Wirecard withdraws results, assets missing 1. 9 billion worth of cash. Quality doesnt exist. The group says it is in discussions with lending banks. That has got to be the most stunning headline i have probably ever read. I dont know. Ill have to refresh my memory. Weve got a debate. Jpmorgan says get more selective. Howard marks has done the anatomy of a rally and i think we have gone from flawless to hopeless and back again in record time. The question howard asks is, are we being passionate enough about weighing the risk . Good morning. Nejra good morning, manus. We have been looking through what jpmorgan has been saying, investors getting more selective in the second half and i found the comments from jpmorgan interesting, especially when we look ahead to the potential for yield curve control, there are some asking questions whether it will be a buy everything rally but jpmorgan dont think it will be, do they . Manus they dont. James athay saying fill your boots with everything. Jpmorgan, they say you want to be the end game winners. When someone comes on the show and tells me by Health Care Innovations and health care stocks, you run into a buffer. Here are the markets. Good to be back with you. Nejra great to be back. Interesting on the endgame winners because they say, jpmorgan, that is opposed to a broad preference for cyclicals or defensive shares. Our guest has some thoughts about that. Msci asiapacific is unchanged right now on a headline level. A mixed picture below the surface. The detergents between u. S. And european futures, u. S. Futures on the front foot, european futures on the back foot. That could be because the s p 500 dropped on friday. Optimismurope rally on around the Recovery Funds. Index pullsg dollar back slightly after a few days of gains. You are seeing most g10 rally, the aussie, rebounding after weakness with caution in one of the states around reopening. The 10year treasury yield, pretty much unchanged and oil also fairly steady. Covid19 inases for the United States, approaching 2. 3 million, a daily increase of 1. 2 on sunday. There are signs of a possible resurgence of the virus in the u. S. California recorded a record rise in new cases while floridas infection count jumped more than the weekly average. Jpmorgan strategists believe investors should be more nearterm noise in economic data, but also a moderate pickup in new case rates. What we are seeing in the United States, the hotspot states including florida and california, what we are seeing is more worrying given the fact that it had been made clear from the u. S. Administration that they dont want a return to lockdown. Nejra youve pared back your conviction overweight to equities in late may. However, you think because youve been looking at the allocation to Money Market Funds and think because of the cash on the sidelines, that could provide support equity markets going from here, so are you looking to add back to equities because of that and if you are, what would be your strategy coming back to that selectivity theme from jpmorgan, particularly as you see the second wave or an elongation of the first wave playing out differently . How do you reallocate from equities to equities from here . Edward i think this Money Market Fund statistics are worth mentioning. In february to april of this year, we saw over one trillion u. S. Dollars of inflows into Money Market Funds. That brings the total in the United States alone to 5 trillion. That is the highest we have seen since the depths of the financial crisis. If you are looking for one statistic to sum up an unloved rally, it is that there is a huge amount of money on the sidelines. That i think in terms of where we are looking ahead, if we see any weakness from here, a selloff of consideringwould be putting that money into markets. The liquidity backdrop is such a positive that that should support equity valuations from here. , i think that isnt yet cheap enough. Asian equities are one of the cheapest globally. We have the u. S. China concerns out there at the moment. We still think that looks reasonably good value. The United States is one of the more difficult equity markets and is showing defensive qualities when we do see times of weakness in the last week, but clearly on a forwardlooking ratio basis, it looks more expensive compared to the rest of the world. Us certainly we are relative to last november. The endgame winners for jpmorgans are text calms and health care. Comms and health care. You have a similar call. Technology being tempered by more balanced exposure to the space tos equity the equity space. Do you wait for a better entry opportunity or do you just say im rolling the dice and im all in . Im not going to risk being left behind. When you first mentioned technology and health care, im definitely one to follow that, but with health care relative to technology isnt as expensive. I think health care on the msci world pharmaceutical index is trading at a discount. Valuations are less of an issue. Hitting alltime highs regularly over the last couple of weeks. That is a