Fed chair is currently testifying to the house ways and means committee. Whether it is eu in china or the u. S. In china, we will break that down. We will have exclusive interviews with the erickson ceo. The main story continues to be the fed. The pandemic may threaten the stability of longterm Inflation Expectations. That was according to the vice chair yesterday. I judge that measures of longerterm inflection Inflation Expectations were at the downturn at the lower end of the range that i consider consistent with our 2 inflation objective. Given the likely downturn, we are at risk of falling below that range. Us now is blackrock system medical systematic portfolio manager. What does that mean if we fall sustainably below that range . That is where we are today. This is a huge shock. It is a huge shock across both sides of the economy. That has been met with less price inflation. We have seen the impact across price commodities. We have seen it yesterday with retail sales in recovery and snapback. The shock to the economy is first very disinflationary. That is what he means with undershooting. That is what we got from powell. The near term outlook for inflation is risk to the downside which equates to all handson debt, all policy tools good to go for try to support the recovery in both the economy, employment prickly critically and the inflation to that target. How do i think about inflation right now . Clearly as you have indicated, disinflationary forces are absolutely dominant and probably will continue to be for some time. Lows are rising. The question is going to grow. Portfolio, standard what role are Government Bonds going to play within that and do they act as a way of compensating as we can see right now, given that risk that inflation does close at some point . Jeffrey it is really about the investment horizon. I think the inflationary fear is a much longer outlook in terms of the horizon. Year,ear, probably next it is still a challenging environment for inflation which means that the fed has no constraints on the ability to continue to provide policy accommodations to support the recovery and critically to your second question on what is the role of fixed income in my portfolio that if it is necessary, if there is a second wave, a political shock, the fed has the ability and the willingness to increase its amount of accommodation, that would provide the balance that you traditionally expected from fixed income. There are two things to consider inut a role of fixed income todays market relative to the past. First, the front end of the yield curve out to about five years is really functioning at the zero lower down. Those maturities function like cash so we are not going to get balance by hanging up at the front end of the yield curve. The front end of the yield curve it is about a cash substitute. If you want something to diversify your portfolio when equities are going down, you have to be further out in maturities in the 10year part of the curve mostly out further in the long end of the curve. The final point is that the amount of balance we are going to get because of the proximity to the lower bound, yes, we have been at zero Interest Rate before, but the curve is much flatter. You are just going to have less upside from those fixed income. It will still be negatively correlated and go up when equities go down, but not by as much as it used to. That is an important consideration when thinking about what is the right mix and the waiting i have between my dad and my equities in my portfolio. I am really struck by the fact that it is literally the same story and you are at the u. K. You had a chart of all those Different Countries and whether or not the level is the same, the trajectory is the same, stuck in no mans land. Does that mean you go by the leverage alone in every developed a market . How do you offset that . Jeffrey first, that collapse in the fiveyear is really about a very different starting point when thinking about investing in fixed income at the post covid environment. Everyone has moved to this disinflationary secular stagnation consensus view. There is not the same kind of Inflation Fears today that there was in the bond market in the past. That means there is less inflation risk to protect you from the potential that inflation goes higher sometime in the future. What do you do about the lack of inflation risk premium in the market . Is it a question about how far do i reach . I think there is a really important point and an important observation of performance during the crisis that every investor has to reconcile, that when thinking about their portfolio, if im going for yield, i am giving up balance. There is an income objective. There is a diversification preservation of principal objective. If you are going for leverage loans or higher income generating highyield bonds in emerging markets, there is great value to be found there. Spreads have widened out. If you are going for income, you are not going to get balance. You have to be clear about the role you are investing for in your fixed income portfolio. A final quick question from me, as we work our way through what is likely to be a process of Central Banks getting more engaged with