It will be fascinating to see how new york city reopens today. Francine talking about phase two and what exactly you need to know. Weve had quite a lot of debate about masks, whether you have to wear them or not, its interesting to see the difference between new york city and london. In london, there are very few people wearing them but they are obligatory on public transport. Theres a very good use of them at least in manhattan, to get out this week and was extraordinary. You are right, we just heard that from jennifer about her beliefs that a mask has a value. News, riddick a. North and south america accounted for almost two thirds of the new coronavirus cases in the latest report. The death toll in brazil has passed 50,000. Cases across the u. S. Surged. There were a record 4500 cases in california and more than 4000 cases on saturday, also a record. Banking when governor Andrew Bailey has signaled a major shift in a strategy for emergency stimulus. He is stressing the need to reduce the Central Bank Balance sheet before raising Interest Rates. He has an oped in bloomberg wouldn, he writes that it give officials more firepower in future crises. The disappointing turnout at trumps rally in tulsa was just the latest warning sign for his campaign. The rally attracted far fewer supporters than the president and his advisers promised, and it was overshadowed by criticism over his response to the pandemic and the protest against police brutality. President has fallen behind joe biden in National Polls and surveys of key battleground states. Vladimir putin says he will consider running for a fifth term in 2024. Vote on sweeping changes to the constitution since it was adopted three decades ago. One provision would allow allow putint it to stay in office until 2036. Global news 24 hours a day on air and quicktake on twitter. Powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. You so much. Equities, currencies, commodities, gold elevating this morning. Everything else, remarkably range bound. Dow futures up. Francine . Francine im looking at gold and also looking at treasuries, im also looking because of what Andrew Bailey told in a Bloomberg Opinion piece that he would rather shrink the Balance Sheet before looking at the pound and the impact this has. Im looking at european stocks fluctuating, but overall, the dollar weakening. Tom governor bailey with that important as a for Bloomberg Opinion, please listen to that the day. I know francine will touch on that in a moment. Now, catherine is with citigroup but that does not describe her claim for international economics. Years ago, she looked at the balances of our trade surpluses and our two large trade deficits as well. She joins us this morning. Economics with a real understanding of a decline in world trade. Do you and citigroup see a pernicious and permanent decline in world trade . You know, if you look back at the data, trade has really stalled more than 10 years ago when we think about it. This decline in world trade that we are talking about right now has been in place for more than 10 years, and i think what we are looking at is a particular step down. Trade growth has been negative for the past two years, and we see that Going Forward as well. I dont agree with that assessment that trade is very much on the back foot and of course theres a lot of negative consequences. Tom lets start with a major consequence, i was thunderstruck presumedbout the quarter three recovery in gdp. Theory q queue three and can it be any persistence for it . If we are talking about just one quarter to the next, of course q3 is going to have a positive number. Asia,er of countries in thats really not the relevant perspective. What we ought to be looking at if we are concerned about the state of the economy, we ought to be looking at about, first, precovid the level of gdp get reattained . Our60 of the world, estimate is they are not even going to get to that level until sometime in 2022. That is the first thing to be thinking about. Not what was the balance this year, but how long does it take to get you back to where you were before this started . If you look at unemployment, if you actually look at consumption which maybe gives us a clearer view of one we can go back to the normal that we had at least at the end of 2019, when are you expecting the u. S. Economy to create new jobs as many jobs as precovi d . Think that getting back to the Unemployment Rate in january, we dont even have that on the horizon. We dont get their inner forecast horizon. We do see an improvement in gdp, we do see an improvement in consumption, but what is really lacking his Business Investment and trade. Your been together and Unemployment Rate at the end of the year is twice, maybe more than twice what it was at the end of 2019. That really tells us something about how difficult it is going to be to get out of this disease hole. It is going to take us a lot of time to get out. What about consumption . Was thedwide consumer biggest chunk of business and recovery precovid. How will that be reacting in the next couple of months . I think that this is the real question we are all looking at when we see a lot of highfrequency data to evaluate, how fearful are consumers . Some people look at the retail sales in the United States and say they are ready to spend, they are going to come back roaring. On a lotare spending of Discretionary Consumer Services ranging from entertainment, travel, restaurants and leisure and hospitality in general. It is a large category for some countries. It is an extraordinarily large portion of their gdp. This is where we think that consumers are going to be. We have a balance, people did want to go out to buy and spend, but there will still be a fear factor that will keep people from going back to normal. The second piece of that is that there are both rules of norms, but also the distance between tables in a restaurant or the difference between meatpackers in a plant. These rules and norms about how Business