What an interesting market. It is not a normal july, and simply, it is not a normal friday. Gold almost touching 1900, better markets in the last minutes off the better than good pmi data in europe. Francine we had betterthanexpected pmi in europe, but also the u. K. It is not moving markets that much, but it is something to keep an eye on. Lets get to first word news with karina mitchell. China has dropped back, ordering the u. S. To close its consulate in chengdu because of the u. S. Decision to close the chinese consulate in houston. China serves as a key u. S. Listening post. China says its action is a legitimate one and necessary. President trump has given into worries about the coronavirus. He canceled his florida nominating convention. That was going to be the biggest event of his reelection campaign. Florida just posted a Record Number of deaths from the pandemic. The president says he did not want to take any chances. There are still differences between Senate Republicans and the white house over the next pandemic relief plan. Majority leader mcconnell says it will not be rolled out until monday. White house agreed to drop its demand for a payroll check holiday. Republicans are backing another round of 1200 checks, plus expanded Unemployment Insurance. And the u. K. , the lockdown eased off in Retail Stores last month. Sales volumes are almost up 14 in june, the most since records began in 1996. Sales are approaching their prelockdown levels. Global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more im karinauntries, mitchell. This is bloomberg. Tom thanks so much. Really appreciate it. Equities, bonds, currencies, 12. Dities futures are the vix back, but the vix is not back up to the range we saw 10 days ago. That 32 to 28 range. We are at what he 7. 26. They have come we are at 27. 26. 1894. Ne mentioned gold, price, 41. Ude it is friday and i have run out of energy. Francine gold is close to an alltime high, so i am looking at that almost every couple of minutes in case it changes. The dollar extending the week slide. Are falling in u. S. Futures because markets are worried that the recovery in the u. S. Has stalled and they are worried about escalating tensions between china and the u. S. Beijing has fallen through has followed through on its threat for retaliation, ordering the u. S. To close its consulate in chengdu, this after the forced closure of the chinese consulate in houston. Joins us from chengdu. The retaliation was a closing of a consulate as expected. It was not the one that would have hurt the u. S. The most. Is that it, or are we expecting a further escalation . Well, i think it is a response to the closing down of the chinese consulate in houston. Things, the many escalation on any front at any time. Francine sharon, when you look at exactly what this means for trade, you had some pretty strong words from mike pompeo on china. How will the chinese leadership take that . Obviouslymean, it was withinflammatory, and even the antiamerican sentiment that is already spreading in china, we are talking with people in chengdu today about how they feel about the consulate closing, and a general or kind of curious or they dont really know what is going on. But they do know that tensions are rising. Resident,o a chengdu and she thought it was great that there was a proportionate response. Tom sharon, there is a backstory, and that is that chengdu is north of hanoi, and that is north of bangladesh, betctly west of and to is north of bangladesh, directly west of chengdu. That is how you get to to bet. Foron is diff difficult ambassadors to access it. Tom one final question if we could, with the connection that we have got, and i believe we will see you in the next hour as well. The turmoil into the weekend eggs for another response. Begs for another response. From where you see china and your reporting on china from beijing, is this the final response, or do we assume there will be something next . Sharon it is hard to tell, but i dont think anyone thinks this is the end. Tensions are really firm right now, and this closing of the theylate, this is the most have seen in many years, and i dont think it is going to stop here. Francine thank you so much, sharon chen, bloombergs beijing bureau chief. Up next, Patrick Armstrong we will talk to him about the u. S. China tensions and talk to him about gold. This is bloomberg. Tom good morning, everyone. Francine lacqua in london, tom keene in new york. We just spoke with sharon chen in chengdu. Elizabeth economy will join us later. Ambassador haass will be with us in a few hours, and that important story with the stimulus issue in washington. We have the follow on from the stimulus in europe. Right now on the markets, they have been front and center here. Patrick armstrong joins us. With the market turmoil, with the new agitation, a better than good market, and the pullback we have seen over the past two days, have you made any changes to your portfolio, to your allocations . Anyick we have not made changes. We are sticking with what has been winning, the quality companies, the growth companies. We think they will continue to rise because when a dollar in 10 years is worth the same as a dollar today, companies can double their earnings