cases, but more on government and monetary stimulus. Oildollar and crude fluctuating. Treasuries steady. I dont look at the korean won often, but today was significant because we saw a lot of volatility. In the wake of rising tensions with north korea, the won west lighting against the dollar and had a volatile session. The won was sliding against the dollar and had a volatile session. Tom it is never quiet for our chief washington correspondent kevin cirilli. You go into his library, which and solid 800 square feet it has a ladder on the wall where kevin slides down the wall to get to the new arrivals on the bookshelf. There are a plethora of new arrivals. Wading through an important book on the first lady. He has an advanced coffee of the trump offspring removed from the family, tell all about the trump family. He will explain the really serious battle on a book out in a few days. This from former National Security advisor john bolton. Explain for those not up to speed you serve in the white house, you make no money, many of these people take massive pay cuts, and you come out and you write a book. Everybody does that. Kevin its expected. Aaron sorkin wrote about this in the script for the west wing. Its expected. When you are a Senior Administration official like john bolton and john bolton is wellconnected in the town documentsand you sign about being private, so to speak, and then the National Security council when you are privy to intelligence information, the National Security council says if you want to write a book we have to sign off on it to make sure you are not releasing any secrets. Boltons attorneys say they got the ok from the nsc. President trumps attorneys are saying absolutely not. That is where the legal battle is headed. It is interesting, because Book Publishers have used this as a strategy, the nsc signoff supportto drum up for the book. It gives it more juice and publicity. 22. S almost a catch to i am young enough remember the pentagon papers. From what i can read it is widely understood that the book is going to go out. You are going to read your book cover to cover, im not. Fine, but he is going to give up the money, i guess. How bizarre is this, is what im saying . Kevin its interesting that john bolton is incredibly savvy. What you just said is a really interesting dynamic, where one could make the argument that he potentially i dont want i have no reporting to back that up and i dont want to put things out there, but if you want to make money and the book still comes out the context of the book would still be made public, and that is of interest. Francine what is in the book . More controversy or a betrayal of a leader who is less in charge and he wants to seem like he is . Is abouthn bolton policy. He is largely perceived as a hawk. That faction of the conservative ideological sphere of republican politics. Clearly, in terms of foreign policy, he will be making a point. Todays mainstream fodder, im sure there will be other tidbits. When i talk to sources at the white house i dont think they are too concerned because there is a ton of other news that has dominated the headlines publicly in the last three months ever since we have been talking about it every day. Francine we certainly have. What does the book tell us about what President Trump or how President Trump is popular or not. Kevin the president is struggling in battleground states. The former Vice President joe biden, the president is trailing. Will beconfident they able to make inroads with suburban women because they feel the issue of security and law and order will play well in the battleground districts, and beyond that. They are optimistic they will be able to make a percentage inroads with some minority communities. The president s remarks yesterday pertained to School Vouchers is a longstanding issue in the United States that found has typically found among christian africanamerican communities a strong support. Tom we will look at the fixed income market. What now . Do you click the coupon . Return, or isotal it a minefield . Stay with us worldwide. Bloomberg surveillance. This is bloomberg. Tom good morning. Bloomberg surveillance. From london and new york, thank you for being with us this morning. I have been dying to ask this question to our next guest. Joins us. Quite astute in the managing of the markets and fixed markets for total return. Jim, the great philosophical debate is what kind of stuff should the fed buy . I perused high quality investmentgreat stuff. Thehe why it screen of bloomberg terminal, it looks fully priced. Should the fed the buying the the stuff or just focus on garbage in the fixed income market . Jim if they move toward the low quality that would be more speculative. When they have done quantitative easing they bought some of the best securities. Mortgagebacked securities. If they were to go into high yield, where some would argue they need more help in the spread is wider, it is a much more difficult situation. Usually when the fed is trafficking across securities one thing they are looking at is the cost of borrowing for investmentgreat issuers. That is the linchpin of the market. That market is very large, Investment Grade is very large, just like u. S. Treasuries. What they are trying to do is keep credit available and therdable, and really keep Credit Facilities moving in a way such that yields the corporate our own cost for issuers can stay relatively low into the next phases of what the economy may become depending on what the virus does. This is what the fed doesnt know. If we think about this as game theory, we have this thing called coronavirus. We dont know how that will play out. Will there be a second wave . They game theory is would you be from now there is a second outbreak and you didnt do anything today, or would you be worse off if you did more today and there wasnt a second wave . You can take some of the stimulus and support facilities back. That would be a boost to the economy, but the fed doesnt want to be behind