Government Bond markets, we are likely to see the bank of england tomorrow being questioned on whether or not we are going to see curve control in the u. K. Do we end up going down the road in japan . In japan, bonds do not trade anymore. The central bank has the them all. Are we heading in that direction in the u. S. What are the implications for my portfolio . Jeffrey this is a fundamental shift in the relationship of government, Central Banks, and treasuries. There is a much greater absorption of treasury issuance by governments, Central Banks. It is a new structure. We are talking about yield curve control. We are back in the history books about world war ii. It is a different structural environment. When you talk about japan, there are two things. One is all of the debt held by the central bank but the other is the failure over that two decade period to create inflation. I think we have to separate the holding of Government Bonds from the outcome of do we get an inflationary longterm reaction out of these developed market policies . I think when you go back to the history of war and if we use the analogy that fighting the coronavirus is Like Fighting a war, wars are inflationary. Wars are paid for with inflation. Thatately we may avoid japanlike scenario because we are doing enough on both fiscal and the monetary side to generate and the structural repair to the Banking System which is a key difference relative to japan, to get the velocity of all of the money creation that ultimately gets inflation in this. Think you for your time. We appreciate it. Jeffrey rosenberg. Up next, we will talk to erickson. Our exclusive interview, coming up next. This is bloomberg. From london, i am guy johnson in new york. This is bloomberg markets. Lets talk about 5g. The Trump Administration is preparing a nearly 1 trillion puzzle proposal. How much of that money will be earmarked by fiveyear infrastructure . 5g infrastructure . Theing us is borje ekholm ceo of ericsson. Lets start with the news. Washington is talking about an infrastructure plan with 5g part of that. How quickly do you see that money coming through the expense . How quickly could it happen and what does it mean for your company . Borje it is great to be with you. 5g isou see is increasingly viewed as an infrastructure. Criticality ofhe conductivity. Welcome the infrastructure in the broad sense as we are participants as you said. It is hard to know how this is going to play out. Countries like the u. S. , but also china are actually accelerating investment in the Digital Infrastructure as that will be the competitiveness of the future. I think what we are seeing here is a good step by the u. S. And more countries as they are inside for what will be for the future. How it will pans out, i dont really know yet. Changes, trajectory cutting debt a ton of debt, cutting cost might infringe on the ability to ramp up and other problems they have to worry about. How has that changed . Borje it is a fair question. You will see a little bit slower administration in some countries , Slower Growth in some countries. You will also see that being outweighed by other countries. If you take china for example, china mobile has 60 million subscribers for 5g already. They are accelerating the 5g networks. See 5g to be the Fastest Growing Cellular Technology ever, growing much faster than 4g. Course, it is going to have some impact from covid19. But the overall demand for Digital Infrastructure will grow faster as more and more people work from home or in remote work areas. You bring up china and that takes us in the direction of huawei and other questions around huawei. Asia, 5g is going to be explosive. What im wondering is if you do better in markets like the u. S. Where huawei is no longer able to compete is it eight zero sum game . Do you lose to china and asia because there was a greater focus in huawei . Do you think you can win on both sides . We decided a few years ago to double down on 5g and we have dramatically increased our expenses and investments in 5g. By almost 30 over the past three years. A lot of that is geared toward taking a very competitive portfolio. What we have seen today is that we are very competitive. We were the first on four continents to launch 5g. We were in the first networks. First in korea and switzerland and now we are a key partner in the chinese as well. We see we have a chance to compete across the world and we are wielding market shares across the world. Based on the technology and leadership, we can actually get market shares. It is always a competitive market. Winning and about hoping for Something Else is a bit of a waste of time. It is much faster to do what you can impact for the customer. Clearly ericsson and nokia where the fish areas when while he banned in the u. S. The beneficiaries. Will you be able to ramp up your supply chain to meet the demand if huawei is given the boot . About whatpeculate will happen in the u. K. Takes us to far and is outside of my area. What we have done in the supply chain is we started preparing for gaining market share already in 2017, 2018. We have repaired with prepared with manufacturing to capture bigger volumes. That was always a part of our plan. Can see that