a lot more than companies that will see their earnings flatline or deliver low growth and negative growth. We are long on health care companies, technology companies, and we are short on indebted cyclicals, autos and banks that dont have the Investment Bank divisions. Believe,e is a whole and certainly francine and i have seen this through the week, people flat out afraid to participate. We see it in the flows, the retail flows, the institutional flows as well. What do you say to people who . Ay im out of the market i can totally understand that because people think that is what i have to do, and then i look for alternatives. We were getting big credits reds that big credit spreads in march, and now that is gone. People with negative yield growth, equities are not cheap by any means. There is going to be pullback, there are air pockets because there is no valuation support on traditional members traditional measures. That is the one area well, not the one area, id like gold a lot, too, that is the one area where you will see real inflation created above gold. Francine when does gold get a breather . Patrick gold, if you wanted to write the recipe for the perfect backdrop for gold, you almost have everything right now. Spiking overmoney the past when he 4 . Over the period of the 1980s, it was growing at 15 to 20 per pound. You have zero Interest Rates, so there is no opportunity costs for moving gold. You have massive geopolitical risks, Central Banks who de who wantto to dedollar their reserves. You either have to have you have to have a debasement of currency to get out of those debt to gdps. You will not grow your way out of debt to gdp. Preserves value in that kind of environment. What patrick, so im not talking about fair value. Where does gold go next . Is the sky the limit, or is there a plateau . Quickly it depends how the debasement strategy happens. Seen withat you have negative real yields come you get no yield in gold. But you will probably will preserve your purchasing power. As inflation is generated and as monetary currencies are debased, gold goes up as measured in those fiat currencies. I dont think youre going to change or wealth, but you can preserve your wealth in gold. At 3000it to be within three years and from now, and that is just because governments and Central Banks dont have many alternatives except to go nominal gdp. Real gdp is going to be hard to grow. I think will be much easier to raise inflation and create nominal growth with their debt to gdp ratios. What does don what does the 3000 tom what does the 3000 gold price due to nontangible assets . It is hard to say. I think right now youre seeing quantitative easing, which is basically Central Banks giving money to institutions, to affluent people, people who have treasuries. Central banks say i will give you cash, you give me treasuries. On the fiscal side of things, you are going to see more direct transfers to individuals because unemployment is going to remain sticky. Generally, there will be a sense that there is a debasement strategy, and tangible assets are something you want and people will start to question intangible assets at some point. I think while you have the impression of zero Interest Rates, the intangible assets have attraction as well. Tom Patrick Armstrong, wonderful to have you with us today, and we will continue. It is shocking images, the images of a generation, if you were of my vintage, it is a secular turkey. Thel now and arguably greatest symbolism of my lifetime of the changes in turkey this is the grand mosque in istanbul. The 1453 switch from christianity to islam, and then the experiment in the 20 century of secular turkey. There is a change for the first time in 86 years. There are prayers of islam at the grand mosque. [chanting] Tom Bloomberg surveillance. Good friday morning from london and new york. We are watching the markets after the pullback yesterday, continued pullback this morning. Futures 12. With the business flash come here is karina mitchell. Karina shares from intel falling after production process suffered another delay, the news boosting shares of rivals. At issue is a method for cranking out smaller chips. The latest sign coronavirus is wreaking havoc in hollywood, disney has canceled the august live film the moulin. For the ninth quarter in a row, there were net outflows of hedge funds. Investors pulled out more than 42 billion from hedge funds around the world in the second quarter. For the year, where than 55 billion has been withdrawn. That is the Bloomberg Business flash. Francine thank you so much. Lets get back to the markets and back to Patrick Armstrong. We were talking a little bit before about gold that you like so much. Does that extend to silver, or is silver a slightly different function . Patrick it is something i looked at that i wish i would have bought. We started looking at it a couple of months ago because the gold silver ratio got blown out the widest it has ever been. ,ut i think any precious metal silver probably makes just as much sense as gold. What i like about gold is it will be used as an alternative to the u. S. Dollar for reserves. We will not get there with silver, but there is a loose link between the two. If you like gold, you probably like silver as well. Francine what are you constructive on right now . I dont know if that you Recovery Fund makes you by European Assets makes you buy European Assets more. Patrick it has change on the euro. Around the euro will end 1. 