the curve. That is why they are going early, going big, and preparing a fire break for what might be the storm ahead. If the storm never comes, thats ok. Francine if there is a big storm ahead, a second wave followed by a possible lockdown, maybe not as brutal as we saw so far in terms of lockdowns, will they go into negative rates . Can anything be rolled out now . Jim nothing can be rolled out right now ruled out right now. Negative rates are further away. Yield curve control, if you ask me they are doing it at the front end of the curve. The summary of Economic Projections from the meeting last week, the fed said for their forecast to rise into the end of 2022, they dont expect to hike Interest Rates from current levels. They are giving you forward guidance. They are doing yield curve control, effectively keeping front end rates really low. The front end is the anchor for the rest of the curve. If front end rates stay near zero for two years, three years, four years, that will bring down 1 ,10 year yield to around maybe a little higher than 1 , recovery. Get a it wont let the backend of the market move a lot higher if the front and is going to be anchored at zero, unless you get an inflation spike, or the curve steepens, things of that nature, but we dont see a big inflation spike coming anytime soon. Caron on fixed income from Morgan Stanley. What we like to do with any given firms look at fixed income and equities. Mike wilson is scheduled to be give orin 90 minutes, take 10 or 20 minutes. This is bloomberg surveillance. Good morning. Francine this is bloomberg surveillance. London andncine from new york. We are having a good conversation with jim caron. Some of the yield curve control he thinks they are doing on the front end. My broader question is on the u. S. Economy. How difficult will the road be back to normality . I think we can be hopeful that the recovery is consistent. I dont think it will be quick. The fed is prepared for this to be a long, drawnout recovery. Significant losses this year and recouping some of the losses in years to come. The point is is if we move back economy from where we were before, that is still teetering on recession levels. You have a relatively slower economy, a sub 2 growth economy on average Going Forward, until you can get back to 100 . What powell said in his testimony yesterday is he believes the u. S. Economy is going to recover. The biggest piece of the puzzle is what happens with the virus . Is there second lockdown . Do the lockdowns come in waves . We dont know. The way the fed is anticipating this is it will be a slow recovery, which is why they kept Interest Rates and policy rates at zero throughout their forecast horizon. I kind of agree with that. I think it will take some time for the u. S. To get back to full employment, to get growth back on track. Of course, if there is a vaccine or Something Like that things could change quickly, and until then i think what you will see is Capacity Utilization rates and production utilization rates, and even retail sales, which were strong yesterday, but Going Forward these will normalize, and much of the data will normalize at substandard levels. Will that be good enough to keep the u. S. Economy on track . Are zombieron, there nations, zombie corporations, and zombie bonds. How does jim caron identify a zombie bond you want to run away from . Jim thats a really good question. Say ifuld be a bond, its a Corporate Bond for a corporation whose Balance Sheet is relatively weak and is consistently getting the port safe from the fed through the secondary market. We see this in japan in many ways, where if the government owns an overwhelming amount of shares or bonds in a specific company, i would consider that. We have a model to go after in that sense. Those bonds dont necessarily fail or default, but you arent going to get much price appreciation. I wouldnt expect a lot of performance there. Tom what are you managing for the next 12 months . Are you managing for coupon . Can you find total return even at hundred seven basis point . We think there is a lot of return opportunities over the next 12 months. Tom really . Jim yes. We have to look global. There are parts of the markets that have been lagging. Emerging markets and securitized nonagency markets. Im not talking about the highest of the high quality, talking about ddds and close to ingressive close to Investment Grade bonds. As we start to get the economy back again, there are many segments of the bond market which reflect different sectors of the economy we believe are undervalued. Particularly in emerging markets, where many Central Banks will cut rates, we expect the dollar to weaken, the currency should do better, oil should stabilize, and we are getting some global growth. Em has been the laggard, we think that could perform well. Securitized assetbacked securities, these have been doing well, but have also been lagging. What we say it Morgan StanleyInvestment Management is there are assets inside the tet and outside the tent. Tent areoutside the doing a lot better as we see a broadening of the cyclical components of the market starting to perform better. Francine thank you so much. Coming up we will have more on the germany bond sale. They sold the largest amount of 10 year bonds since 2014. And Stephen Roach is coming up. Bloomberg surveillance. Francine with first word news, the Trump Administration is suing to stop john bolton from publishing a tellall book. The government claims the book would compromise National Security. Then schuster because of book donald trump is not want you to read. It is out next week. The most serious outbreak of violence between china and india in more than four decades. India confirmed 20 of their troops are killed in a fight along the himalayan border. All china says is that there were casualties on both sides. A couple of days ago, both countries indicated they were pulling troops back while talks continued. The u. S. Has spent more than half of 3 trillion in economic rescue funds passed by congress, but there is little oversight designed to keep the money going to the right places. Three you oversight boards have barely been functioning. In one case, trump removed the official who would lead the accountability committee. They say some of the money is already flowing to unqualified recipients. Brazil reported a daily number of daily cases of the coronavirus, with almost 35,000 new infections, bringing the ,otal to more than 900,000 second to the u. S. And cases and deaths. Meanwhile, beijing has escalated containment measures to deal with a growing outbreak. 