Response to the crisis in order to make consumers feel better about going to a restaurant or going to entertainment, these are going to affect the number of people employed, this is going to affect Business Investment, and those are important ingredients in the process for recovery Going Forward. Normally wait for our next section with you, but its too important this morning. Governor bailey writes for bloomberg with an important essay on the horse and the cart of this join or miss trillion ginormous trillion dollar Balance Sheet. Of course, William Dudley will join us in a minute. Lets talk about the horse and the cart of Interest Rates and the Balance Sheet. Which comes . First . Do you fix the Balance Sheet, or do you put rate strategy before the Balance Sheet . Remember a, we all year and a half ago or two years ago when the famous phrase writing off the Balance Sheet was like watching paint dry, and that was from some reserve board of governors. Nobody in the Financial Markets ever thought that watching the Balance Sheet was like watching paint dry. They watched the Balance Sheet extraordinarily carefully as an indicator of central bank stance. The pieces of Interest Rate policy and the Balance Sheet policy are released viewed very tightly together by Financial Market participants. They mean Different Things to different groups in the Financial Markets because Interest Rates to affect different Asset Classes somewhat differently than what is rolling off the Balance Sheet as the assets mature. The two of them are working in thew, they both signal to Financial Markets about the stance of Monetary Policy, but they do affect Asset Classes differently, which is why the Financial Markets pay very close attention. Im going to steal a phrase from you, and that is the codependency that we have. For you, it was china and the United States, beijing and washington. But it seems like we are almost codependent in our fixation on debt. Do you have an optimism that we can extract ourselves from trillions of dollars of codependency . For a second, we have to ignore that we did it in their own work, we said it when the coronavirus really hit in terms of policy. Go big, go now. Thats because it was a crisis and it was necessary in order to pursue both aggressive fiscal and Monetary Policy. Toare now looking forward how do we position both fiscal and Monetary Policy best in order to create a productivity growth that is necessary to create the wherewithal . We are now in a position of reassessing where should we put our fiscal money, how should we move forward with our Monetary Policy that is best positioned to support Real Investment . For Monetary Policy, thats the part i worry about, that extending extremely low Interest Rates doesnt necessarily channel into a Real Investment. A channels into asset price appreciation, and of course, that doesnt contribute to the wherewithal to repay obligations to pay off the debt. And it also contributes to the inequality. We do have to worry about the how does iticy and translate into real Economic Performance . Putting on that proper to promotestrategy innovation and productivity growth. Francine also coming up, we speak with bill dudley, the former new york federal president and bloomberg author. That coming up 20 minutes from now. This is bloomberg. This is bloomberg surveillance, tom, we are talking a little bit about some of the fed policies. We want to get back to catherine. That, what does it mean for supply change, and what could have started or what Companies Much more inward looking . There are a couple things on the supply chain. First and foremost, the shortterm disruption. At this notion that supply chains need to be more resilient, that has been around for a while as firms consider a lot of risks that they have experienced over the past decade or so, these sorts of things. Supply chains are going to becoming more resilient, they are going to have more supply sources. That is against the backdrop of whating everything home, we need is excess supply and excess capacity at home, and that is negative for trade. We were talking earlier about the need to have higher productivity growth to grow out of the debt that the current me are putting on the Balance Sheet and the central bank. Trade is a very important ingredient in driving the prices. And we look at this desire the need for productivity growth, and this entrenchment on trade, it is not a good equation at all. Francine but will be retrenchment on trade or the antiglobalization movement accelerate because of covid19 . Well, trade is in contraction. From a variety of politicians to ensure that there is a domestic supply of an increasing range of things. Where does Economic Security and national security, where is that boundary . You can have multiple sources without having a declining trade, without having a declining productivity growth. You can ensure that the various pieces of the supply chain remain in contact with each other. Thats not the direction that i see the trend going. Since not the direction the policy seems to be going. Tom thats right where i wanted to go, how does the United States generate these new supply chains, given that we are basically businesspolicy free in this nation . Where would the government policy come into play . Some of the possibilities that have been considered is Tax Advantages for firms to bring supply chains back to the United States. Thats another advantage for business that doesnt necessarily translate into employment, because of course, there a lot of capital labor substitution that firms can deploy if they were to bring a supply chain back. But that doesnt mean that people are going to be employed. Theres a lot of research on how firms are able to substitute capital for labor. Day, thed of the product may look like it is being produced in the u. S. , but if it doesnt have workers, we still have a problem with employment and we still have a problem with any quality and that benefit goes to the firms. Tom one final