20 versus the dollar. Before that, we were expecting no change between the euro and the u. S. Dollar. It has removed some of the fragility and entered some of the questions, to be sustainable and viable hue need fiscal basically integration, and we dont have that. But it does show in times of stress when there is emergency, when it is needed, you have a form of fiscal integration, and i think that adjusts the weak change in the euro. That removes one of the . s, i dont know if that flows into the euro that removes one of the question marks. That is one of the questions it has now answered. Tom investing 101 with Patrick Armstrong. If you like gold and you suggest an inflationary tendency and the suggestion of a review of nominal gdp, not inflationadjusted gdp, does that mean by definition you like equities . Patrick i like equities, and i like the gross equities. Because when Interest Rates are zero, i think Companies Like alphabet, facebook, apple are going to grow earnings over the next decade. Companies like General Motors will see their earnings fall over the next decade. When a dollar 10 years from now is worth the same as a dollar today, you pay. 30 times is not cheap by historic measures on earnings, but that is where trading i think tom this is really important. I want you to rationalize the acquisition of shares today of a 30 multiple toothpaste company. How do you pull that off rationally . Patrick what is the 30 multiple toothpaste company echo tom i dont toothpaste company . Tom i dont know what it is. It is just a given stock. Whos counting . Company if i know the has a monopoly or all a gobble he position companies and health care, innovative treatments for cancer, for covid19, things like that, i would pay 30 times earnings for. So the consumer stable stocks do not so the consumer stable stocks do not attract me. Ple stockssumer sta do not really attract me. Tom based on what you just said, where is the next amazon . Patrick thats a very good question. People are pricing out tesla, if it will be the only auto company in the future. I dont know enough about the earnings and the cash flow, how we get to the multiples where we are right now, but the next one is a very big question. I dont know where it is right now. If you find someone else who does know, send me that link as well. Francine patrick, if you look overall at some of the evaluations in technology stocks, are we in bubble territory . Patrick i think we are in a bond bubble, and that has created very lofty valuations in technology companies. So i dont think it is a bubble because i can see why alphabet, at 30 times earnings, will be trading at 18 times earnings in 10 years time if we have a normalization and higher Interest Rates, so i can see how that gets there. Other companies, i think, are more expensive. I would much rather own a Technology Company that is growing, paying 30 times earnings, then General Motors or i almost said the royal bank of scotland. These kind of companies dont have anything in defendable in terms of Profit Margins in terms of growth in earnings. Defending earnings is the best it can hope for. I think traditional banks suffer massive head went from no interestrate margin, Central Banks are making Investment Banks very low on the baden trading side of things. But i think it is worth paying up for quality and for growth where you can find it. Francine patrick, thank you so much for joining us. Patrick armstrong. Stocks are definitely falling in europe, but u. S. Futures are feeling a bit of pressure. This is over escalating chineseamerican tensions. We saw the tit for tat in terms of consulate closures. There is also a bit of worry out there on the market that the u. S. Economy has stalled. Fiveyear treasury yields touching an alltime low. 1900 anding at near ounce. The offshore yuan actually dipping. Coming up, we will talk a lot more about tech valuations, and they later, the intel chief executive, bob swan. You dont want to miss that interview to talk about what is coming next for the tech sector as a whole and for intel specifically. That is 11 30 am in new york, 4 30 p. M. In london, and this is bloomberg. Hike Simon Pagenaud takes the lead at the indy 500 coming to the green flag, racing at daytona. Theyre off. In the kentucky derby. Rory mcllroy is a two time champion at east lake. Touchdown only mahomes. The big events are back and xfinity is your home for the return of live sports. Welcome to camp tonsafun on xfinity its summer camp, but in your living room. Learn how to draw with a minions expert. How to build an indoor Obstacle Course plus. Whatever shes doing. And me, jade cattapreta. The host of es the soup camp tonsafun. Its like summer camp, but minus the poison ivy. Unless you own poison ivy. In which case, why . Just say summer camp into your xfinity voice remote to join. Francine this is bloomberg surveillance. Tom and francine from london and new york. We are looking at gold because it is trading near 1900 an ounce. The dollar extending the weeks stride. We want to show where we are on that, 7. 