bit more challenging. Both of those are where the longterm growth is going to be. The show manyn years about the idea of secular growth stories and strength that can provide. Our expectation is that world post coronavirus will still have low growth and low interest rates. Amid that backdrop, you want growth equities, even when the valuation has been bid up over the last few months in particular. If you can have a secular growth story that can deliver growth above trend gdp, that would be attractive to the market. We are already seeing at the moment, headlines about the idea in the u. K. Of a cut now and potentially a bit more austerity in the future. If there is austerity, we need to pay back some of the costs of coronavirus, it could make the growth environment more challenging and that will pay up to health care, communications, and technology. Manus inky for clarifying the differentiation. It is good to get clarity on the valuation. Mcdonaldrk, brooks Asset Management. Your first word news, it is monday morning at 6 11 a. M. In london. Disappointing crowds for president trumps First Campaign rally since the coronavirus outbreak. The events in downtown tulsa, oklahoma attracted fewer supporters in the white house had touted. Overshadowed by continued criticism of the president s response to the pandemic and his reaction to protests against police brutality. You are warriors. Thank you. We had some very bad people outside. We had some very bad people outside. They were doing bad things. I stand before you today to declare the silent majority is stronger than ever before. [cheers] confirmed ithas has National Security law would allow it to override hong kongs legal system. The move threatens the citys status as top financial center. State media says the proposal will give the Central Government jurisdiction over an extremely small number of National Security cases. Italy is looking at widening its budget deficit in the wake of coronavirus. The government plans to focus on Infrastructure Projects such as highspeed rail. The news comes as the Prime Minister is drawing up a reform plan to lobby the European Union for financial help. 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. Nejra coming up, as Boris Johnsons government get set to announce easing a lockdown measures, could the u. K. Be facing a jobless recovery . Well discuss that next. This is bloomberg. Manus this is bloomberg daybreak europe. Im manus cranny in dubai. To the markets, look through the numbers in california in terms of covid19 numbers. New state ina australia been closed down,. Sian stocks come back jpmorgan says get more selective, brooks mcdonald quite likes health and tech, and health has an appealing valuation. 8 . Future down lets roll it over, aussie dollar, the rba, undervalued up. 5 . Aussie dollar is bid, Morgan Stanley saying it is a spearhead. The tip of the spear. Tip of the iceberg maybe. Bonds are below. 7 . Perhaps there is a little bit more to these markets than meets the equity eye. Good morning. Nejra good morning. Boris johnsons government is set to announce more easing of lockdown measures this week in a major boost to the hospitality in industry. A twometer social distancing rule which many complain makes reopening it possible. Manus those changes come in the wake of last weekss 100 billion pound boost to keep the qe. The bank of england warned of higher and more persistent unemployment with jobless claims already near 3 million. Edward park is from brooks mcdonald. The new narrative everyone seems to be cleaning on is the possibility of a vat cut. Would itey cut vat, make a difference, and would it change your investment narrative in the u. K. . Would make ank it difference. It would certainly boost consumption. There is a bit of a concern that some of a vat cut is exported so it doesnt necessarily entirely hit the u. K. In nature fashion unlike Something Like helicopter money which some i think it will help in terms of boosting Consumer Sentiment but the key question is what does that mean taxhe future in terms of rises to pay for that. It is quite an expensive tax to cut so we will be watching closely to see what the quid pro cutis because that type of now is all well and good, but it needs to if it leads to a tax hike, that could be quite worrying. Of the bank of england, one of the big discussions that really didnt come out from the last meeting is around the possibility of yield curve controls and manus and i were talking about how some say the discussion and expectation of yield curve control globally might spark a oneeverything rally, but investor at aberdeen standard says it depends on what part of the curve a target in the u. S. That would lead to a rally in equities are not. In the u. K. , what are the nuances around yield curve control that might impact the way you invest across u. K. Assets . Whatd it depends on aspect of the yield curve you control. If you are controlling the probably of the curve, less involved in longerterm expectations. Controlling the 10 year part of the curve is a very important one for