question, are you working under the assumption that citigroup has faced that trade is debt and that weve moved on to something new, or could we actually recapitulate the joy from a number of months ago . Well, china has been buying both energy and agricultural products. Are that the u. S. Gave china a Shopping List and china is going down the list and buying things. It was not much of an agreement to begin with, so theyll buy the products that are more advantageous to them and for the Current Administration. Beatt think its going to warren up, but again, it wasnt very much to begin with. Tom this has been wonderful, thank you so much. Catherine mann of citigroup. Dont forget, William Dudley coming up in a few minutes. Exceptionally important essay on the fastforward for chairman powell, a really good essay. And later today, Stephen Schwarzman will join us. Stephen schwarzman, on the recovery that we see across this nation. New york city reopens today and of course, we anticipate that yorkchwartzmans new Public Library will at some point reopened as well. Stay with us, this is bloomberg. Francine this is bloomberg surveillance. We are tracking china as china has emerged across the global economy. Investors need to know how to interpret the data out of beijing. , tomubble that never pops introduces the statistics you need to understand to make smart bets on how the most important indicators. Onst of all, congratulations a great book that is just coming out today. How will the pandemic, given the data and the charge that you are looking at, change china postcoronavirus. Thats a great question. So, i was in china for 10 years from 2007 through 2018. , the maintent worry concern i always had from investors from western policymakers was that there is so much debt in this economy, surely it is going to burst. Do isat my book tries to explain why that way of thinking about china just misses some really important sources of resilience. Of course, it was written before the crisis, but what has happened in the last six months is, well, growth in china has collapsed. Business profits have collapsed, Household Income has collapsed. But the bubble has not pop. I think what that does is really concerned the arguments that china is really a lot more resilient than it looks. Francine but tom, is it more resilient, or is that actually that the authorities will do anything they can to prop it up . Thats one of the sources of the resilience. If we are sitting here in the United States or in europe, there is this persistent concern from the authorities that they shouldnt intervene much in the markets. If they intervene too much, there will be distortion, there will be a moral hazards. Of course, those are real concerns, but in china, the government does not share those concerns at all. Fromrrow a famous phrase one of chinas top policymakers, they always think a little bit more in balance is preferable to a lot of collapse. Policy makers a willingness to wade into the market, to wade into the economy and to ultimately back stock the entire system, thats one of the important sources of resilience. Again, iratulations really delved into your book this weekend. What is so important is the concept of this book is truly about the path forward for china. Martin wolf loves it, and i love what stephen king said. Because you live there, and you live china, the nuances incredible. Howguerrilla in the book is are they going to deleverage, and that has always been there. Is deleveraging for another day while president xi faces deleveraging this year . I think one of the great insights from president xis chief economic adviser is that you should deleverage in the good times so you can leverage again in the bad times. China made some painful 2017, theyn 2016, did not completely manage down the debt problem, that they did stabilize it and they took some of the risk off the table by really crushing the banking sector. What that means today is that they face this shock. Theyve got a bit more space, and thats why we are seeing credit rates starting to rise up again, we are going to see more leverage this year. It doesnt change the grand narrative but it does mean theyve been smart and given themselves more room to work with. Question, how is chinawatching going . You mentioned the wonderful nicholas lardy among others. Do you perceive that were a bit off the mark . One of the concerns that i have is that here in the west, we see china through we are a democratic system, china is a single party system. Isare market driven, china state centric. With these massive differences, it is hard to take a clear, objective view of what is happening over there. That tends to mean we are good at seeing the negatives, we dont recognize the positives in terms of how effective they are at managing their economy. If we do not have that objective view of china, that will be a problem because china was the big story for the world when i was there from 2007 to 2018. Much for thank you so joining us. Tom orlik with a great new book out today. Lets get straight to the bloomberg firstyear news. President trump is urging republicans to oppose a House Democratic bill of police reform. The measure is expected to come up for a vote this week. President trump said the measure would destroy the police. Someone said the president does not understand it. President trump plans to announce new restrictions on various work visas. It could affect 240,000 people seeking to work in the u. S. Astrictions would include program for high skilled workers. In new york city, companies are allowed to reopen their offices after a three month shutdown what employees seem reluctant to go back. Others will reopen at reduced occupancy. In the u. K. , the Prime Minister will set out more lockdown easing plans. Johnson is expected to relax social distancing rules. That will be a boost to the british ledger. 