01. Stocks in europe are falling intend them with u. S. Equity in tandem with u. S. Equity futures. If you look at yields in the u. S. , they are touching lows, tom. Tom the bond market does it switch, and we have had two days of lower yields. 10year, 5. 92 rounded up past that Economic Data as well. I cannot tell you exactly when, but i am certain or than anyone that is associated, is a fed official. Kocherlakota has made it. The economic slowdown i have the clearest memory of 100 days or maybe 120 days ago, kocherlakota sticking his neck out and saying fed, do something and do it now. Here is the former president of the minneapolis fed. The fed should be doing all that it can to stimulate the economy in the current setting. Both the further current mandates in terms of trying to get inflation back up to 2 , and try to lower unemployment from where we are today. Itunately, i dont see see unemployment rising, not falling, even with that stimulus. So now, the point of my piece was, that would help on a third mandate, which is proposed by the biden campaign, which is to shrink the gap between black and white unemployment. Inhink that is a valid goal and of itself, but the pursuit of that actually would be beneficial for the economy because that gap tends to be low when unemployment is low. Francine good morning from london as well. It was a great opinion piece. And it shows what you think that the fed should target racial equality. How can they do that concretely . Has one tool,fed which is Interest Rates. Payingnt is that it is even if it paid more intention to the more attention to the pay rate that it has then it has over the past 35 years, it would do more to further blackwhite equality, in terms of lowering the gap between blackandwhite unemployment. The reason that gap tends to be high is only because unemployment itself is high. Willing tofed is have easier Monetary Policy to be concrete about it, i think you look at 2015 when the fed initiated the rate hikes, overall unemployment might have looked low, but if you look at the gap between black and white unemployment, that still was high. Looking at that, it said to the fed there is another reason on the table where you should not be tight in tightening policy. I wonder how this plays into the conversation with real yield. The last time we were this low, we were in the qe infinity world when it comes to the fed. I wonder how much more qe infinity are we going to need to kind of keep yields this low, and do real yields sink even lower at this point . Narayana yeah, i think the fed is going to be doing what it can to push real yields even lower. Even longerterm yields, you know, the challenge right now, as we saw Unemployment Insurance claims come in earlier today, the u. S. Economy is under severe challenges, and those challenges come from one source, which is our public has not been what it should be. As a result, we see the surge of cases around the country. Unfortunately a surge of deaths around the country. Until Public Health is where it needs to be, we are going to have to face significant challenges in the economy, and the fed is going to have to do whatever it can to provide support. Francine what do you think should be in the next stimulus bill . Do we have a good enough understanding of the pressures the u. S. Economy is going through, and are all sides going to Work Together to make sure that in the stimulus, it safeguards the weakest points in the economy . Narayana yeah, i think that the challenges the challenges i think are that you are going to be facing a lot of people who are going to not be able to find jobs or who are going to be losing jobs. You want to provide support to them in terms of spending, and you have to provide even if you have not lost your job, you may be worried about losing her job, and that will lead you to come back on spending. Francine that was narayana kocherlakota, speaking to us yesterday. Lets get straight to first word news in new york city with karina mitchell. Karina china has threatened to retaliate for the closing of its consulate in houston, and now it has, ordering the closing of the u. S. Consulate in chengdu. Aging says the move is illegitimate and necessary response to u. S. Actions. Beijing says the movie is a legitimate and necessary response to u. S. Actions. 57,000 news cases may be reported each day, but the reality is more like 200,000. Resort in the caribbean are reopening to tourism, but not to americans. Tropical vacation spots across the region are giving americans the cold shoulder. Authorities are afraid they will spread the virus. Flights from passenger ships in the u. S. Are being barred. This comes after more than a dozen legal observers claimed they were teargas door shot with munitions. Sending inefended the agents, saying that local authorities could not keep the protest under control. Global news 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries, im karina mitchell. This is bloomberg. Tom thanks so much. Coming up, we look at china. Elizabeth economy joining us from the council on foreign relations. Thethen our colleague, president of the cfr, ambassador haass, will join us. His wonderful new book, my book of the