Equity Investors looking at the tradeoff between equities and bonds. From a Financial Markets perspective, the 10year is an important level. And what is happening in terms , where10 to 30 year Mortgage Rates are important. Is probablywindow where the most bang for your buck comes. Mostems to be the number important for quantitative easing so we expect that area to be targeted for any yield curve control. Manus you disappointed there wasnt something more something more exacting from the bank of england last week . A lot of stuff that i read, which was under a billion, everyone was presuming that would come. There was disappointment there wasnt more. What was your take . I mean, 100 billion was at the bottom end of market expectations. It is a difficult balancing act that Central Banks have. It was almost a repeat of the federal reserve. Here is 100 billion pounds. However, youve got a gloomier outlook. Have done, why they are disappointed is it is well and good to have additional quantitative easing but if it is on the basis of a gloomier outlook, why wasnt there discussion of negative interest rates, particularly in the last few months minutes. And in addition, what are you going to do more from here . There hasthat because been returned to liquidity and Financial Markets the central bank needs to do less is the main thing pressurizing sterling on the day of the meeting. I think in aggregate, it was a disappointing meeting mainly because they ttip the economic problems but teed up the economic problems but didnt deliver. I think it is looking more vulnerable. Not only do we have what the bank will do from here but it is a question for all the Central Banks, what they do from here. We have brexit risks coming up. The mood music over the last week or so has been more positive with regards to brexit, but there is still the risk we and thentiations we have a combination of an to releaseuggling itself from coronavirus at the same time as tax rises and the cliff edge brexit. The outlook for sterling is looking quite weak. Nejra edward park from Brooks MacdonaldAsset Management stays with us. Hong kongs angst prodemocracy campaign fears prosecution as chinas National Security law will allow beijing to override the citys legal system. This is bloomberg. Nejra this is bloomberg daybreak europe. Im nejra cehic in london. Nationalroposed security law will allow beijing to override hong kongs independent legal system. A draft shows the Central Government will have the right to directly prosecute residents and will install a new Police Agency in the city. Chinag us is bloombergs editor. What more do we know . What are the new details we have about the National Security law . Largelyls of this have been secret and this weekends announcement sheds light for us. The proposedrmed law would allow it to override hong kongs independent legal system which is a big deal because the system is what underpins hong kongs reputation as a safe space for international business. The Central Government will have jurisdiction over an extremely small number of National Security cases under specific cases under the draft. Collect intel and handle National Security cases and calls for hong kong to establish to protect National Security. It will be accountable to beijing. Manus what has been the reaction from hong kongs prodemocracy forces . Karen they are worried. There are a lot of questions for them right now. China has said the law is needed to fight things like terrorism, but activists are saying the use of legislation on the chinese manly mainland could target people like journalists and and theyhts lawyers worry they will have to start operating like activists do on where they could Face Criminal Charges for every thing they can do and in the shortterm, the looking to a legislative council. They are concerned about the door authorities disqualifying candidates and whether they could gain a majority. Manus many concerns all the way around. That is our china government editor. The very latest on hong kong, legislation from the mainland. A flop for trump in tulsa. Campaign rally failed to attract the numbers. Manus from bloombergs middle east tour quarters middle east headquarters in dubai, it is daybreak europe. A mixed picture for stocks as investors keep an eye on coronavirus outbreaks. By cases in california rise a record while infections in florida jump. , a proposed National Security law allowing beijing to overrule the hong kong system. Withdrawalsd , cash on results, and its Balance Sheet. It is constructive discussions with leading banks. Welcome to daybreak europe. Sawame a fourweek where we Global Equities gain. The dollar and the yen gained as well. Jp morgan has said that even when you look at risk assets, you need to become more selective in the second half. Manus discerning, selective. T they say, you need to the indiscriminate approach simply wont wash going into the second half. Martin malone, a lovely email over the weekend, saying that andmarkets are a vaccine reopening narrative that might just not be there. It is it is nejra interesting