windy covid covid19hen the world,ns were around the they have been able to keep that coming as before. In reality, we believe we are wellpositioned to ramp up where it is needed. We are an alternative spender and we think that we are in 2 good shape to do so. Extra capacity could you produce . Is it 10 . Is it 20 . You talk about the ability to ramp up. Equipmentmplicated with a significant supply chain. How quickly can you ramp up reduction . How far could you ramp up production in terms of being able to provide the extra capacity that could be needed by countries if they decide that they are either going to go with nokia or with ericsson . There are two choices but the ability to supply quickly is going to be part of that equation as well. How quickly can you make this happen . Factor is limiting not our own manufacturing capacity at all. That is relatively easy. When we built the factory in the , that was not done at a particularly high pace. Our Production Capacity is not the big issue here. The bigger issue is the supply chain and getting hold of components and critical components. After a couple of months for some components. We have already been in the inventory of those components because we learned from the semiconductor scarcity in 2018. We are well prepared but that is where the restrictions would be. Of course if you have a massive change in supply, we would have some lead time. But i do not think it is particularly a big question. The other interesting part of this conversation is the role of the u. S. Government within ericsson. There was talk about institutions taking a stake in the company. Would you ever want that and under what conditions might that be appealing . Borje i think we are a private enterprise. I believe in private enterprises. You operate outside of the governments control, i think you are the most innovative and efficient. I think we have a good Ownership Structure and we should be able to push ahead on that. To oneng linked to much country can have other implications. I believe as long as the owners think it is a good Ownership Structure, i think it is great. Guy could they announced that europe is going to take a more robust approach to china and potentially other countries looking to take stakes or buy European Technology . Do you welcome that . It is a geopolitical question. I think the government and politicians should deal with that. As an enterprise, what you can expect from the regulators and politicians, the legislators is actually to provide as Good Environment for the company to operate in, to invest in. For example, the Current Situation with 5g rule out in europe. Out. Le out rollpou what is going to happen with countries and frequency options, etc. Those are much more important to fix for the regulators to create an environment and then we are going to see operators invest and then we can thrive as companies as well. I think whether they should be not, not toit or have them involved, rather to have a good investment environment for the companys companies. I think the political system is not during doing European Enterprises a big favor. Guy on that note, we will leave it. Thank you for your time today. We really appreciate it. Ceo. Ekholm, the ericsson this is bloomberg. Breaking news. Texas is saying the hospitalizations search 11 in the last 24 hours. Surge. It is not necessarily a good sign. Markets are not too worried. Guy not yet. We will see what happens in terms of where we are with the s p which is at session lows and they track a little lower. I think what they are seeing here is that this is about testing. It is an argument made by some yesterday and the day before. The case counts are rising but the testing is backed up. This is hospitalizations, a different number. Alix it is. You have to wonder how much of it is confirmation bias. You are already worried when you see the headline and that fuels it. Coming up, we will break down with ecohead of oil and gas trading. This is bloomberg. Guy from london, i am guy johnson with alix steel in new york. This is bloomberg markets. Alix we are taking a look at what the build up here is in the u. S. The opec monthly report is looking at weaker demand and compliance. Iraq is doing better but the base was pretty low. We are sticking speaking to Alexandra Novak saying that russia and siberia get along just fine. 1. 2inventories rose by Million Barrels, slightly less than estimated. Much less than the week before. Pushing inventory to continue to draw 2. 6 Million Barrels. One of the interesting parts is gasoline inventory is drawing. Last week we saw a build. If youre using more crude to make product, you have a build. If you have a draw, that is a different story. Some refiners buying cheaper crude and turning it into product. We seek demand consistently as andee cases rise in texas florida, covid 19 cases rising 3. 3 . The demand picture is still a little dicey. Joining us now to break us down globally is ben luckock, cohead of oil trading at trafigura. Help us understand the dynamics in the u. S. What are we exporting . How are we doing . The u. S. Is not out of the woods yet. We have had a significant amount of crude Oil Production for the u. S. It is sleeping about 2 Million Barrels per day. Crude oil was not being produced in the u. S. As it was before. It is close to one Million Barrels today. Canada was looking pretty bad as well, down 1. 