summer. Stay with us. This is bloomberg. Tom bloomberg surveillance. From london, from new york, Francine Lacqua and tom keene. Lots going on, really focused on china. Right now the conversation of the weekend, which is gold, gold, gold. Where were you 500 announce ago, where were you 1000 an ounce ago . If you watch bloomberg surveillance, we see many people coming on saying buy gold. Macquarie groups Marcus Garvey joins us now, there economy strategist. Congratulations. How can you sustain enthusiasm for gold after such a large move . Marcus i think that is a very fair question. Getting to alltime highs, there is the risk of a bit of a correction and a pullback. But i think the underlying dynamics that supported the move is very much in place. And are likely to continue. We think a move beyond here, through that 2011 high and up toward Something Like 2000 announce come is very plausible. That is probably going to be and overshoot, so you will not necessarily sustain a price that hi, but with the momentum we have at the moment, there is a chance we will make that. Tom as you well know, the bid on a tangible asset is a factor analysis. It may be jewelry, it it made thisiosk in dubai, etc. , Central Banks, etc. , we could be the ease of purchase of a tangible through new financial projects like etfs. Is gold popping at the margin because it is so darned easy to buy . Certainly aink that tailwind for it, in the sense that it is easy for people to increase their allocation to it, and it is very much the primary driver, as we have discussed before, financial. Jewelry sales have been weak, particularly in emerging markets. One of the things that is now likely to kick in if we do get this further leg toward the 2000 big number, is that you will see futures go back toward alltime highs as well because you will see things like systematic momentum by pushing the market towards those sort of big round numbers. What exactly is sustaining gold . Talk to us about gold and silver markets. Is it one and the same thing, or is silver a little bit different right now . Very good questions. In terms of what is sustaining gold, the principle underlying support is what we have seen in the real rates markets, with things like 10year tips going 90 come as we go towards that 1 territory, collapse is supportive to the yellow metal. Also providing a tailwind, one of the things, if you look at the history of silver, and particularly silvers performance in ratio to gold, it tends to outperform when you see an improvement in industrial activity and when you see risk on market conditions. That is one of the things to think about. Although there is uncertainty around the world, we have been running with risk markets and gold and silver have been picking up with equities. That is a particular tailwind for silver. We are not that surprised that silver has managed to have this big catch up over the past couple of weeks, having lagged because we have seen it come alongside recovery in global pmis and continued Strong Performance from Global Equity markets. Francine marcus, is the rally in gold symptomatic of investors that dont think Central Banks can do enough to deal with the Current Situation in the economy . Or is it in a frenzy just because people talk about it . There are a few different reasons, different types of the message that have increased on occasion. If you look at some of the money that has come in laterally, and kind of the most recent couple of weeks, that is more momentum related money than it is joining the rally at a later stage. If you are going back to the earlier stages of this, you know, if we go back to after that march correction, i think that is money associated with taking a more strategic look at what we have in terms of Global Central Bank policy and what that means in terms of the outlook for real Interest Rates staying lower for longer. I think youve got different investor groups making different tactical investment decisions. Francine thank you so much for joining us, Marcus Garvey, a cori group strategist. Later today, we will be speaking with hans fed bird, a rising chief executive. Berg we will be speaking to him about many other things. This is bloomberg. When we went into this quarter, we knew that it was going to be very challenging. If it costs money, the answer is no. It is challenging the future is challenging and difficult to predict, so we should never be complacent. We have to watch carefully to see if there is a true second wave for the second half. We think the second half results will improve. Give firmouraged to guidance for the second half. Is got to be stimulus in the market, political uncertainty. We think there are ingredients in the second half of the year that can truly thrive. Francine those are some of the european chief executives in the second half of the week. Lets get straight to the Bloomberg Business flash. In new york city is karina mitchell. Karina about 400,000 Airline Workers around the world have been fired, furloughed, because of coronavirus, according to bloomberg calculations. The biggest losses have been in north america, europe, and asia. Likeosses in agencies aircraft agencies, could reached when he 5 million. A 305 million bill backed by Authentic Brands as Simon