as well, jp morgan pointing to the fact that the liquidity will not paper over the cracks indefinitely. When it comes to stocks, look at the covid19 and game winners. Technology, communication, and health care as opposed to a broad preference for cyclicals and shares. Others out there saying, with investors looking for yield curve control, that would spur up by everything rallies. Manus i got in trouble. Prevaricates while the s p futures absolutely keep on trucking. Msci comes back unchanged. I think that had more to do with geo with geopolitics in hong kong. Of stocks, in terms the yen winners as you say. Of 1 . E 100, quarters you spend more if there is a vat cut . It is hard to argue that the aussie is overvalued. Morgan stanley, the tip of this beer. Trade. O be a high carry 74 by 2021. We are talking about numbers and there is only one number stacked up, isnt there . Nejra yes. We are talking about cases of covid19 in the United States, approaching 2. 3 million after a daily increase of 1. 2 on sunday. Possible signs of a resurgence sun belt states. Florida infection counts dropped more. President anus Trumps Campaign rally. Trumpian his Campaign Manager had boasted that half a million trump and his Campaign Manager had boasted that half a Million People requested tickets and that they would not be an empty seat. In the end, there were just over 6000 people in the building according to the fire department. Donald you are warriors. Trump you are warriors. We had some very bad people outside, doing some bad things. I stand before you today to declare that the silent majority a stronger than ever before. Been Derek Wallbank has tracking the story. Away fromd we take that rally . They lack of people inside or that there were bad people outside . Do we know the truth . Peoplein terms of the outside, there were protests we had reporters on the ground and there really was not a giant crowd to block. The Trump Campaign had expected so many people that they had set up an outside stage. Trumpiginal plan was that and pentz would speak to that original crowd. Of course, just 1 10 of the number showed up, a very red state, to see president trump. It has got the Trump Campaign worried about what their actual show of support is. Giantsaid that he has a silent majority that maybe not comfortable coming out and expressing itself in this moment , but right now, polls are showing that jill biden, the democrat, is not just leading at the National Level but he is leading statebystate in every important swing state. If the election were held tomorrow, certainly a decided edge. The Trump Campaign will take this and say, right, what do we have to do from here . I think this was a pretty good sized wakeup call. We also had some pretty racist comments from the president over the weekend. Meanwhile, the messy ouster of the u. S. Attorney for the Southern District of new york is frustrating trumps effort to get the sec chair, clayton, to fill that job. Derek the effort to get rid of the u. S. Attorney for the Southern District of new york was kind of bungled at the start of the weekend. Now, jay clayton, the fcc chairman, we have a report that says clinton was surprised and dismayed by the uproar about his spot. Some friendsre are and allies of clayton who are trying to suggest that maybe you dont want to actually go forward with this. Certainly, democrats are suggesting he rethink whether or not he wants to go forward to it. So, that is a complicated situation. The Southern District of new york, that is probably the most key district in america. You are talking about what covers manhattan, so you are talking about what covers the trump organization, and a lot of trump stuff. About whatuestions the Trump Administration was investigating, because people saw this removal come out of nowhere. Questions about what is going on , certainly that some of claytons close advisers are saying, withdraw from consideration, stay at the helm of the regulator, and go from there. Aat is certainly a bit of messy thing that has sort of come forward. Expect some congressional scrutiny on this issue, especially in the house. Nejra bloombergs Derek Wallbank, thank you so much. Lets get to the first word news. Wirecard says it is missing 1. 9 billion euros that probably does not exist. Withdrawing results First Quarter 20 20. Constructive discussions with regulators. China has confirmed. Give media says it will jurisdiction over a small number of cases. A stabbing attacking in reading being investigated as terrorism. 3 people died. A man was arrested on suspicion of murder. 