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. Tom thank you so much. Bloomberg surveillance good morning everyone. We are thrilled you are with us. Ofset up the second half 2020 and we do that with the market. To look at the data quickly, gold elevates. That gets your attention. Other than that, it is remarkably range bound, may be looking for Economic Data this week. Dudley,e get to william the former president of the new york fed, we are pleased to speak with someone experienced on foreign policy. Workingunson joins us, with a senator years ago. Mechanicsert on the of our foreign policy. Thank you so much for joining us. Give us the scorecard. It is so hard to attach from attorney general barr, President Trump, the secretary of state, some cabinet members. Give us a pompeo scorecard right now. Lester i would score him at a b. Forets a passing grade having a Good Relationship with the president. The secretary of state needs that. That person cant do their job without that. He has not done a good job on capitol hill, where democrats are in open revolt against him. Republicans are quietly frustrated he does not do more engagement with them. The Administration Needs support from their own party on the hill and they need bipartisan support. Pompeo has not been able to do that, he needs to make more effort in that area. On policy issues, he has done a reasonably good job of keeping the president s instincts close to the mainstream, the middle east, russia, china. Wouldk a b or a bminus be a fair grade. It is an extraordinary walkthrough of international relations. You have this memorized. Ishingtons farewell address, know you were at the farewell address. You talked about the original american isolationts spirit. Is thelationist secretary of state . How isolationist is this administration . Lester i think it is overstating it to call it i should lace and asked. I dont think our original isolationists. I dont think it is fair to say the Current Administration is isolationist. It is overly skeptical of International Mechanisms that have done us well in the past, particularly nato, our alliances around the world have served us well. We remain the most powerful country in the world for coming up on a century. Those systems have worked well for us. The administration is overly skeptical of multilateral action. It is not always the action, but it can be a useful tool. We have let china run the board on us with International Diplomacy in that area and that needs to be fixed. I have a lot of criticism of the administration, but it is not entirely isolationist. Things he says causes them to spend more money on defense, that is good. We need to think but how those relationships can help us not just criticize them all the time. Francine what did we learn in tulsa . It was not the turnout President Trump expected. There is speculation that tiktok fans purchase the tickets. Lester it was not a great turnout for the president. It was lower than everyone expected. This tiktok might or might not be real. Itdoes not look for his does not look good for his campaign. Is a little out of practice. There are issues in the field. Effort, butk first it was just a first effort. There is plenty of time for his campaign to make course corrections and make adjustments to the issues voters will be concerned about. Raciallyhout some insensitive remarks. That will not help him. If he starts focusing on issues like china and a smarter response to coronavirus, he will do much better in coming rallies. It was pretty weak, but this was just the first one after a long break and i would expect some improvement. Francine thank you so much for joining us, lester munson. Withg up shortly, we speak bill dudley, former new York Federal Reserve president. Things talk to him about we see out there in the economy. It is phase two, tom has been waiting for new york to go into phase two. 300,000e 150,000 to workers expected to come back. This is bloomberg. Tom bloomberg surveillance, good morning everyone. From my home on the upper east in london,ine lacqua as well. London figuring out how to reopen. In times square, they will truly experiment with the reopening of this great city. I cannot say enough about it. I will be at lunch on a street chef. Hosted by a french all of us will be out trying to figure out how to reopen in new york. Let me reopen with a data check. Futures are up nicely. It is an abbreviated data check because clearly what we have is gold elevated, as well. The important thing i have seen today was the essay by governor bailey at the bank of england. That was not a normal essay, was it . Francine it was not. The bank of england governor wrote an opinion piece for bloomberg news. Fundsvery clear that might need to be examined. What the governor said is he signaled a major shift in the Central Bank Strategy for moving emergency stimulus, stressing the need to reduce a Balance Sheet for Interest Rates. That will have a big impact in central bank thinking. I wanted to show you u. K. 10 year yields. Glad you brought up the money market funds, because to me, that is the distinction in this debate. The debate on being zero bound. It is a generalization. I would defer to president dudley or governor bailey, as well. Money markets in london and particularly in america are a dominant shortterm paper vehicle. This is sharply different from the continent of europe. Deutsche bank would agree with that. This distinction of how money market rates adapt and adjust to the zero bound is at the heart of the matter. Joining us with an important bloomberg column is William Dudley. I want to go to a mustread. Opens stronglways and factbased. The federal reserves Balance Sheet is exploding, growing by 3 trillion since march and exceeding 7 trillion. It could exceed 10 trillion by year end. Most people dont want to hold large amounts of cash, most all of the money eventually finds its way back into the Banking System. This essay should be required reading in any econ 101 course. Clarityown away by the of explaining the process. There needs to be a followup to this wonderful essay and that is, what is the best practice of our