5 Million Barrels. Probably only 300 to 500 million down now. Refineries are the other story. Around this time of year they should be running 70 Million Barrels per day. In the u. S. , substantially lower. You just mentioned the stats. When i looked at was 13. 5 Million Barrels per day. The one i looked at. Oil has exporting crude fallen, but probably not as much as you might think given how production has come off. What you have seen is an interesting move between sweet and sour. Think of sweet as the crude oil reduce onshore with something that people are familiar with. The u. S. Also produces sour, offshore grapes. Demandave been more in because these are the kind of oils that opec has been cupping. The u. S. Has been exporting more sour which i think makes sense. You asked about products. Products being exported out of the u. S. , the u. S. Is a large exporter, they suffered heavily during the crisis. They are starting to see more demand from some south american countries which is a good sign. All is not lost, but there was plenty capacity left that could come along in the u. S. Alix walk us through where that leaves u. S. Refiners. If we are shipping off all of the crude and keeping all of the sweet stuff, do refiners want that . What does that do to their margins . Help me understand the state of the refining market. Ben if you are a disadvantaged refiner which looks to be your us and u. S. And european systems when compared to middle eastern systems, there was a problem. We talked about demand. It was down 30 . We probably got 20 of that back. If i tell you that refineries have three or 4 Million Barrels a day that could come online, there is no reason they need strong margins. You are producing something that we need more of now, but if margins brief improve, there is plenty of capacity that can almost a meal come back on and satisfy that margin. I would be concerned if i was a refiner in the short to mediumterm. The picture is not so rosy for refiners. But did the european refiners have an advantage in terms of the structure of the market . Ben not necessarily. I think there are plenty of problems for european refiners as well. They come from the new refineries being built in the middle east. A lot of new refineries have come online. Global capacity will grow. You have a different set of people doing this. If you are a middle eastern refiner, you are often supported by a National Oil Company or sometimes the government so your set of economics might be a little different to the more purely commercial once based in europe and the u. S. I dont think european refiners are better off that u. S. Refiners. They have a very good demand based and they are still struggling demand days. Guy lets talk about what you are seeing in terms of demand stories and supplies stories. How far away are we from a situation where we start to see it tightening up and the shape a lotrve changing, of people are talking about that happening in 2021. Is that your view . Ben it is an optimistic case. We have come a long way. Aroundght we were down 30 Million Barrels per day, that was the worst. I think the next 5 to come will happen through the balance of this year. All of this we need to get out of corona neatly. There is a lot of good news around the world. We are starting to open up offices and so on. There are some concerning factors. I heard alex talking about texas. These where he us as well. I can see us continuing to move back up to that 95 of traditional demand levels. I think the last 5 will be incredibly sticky and difficult to get back because people have changed and we dont know exactly how they have changed, how much will we dry, how much will we fly, will we drive. The last 5 of demand will take years to get back. Alix can you give me a snapshot because you have businesses and offices all over the world. Where are we totally shot and where are we seeing stability . Walk me through that. Switzerland,nd switzerland has done a fabulous job. I would say we are around . 65 capacity in this office. 65 capacity. Mumbai office, a big office, 800 people. Nobody is in the office. Singapore, Good Government management there. We are about 20 maybe 25 in that office. Coming back slowly. Everybody wears masks. Houston, another big office for us. At best, 25 . We are concerned with some of the latest numbers in texas. Shanghai, just about 100 . The last i will mention is russia which has had a difficult time. Still closed for us. We have a really mixed bag. It has been far from the same all over the world. Curious, the traders, what data are they focusing on as a moment at the moment . Mobility data has been widely touted at the moment. How much alternative data input are you using to judge what the demand picture will look like . Use we are still trying to advanced analytics. We use all source of data from around the world. We are physically touching more than 6 Million Barrels per day of crude oil and products. Over 145e in countries. I think it is an inherited advantage because we are fundamentally physical traders. We know