1200 flights in and out of the city were canceled today. Global news, 24 hours a day, onair and at quick take on bloomberg, powered by more than 2700 journalists and analysts in more than 107 120 countries. The most deadly incident between china and india occurred in more than 40 years. A spokesperson said there were casualties on both sides. Lets get the Stephen Roach, a great student of china, a Yale University senior lecturer. He is also author of unbalanced the codependency of america and china. Stephen roach, thank you for joining us. When you look at the clash between india and china, we dont fully understand set it off, but does it change your outlook on Chinese Foreign policy . No, i think it is another indication that china is more muscular and projecting its foreign policy, especially in the region in the frictions and that goindian border way back. All of this is the first significant clash in a number of years, but we have had problems in the South China Sea and before that the east china sea. Taiwan is obviously a chronic source of concern. You know, chinas muscularity has been evident in all of these areas in terms of their of military force over the last seven years to 10 years. Francine are we going to see more of that . About clashes, they did with hong kong is more systematic and they want to take up more space on the world stage . Stephen i think the hong kong situation is very different. China correctly or incorrectly, depending on your point of view, viewed mounting instability in the streets of hong kong as a threat to chinas longstanding desire to maintain social stability for the nation as a whole, which it considers hong kong to be an important part of. That is viewed more as an internal problem as opposed to the external objectives with respect to the perimeter concerns that i noted earlier. Level of is our intelligence right now on china . You are such a great china watcher, your years with Morgan Stanley, the ebb and flow, but when you see the news flow, particularly the political news flow, are we aware of what is really going on or is it a mystery . Stephen that is a great question, tom. Viewsis a lot of strong of the interturmoil going on, perceived to be going on, inside of the top of chinese leadership echelons. I read that as carefully as anyone. I have to say that there is a lot of sort of presumptive investigations and allegations that are going on, and the hard evidence is very difficult to obtain, so you have to sort of look at actions rather than behind theelopments key actors. On that basis, chinas course under xi jinping has been pretty straightforward since he has been in power. Tom what is the sense of nationalism . By that, i mean there is a citystate structure that goes back for eons, there is a little bit of a national sense. Comingunderstand that out of the takeover of the communist party, etc. , but when you look at 2300 miles of beijing to india, what is the sense of nation of china from sea to shining Himalayan Mountain . Stephen well, china has been fragmented for thousands of years, and the unification of recents a fairly historical phenomena in the beginning in the mid1800s with opium war in the socalled century of humiliation is something that has really captivated the chinese the spout by xi jinping since his term began in 2012 as part of the china dream. China is determined to overcome the century of humiliation and rise up as a great nation, so nationalism is wrapped around has becomeream and increasingly more important in the last nine years. Tom absolutely fascinating. What we are going to do, wonderful to have Stephen Roach with us with Yale University, and of course a legacy with the ale and china studies, as well. With aaon china studies, as well. We will come back Stephen Roach because he wrote an essay on Bloomberg Opinion on the dollars. We will talk to Stephen Roach about that, as all. Please stay with us. Worldwide, from coasttocoast, this is bloomberg. Bloombergs surveillance. Good morning everyone in london and new york. Thank you for being with us. A good conversation with dr. Stephen roach of Yale University. We have been talking about china, but right now on a spectacular essay that was classic roach, going back to a time at Morgan Stanley, he has always been what i call Balance Sheets centric looking at the flows. Lets look at the morning mustread off his essay on the collapse of the u. S. Dollar. Currents saving and account problems are about to come into play with a vengeance, and the rest of the world are starting to look less bad. A weaker dollar would boost u. S. Competitiveness, but only for a while. Notwithstanding the cuprous of american exceptionalism, no leading nation has ever devalued its way to sustained prosperity. Stephen roach, could it be that big of a dollar move, were removed from depreciation to consideration of devaluation . Problem well, tom, the with the u. S. And its saving current account balances is that they were already setting us up for a problem before the pandemic hit. Then Net National Savings rate, which is the broadest measure of domestic savings, the savings of his messes, households, and the ofernment sector savings businesses, households and government sector appreciation was at 1. 