central bank . What should they do about 10 trillion . Bill the hard part about this is once you have expanded your Balance Sheet by this magnitude, it will be a long time to get it back down to a normal level. They will be having to live with a big Balance Sheet for a long time. The Banking System will have a lot of deposits, and elevated Balance Sheet. It will take a long time to get out of this. Ncine what does this mean good morning, it is francine in london what is this mean longterm . Bill dudley, can you hear me . Dudley, can you hear me . We will come back to bill dudley. Coming up, we will have plenty more on the markets. We will look at the implications of these Balance Sheets and the cost of covid19. This is bloomberg. Francine this is bloomberg surveillance, i am Francine Lacqua in london. Fund might add to its Equity Holdings if there is another shock in markets due to coronavirus. Where he Sees Opportunities and values in the market, post pandemic. The high equity variation. There might be a limit for the market. Another be better for market location. This stage. Ous at for the time being, we would take a wait and see position for asset location. What do you think the next uptick or downturn will be driven by . May be the second wave, we can prevent or overcome the second wave of coronavirus. We might prevent the second market. Bank and the central ernment policy tax cuts, we dont know when it will be the right time. At this stage. Have you made major changes to your investing strategy or portfolios since the start of the pandemic . Equities compared to fixed income. Wave, weis a second would consider the location. Also the location of equities. Other potential in the equity markets. Francine that was the chairman. In the meantime, we want to bring you uptodate with the Asset Classes in the u. K. Thee is a lot going on with pound. This is after bank of england governor Andrew Bailey suggested a major shift in strategy for removing emergency stimulus. What he stressed in the Bloomberg Opinion piece is the need to reduce the institutions Balance Sheet before hiking Interest Rates. What governor bailey did not say if he prefers paring back the program. As we continue tracking the virus, every day, we bring you experts on covid19. Joining us now is joshua sharfstein. Thank you so much for joining us. What do we know about the rising infections in certain parts of the United States of america . Dr. Sharfstein it is pretty rise, it is a pretty sharp in certain areas. Arizona, texas, florida seeing more cases. Beyond more cases, they are seeing more sick people and that is a very bad sign. Francine if you look at what we know Going Forward, there are a lot of questions about wether a vaccine will ever be available. If it is, could it be too little too late . Dr. Sharfstein i think it will be very helpful if it comes in the next year or so. Even with the serious number of infections, relatively few people have been infected. Vaccine at any time. I think we are starting to see the impact of affective treatments because we are seeing a lower death rate. There are way too many people dying. Seeing somee are progress and we will see more progress and treatments. Francine when you look at the coming weeks and months, what will it tell us about what works and what does not . Last time you came on, we talked about antibody treatment, and do masks work . Think we know i enough about what is working and there is enough experience in the world about what it takes to control transmission. Right now, it is a question of weather we can do it or if we will sail into the winter flu season and basically do our medical treatments. It is not just masking that does work, it is distancing, focusing on areas of the country with high infections, including low income and minority communities. Figuring out what is putting people at risk and addressing those risks. Quarantining to prevent the spread of infection. The places that have done that better around the world have controlled the infection knowing what we know now. Francine new york is in a phased reopening starting today. What figures will you be watching in new york . Dr. Sharfstein there is a lot of testing in new york, which is good, and people need to keep seeking testing if they feel sick. The total number of cases, the percentages that are positive will be early signs. We will also be keeping a close eye on the number of people being seen in the Emergency Department for serious illness. Francine do you worry about a second wave in the fall . Is coronavirus linked to temperatures . Dr. Sharfstein i would say the risk of a second wave comes from the fact that people might rigorousss strict and in their distancing. It is a combination of being inside in the fall, more viruses in the fall, and perhaps a small temperature affect. Really, it is up to us. Places that are really getting hit our hot states arizona, florida, texas. I would not put too much stock in the temperature. There is a real concern that people will feel like the virus is in the rearview mirror, let their guard down, and we will have a problem. Francine thank you so much for joining us. Out the bloomberg for the latest information and are exclusive conversations with experts about battling covid19. Coming up, more bloomberg surveillance. This is bloomberg. Point,ne at this strategistsmpanies, have a sense of what earnings will be in 2020 and 2021. Wewhat we need to realize is are going to be in a slow growth world for a very long period of time. This is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. Tom good morning, everyone. Bloomberg surveillance. We are thrilled youre with us today. An eventful week here as we stagger to the end of the first half of 2020, and without question, as the sun rises over new york city, we are not looking at economics. We will do that with bill dudley in a moment. But we are really looking at is the reopening of this great city. We will speak with the former president of the new york fed, and address some