what demand looks like. We know who is buying. We can try and be as clever as we like, but actually touching the molecules is really what tells you what is going on around the world. Through this crisis, this has been our best source of data. We look at the demand we are seeing, customers are telling us and that is the reality on the ground. That is what we have been using. Us thank you for updating and giving us a taste of what is going on. Ben luckock, thank you very much indeed, joining us from geneva. Beijing canceling more than 1200 flights. The resurgence in coronavirus to blame. We have the latest data from texas. We will talk about all of this next. This is bloomberg. This is bloomberg markets. Here is an update on what is making headlines outside of the business world. The Trump Administration wants to renegotiate america is commitment at the wto. Will tell us today that many other countries maintain high tariffs and he says the u. S. Must make sure its own tariffs protect exporters and workers. Leaders argue that trade wars are tilted against the u. S. Kim jonguns regime against provocations after north korea said it would send troops into areas set aside for joint projects between the two countries. The north destroyed eight 50 million Liaison Office that was set up in 2018 of a symbol of their reconciliation. South korea paid for that office. Brazil has reported a Record Number of daily cases from the coronavirus. There were almost 35,000 new infections bringing the total to more than 900,000. Brazil is second only to the u. S. In cases and deaths. Beijing has escalated containment measures to deal with an outbreak. More than 1200 flights were canceled today. Global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Guy . Guy thank you. The latest piece of the puzzle surrounding the data. We were just bringing up texas hospitalizations. Up 11 . That data being released within the last few minutes. Joining us to as they take on that and what else we are seeing is our seniorld analyst. Should we should focus on hospitalizations from the case count. You said we should. We have to work out what the base is for that 11 surge. How serious is this number . Day, it isnd of the casesl base 2700 total. It is a big job and it is something it is a hard number. It is something that is not dependent on the number of tests you are doing or any of that kind of thing. That is what we should be watching like a hawk and being very careful about. Obviously, not a good trend. It feels like you can read these numbers anyway you want, like a confirmation bias. If you go in skeptical and you see that number, you look at the absolute level and it might not be that bad. Is there a better indicator we need to watch to invest off of . Sam the first question to ask is does it matter if there are states where cases are going up if they are not big states in terms of the number of cases already existing. That is number one. If it is big states like new york, it is under control, does it matter . That is number one. Number two, is it the harboring of something worse about to come. If take 6 is texas going to end up with 10,000 hospitalizations it was left alone. Whether it is bearish for woolwich is nothing surprising bullish. H or surprise there for that when you have gatherings, it starts running around again. Look at beijing. It was under control. It is a very touching go situation. I think you have to look at those two factors. I guess the of the arguments would be that we are Getting Better at treating the virus once people are hospitalized. We saw the news yesterday regarding a drug that is having a pronounced impact on mortality rates. When people end up in hospitals, we are better able to treat them so the death toll is coming down for every person or 10 people that ultimately have to go to the hospital. Ofre for actually the impact hospitalizations is getting lower. Argument . Sam it is an argument. It is great that you can reduce mortality. Of eight lives were saved and seven others were lost. Under noase be illusion that once you get out of the hospital, you will come back right as rain. This virus has other effects. There are people that come out of the hospital supposedly recovered but still suffering from a host of other issues. It is not something we should celebrate. What we should celebrate is the reduction in mortality, but it is not a win yet. We want the hospitalization rates to be back to normal. You are only going to get you are only going to get that with a vaccine. Alix im struck by the actions countries took like china causing 1200 shutting down 1200 flights. Were a sick relative escape quarantine. Are these the measures we are going to see and are they going to work . Sam i think we have proven that the way to manage this is to keep people apart and reduce physical contact including masks, etc. That is an experiment that has been proven. Look at european case numbers versus u. S. There is no doubt that is the way to deal with it. If you have a bunch of infections, that is the only way to manage it. Country can go back into lockdown, that is where we are all thinking probably not, right . Guy some good news. Thank you very much. U. S. Numbers we are seeing. The big question