4 in the First Quarter of 2020. And the average, the 45 year average from 1960 to 2005, was 7 . So we were at the lower end of an acceptable ground, and then we have introduced this massive relief package, which is going to blow our budget deficits higher than we have ever seen and take debt to gdp ratios well above those, which were evident in the end of world war ii. Passenger vehicle registrations plunged 57 from eight from a year ago. That is the vast improvement of april plunge in april over shutdowns from the coronavirus. That is the bloomberg business, francine. Francine thank you so much. Bloomberg has developed a unique partnership with a leading authority on covid19. Johns hopkins has been at the forefront of International Response and every day will bring you insights from public health, Infectious Disease and emergency preparedness. Joining us now is lauren sauer to discuss this, Johns Hopkins professor assistant professor. Of affordable virus therapy, which was good news, so how much of a game changer is this . Toren everyone is excited see the data coming in on the drug. I think anything we could add to our toolkit is huge, something that can be widely distributed and used, and improves mortality is absolutely huge. Francine does it mean we could find similar drugs that could help and people that are not so critically ill . How much of a breakthrough is this . This is a reliable study over i think many countries with many patients. Lauren yeah, i think we definitely want to see the data, look at more data around his drug, and better understand how we could use it in places where mortality is lower. These patients who are less ill are where we want to see more work Going Forward. I think this is absolutely promising. We would like to see the death rate come down and some of these studies and have a lower mortality rate to understand how the impact is on the less ill patients. Francine what can you tell us about what is going on in beijing . We understand authorities are trying to contain this possible second wave of the virus without sealing off the city. Is this a second wave . Is it the same virus that has been introduced or has it changed at all . Lauren it looks like it is the same virus and what we are seen as a second wave in the city after restrictions were eased, so the government is going to have tour card to reimplement restrictions. It will be a snapshot for us as own statesng our reimplement own states reimplement team restrictions to reintroduce second wave impacts. Francine what is the situation in the United States . There are hotspots and new spikes. What can you tell us about why they are in certain states and not others . Lauren i think a lot of it tracks with easing the restrictions, and we are still looking at the data coming in, but we know 18 states are having significant upticks and 22 states on the downward trend. Several states across the country have steady numbers, but there are restrictions that were eased up in late may and early june, and i think we are seeing the impact of that being a little too cavalier with the easing of those restrictions. Statese if the six u. S. That you mentioned are going back due to tracking and tracing, can they get a handle on it pretty quickly . Lauren i think there is potential. I mean, so these developments and drugs and things like that, they dont actually stop outbreaks but improve the outcomes of patients. The things that you mention, contact tracing, identifying, testing, putting lockdowns back in place if necessary are the key tools we have right now until we develop a vaccine. They work know that and we have seen a lot of data from early outbreaks and other countries in the u. S. Outbreaks in other countries and the u. S. , so we know that putting restrictions back in place absolutely huge. Francine i have erred everything from the virus is mutating i have heard everything from the virus is mutating to one professor saying they got rid of the virus. What do we actually know . Lauren we have not actually seen a lot of mutation, which i think is good. It is promising for understanding how therapeutics and spread happens and how we can use vaccines. Ithink what we know is that is transmissible and it does cause severe disease and a lot of people who get it, so we can use the tools that we have, that will help ease transmission, which is social distancing, which is good hand hygiene and masking, to protect us. As far as the virus itself, i think we are still learning a ton about it. There are so much science done every day and we have so much to learn yet. Francine thank you for their briefing, lauren sauer of Johns Hopkins. Bloomberg check out for the latest and you can tune in every day for an inside look at the covid19 with Johns Hopkins experts. The market seems to have looked through the beijing number of cases and the fact that schools have reshut in beijing to focus. More news on stimulus, monetary and government. The dollar is fluctuating, along with crude oil, and im also looking at treasuries nudging higher. Overall, there seems to be investor optimism towards risk assets reflecting bets that the new outbreaks will not lead to government pullback from the gradual reopening of their economies. Keene, jonathan ferro, and Lisa Abramowicz for more bloomberg surveillance. This is bloomberg. Credibility for the of policymakers to follow through on the commitments theyve made. The market has gotten really negative about the prospect of future inflation. You are going to have a pretty big decline in real disposable income in the third quarter, and the reason is you pack so much of that stimulus into the second quarter. This is bloomberg surveillance with tom keene, jonathan ferro, and Lisa Abramowicz. Jonathan for our audience worldwide, good morning. This is bloomberg surveillance. We are live on bloomberg tv and radio. Alongside tom keene, im jonathan ferro, together with Lisa Abramowicz. Youve talked about the crosscurrents through this week. On one side, the betterthanexpected Economic Data. On the others, signs of an outbreak in beijing, china. Tom theres no question on international relations. It is tangible. We just spoke with Stephen Roach, an