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. Manus. Manus coming up bychkova could be a major shift in the bond markets. It could make the major debt issuer. This is bloomberg. Nejra this is daybreak europe. Take me look at the risk radar, not a lot of direction from asia. U. S. Futures are on the front foot. European futures deeply in the red, perhaps playing a bit of catchup. The 10 year yield is fairly steady. We are seeing the dollar fairly steady as well, although pulling back a little bit against some g10 currencies. Oil also steady. Brent had a 9 gain. As eu leaders negotiate a 750 billion euros plan, the bond market is bracing for what could be a major structural shift. The push for a jointly funded program could see the block become a major debt issuer combined liabilities of the eu and agencies approaching one trillion euros by the end of 2021. Mcdonaldrk from brooks Asset Management is still with us. The eunegotiation around Recovery Fund more an equity market or bond market story for you . Edward at the moment, it is more of an equity story. I think in terms of the impact, the overall level of debt, a would likely be done in conjunction with further action from the ecb, so the amount of actual liquidity that the Recovery Fund would take away from bond markets might be called bank. For us, it is all about the equity story and the rebuild of europe. One of the reasons we have underweight at the moment is the concern that we dont have this fiscal and monetary coordination. Italy, as part of the single currency, clearly it has had a situation where it had a stronger euro than it previously would have done. Some structural issues as well, but in part it does not have the firepower to deliver coronavirus results itself. Positive on the peripherals, we need to see a Recovery Fund. Manus and the shape of that Recovery Fund needs to be more towards grants rather than loans , skewed needs to be more italy, spain relative to the rest . Or how do you look at the risk, the apportionment come or how do you position for that fund to come through and deliver . Edward the most positive in terms of the equity response would be exclusively in grants. It cannot just be done on gdp. It would need to be disproportionate to those most impacted by coronavirus but also most impacted and not have the flexibility to do their own fiscal packages. Our expectation is that the packages would end up being smaller than the European Commission packages. Firm negotio negotiating position. Atually, just teeing up midjuly summit. Given what we have heard so far, we are not sure that july, we will have any agreement either. Nejra there was a lot of excitement on agreement over whichage, meant inflows. Reason wert of the have seen have have seen more inflows, i dont know if the market is more positive on growth of the economy or politics. Biggest surface concerns about the fund, the far too little and far too late. Behink market patience will stretched into the third and fourth quarter. Structural,sk, enduring unemployment. Assumingkets arent any of that risk . Moment. No, not at the what the richer european states will do. , italy, spain. Think the stakes couldnt be much highter. Higher. Unless it was such a fudge, talking about a 500 billion loan package. If it looks like that, i dont think it is delivering what the eu is needing. Are the prospects for euro dollar . We are still positive over the nearterm. In the u. S. , when we sunday dot plot from the fed, no expectation of rate rises. With the chart, with monetary and fiscal stimulus, there is more capability down the line to increase rates. Our expectation, over the medium term, is that the dollar will continue deliver. See in the risk off, risk on movement, we are seeking the eurodollar move in line with that. Over the medium term, i think it is more difficult to get positive on the euro. Manus ok, edward. Thank you very much. Our guest host stays with us. Coming up, going, going, gone. 1. 9 billionos euros vanishes. Wirecard says cash on its Balance Sheet probably never existed. Nus it is daybreak europe the scandals deepens at wirecard. One point 9 billion gone missing from the Balance Sheet. Cashard now says the probably does not exist. Companyrom grace in a once considered at the forefront of german fintech. The details, where is the money . What is happening . What have you learned . Auditors say there is a big hold that should exist on their Balance Sheet. This morning, they released a statement saying that the cash probably does not exist. Last week, they said the money resided with lenders, specifically tw oh in the philippines, who denied having any kind of business relationship with wirecard. It is still a mystery why that money existed on the balance existand if it did it has about 2 billion of financing, the banks can recall the loans. 6 ranks. Owngrading resigning. The ceo nejra it has gone from National Pride to embarrassment. Ceo. Fallout for the former braun, former ceo, he was biggest shareholder. Andook a loan to buy shares used the shares as collateral. Call. Triggered a margin he has to liquidate those. Nejra that is is for daybreak europe. U. S. Futures in green. This is bloomberg. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Togood morning, welcome Bloomberg Markets european open. Areoday markets say they uninspired, asian stocks fluctuating on the trading volumes but european futures point to a negative open and the cash trade is an hour away. Here are your top headlines from the bloomberg terminal. A fall from grace, wirecard withdraws its