is why isnt the market reacting . There is a number of Different Reasons behind that. Yes, the s p is lower today. But we are getting a case count story and hospitalization story that is rising. Lets pick up on that with abigail doolittle. It is interesting that we are not doing a bigger reaction. There is a modest risk similar to yesterday. Yesterday stocks work sharply higher when we had hospitalization numbers come out yesterday and a florida surge. We saw them racing 2 in gains. At the end of the day, sharply higher, the s p 500 a third update in a robe. We are looking forward to that stimulus and investors looking forward to liquidity support. The s p 500, a mild loss. Youre seeing a bigger loss, it is important because it is a domestically oriented index that suggests there is concern about hotspots in the u. S. Yesterday with 20,000 cases, hospitalizations surging to the record 11 . California, arizona, florida, will it spread. We dont know the true impact of the protests relative to the virus. Some others are down creating a bit of risk off tone. The Corporate Bond etf down. 7 . Crude oil also down despite the fact that the inventory number was less. That has actually been the case over the last several days. Last week fears around the virus and a possibility of a resurgence came back. If we look at the 10 year yield starting last week, we are going to see a very small risk for bonds with bonds gaining tell you that investors are looking for a little bit of safety. Over the same time period, stocks down about 10 . During this resurgence, there has been a little bit of a risk off appetite despite the recent surge or stocks into today. There is that look at bonds losing 16 basis points. Not even a small a pretty decent rally for bonds. If we go into the terminal, this is very interesting in our charts our charts and markets producer put this together. What we are taking a look at in yellow is the all world index. In blue, the five day percentage change for virus cases. You can see back in march when cases were surging by 80 in a day, the s p 500 had gone down. We have the all world index going higher so it is important to watch the case counts even though hospitalizations at the end of the day are more critical. Alix thank you so much abigail. Lighthizer, robert is testifying. Trades say we could see with the u. K. But unlikely by november. We will get all of the action coming up in the next hour. This is bloomberg. I am guy withon, alix steel in new york. This is bloomberg markets. The football determinants restart tonight tournaments restart tonight. My dad will be very happy. Because sports is coming back which is your favorite subject, i know. But because i wonder if it will have an impact on the markets. Those sports bettors that have been betting on stocks, i wonder if now that sports is coming back, they have refocused. This is a genuine question as to whether or not that will have a market impact. A i dont think that is terribly bad question. Especially if they were wiped out last week and they had to rethink it as they are nearing the end of the quarter and professionals will be rebalancing what they need to do. Also i heard that because they are doing the stadium, they can stream all of the events. Normally that was not the thing. Is that true . This andhas dominated now the bbc which is the broadcaster in the u. K. Is going to broadcast a bunch of this these games. You can see whether or not that changes the demographic around who is ultimately watching these games. Yes, football, the game you play with your feet. It is an interesting moment for english football. The real action starts tonight. A lot of people over here are very excited. One of my friends is very excited. They locked down without any sports. Being locked down without any sports is a very different matter. I have to trust you on this one. Sports is not my thing. But i did read the article that shows that the marlins will make more money if there was no one in the stadium that if they did not. That is a Baseball Team in florida. It shows you that i know something, guys. Guy it is a game i know nothing about. I will take your word for that. You have already lost me, baseball. Talking about cricket, we are fine. But baseball, football, the game you play with your feet. I know it confuses americans when we talk about football. It really does. Cricket is pretty brutal. Coming up, we are going to talk trade with Robert Lighthizers testimony happening. This is bloomberg. Alix i am alix steel. This is the european close. Headlines from the virus in the u. S. The latest is florida covid19 positively at positivity at the highest since april with hospitalizations at 11 . Guy these are numbers worth paying attention to do paying attention to. I wonder whether the market will continue to ignore them. We will see because the rate of change continues, these numbers could get scary. The s p is absolutely flat right now. We are marking time. The European Market is outperforming a little bit which is worth paying attention to. The cac and the dax are doing well. Peripheral markets are doing less well and more flat. The pound is worth paying attention to
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