Property group the offer we keep the bankrupt Mens Clothing chain in business. Authentic owns and other clothing maker, barneys in new york. And a new ranking of the five richest people in the world. The chairman of Indias Reliance Industries has a network a net worth of 477 billion. Reliance Industries Stock is up 135 since march. Is fortune has risen almost 19 billion this year. That is the Bloomberg Business flash. Francine earlier this week, european leaders came together on that historic recovery. Now lets look at the stipulations deeper with the policy and Research Firm head of research. Sylvia, thank you for joining us. Twitteryour friends on are urging everyone to go back and look at them. Overall, there was a misunderstanding with questions about the rule of law,. Is the overall package enough in terms of the money transferred to really help some of the countries in need, or is it more of a political will . Silvia i think it is both, and this is an historic step with withility because integration on the fiscal side, one of which was opposition to large size e. U. Issuance. To happen tooing the tune of 750 billion. If you look back to the previous decade, the capacity of the u. S. Marginallyt was only 70 billion total over 10 years. Explicit net fiscal transfer that has long been a redline even north of europe, and is also going to go because the grant component in the next generation e. U. Allows for less fiscal transfers. This is really significant. Francine sylvia, what does italy get out of this . Again, the fiscal transfer is quite small. To fend off the pressure with italy . Silvia italy stands to gain 80 billion in grants from this. You were right in saying that the fiscal solidarity of the whole package is evident. We dont really know yet how much italy is liable how much of this will depend on a discussion of whether the e. U. This is an important discussion we will have in the coming months, but even under a very conservative assumption, assuming that italy will be liable to see its own share in terms of the e. U. Budget, the component will be about 50 billion. You have a net transfer of about 30 billion. However, italy is the only that contribute or to the e. U. Budget that becomes a net beneficiary under the next generation. It is a switch of the signs that in terms ofre italy, and showing that there really is solidarity going on maybe for the first time as far as it is concerned. Tom sylvia, good morning from new york. In the world of banks and financials, or the world of Alberto Gallo in ponce, they are looking for the next desk in bonds, they are looking for the next allocation or the next ta a ranche. Do you think that the dust has settled in terms of having to go back to further stimulus . There are sizable gaps that we had with the u. S. In terms of the stimulus that was out there. You see in the central bank it seems very active in a way that is comparable to the fed. Again, the euro zone crisis has been doing everything at the national level, and particularly at this time, because countries that have been hit very hard during the biggest crisis were risking a bed recovery at the national level. Recoveryt out from the tom George Saravelos at attsche bank models it out 1. 20. At what point does the strong euro change the political and economic calculus in terms of stimulus . Silvia i think we are far from there because the situation in europe now, if you look at it comes out very clearly. 2020 and possibly 2020 one are not going to be are going to be very difficult years particularly with some Office Workers and unions. I think i would like to stay on particularly Monetary Policy. When i was talking about the symmetry, asymmetry is really at the core of things in Monetary Policy. Monetary policy itself contributed to drive development of the symmetry, but then the adjustment following 2010 actually lead to massive convergence. So today, Monetary Policy has the problem it did during this previous time of it was dealing with very different economic situations with a single grade. Countries have been together more so than they have ever been in the past, so by avoiding that asymmetry, it is so crucial in the context of the european recovery, you want to make sure that Monetary Policy is even francine thank you so much for joining us, silvia merler. We will have plenty more on the e. U. Recovery front, as quite a lot of people, tom, elite as a great thing. This is what we heard from goldman. This is over the scandal. We understand that there is an agreement, tom, between oldman and malaysia, and that is said to include a 2. 5 billion in cash. Tom excuse me. Goldmanis a big move by , who wants to see the fallout from this particularly at the executive level. In our next hour, a guess joins us from blackrock, and your interest in these markets. Stay with us. This is bloomberg. We this morning, chengdu have a problem. After the closure of the houston consulate Company Chinese choose chengdu. The consulate, the american link to tibet. The republicans agree to disagree, chaos on stimulus. This is august beckons, the economy this as august beckons, the economy struggles. We said it is over in april. We set it in may, june, and now we are saying it in july. Futures at negative nine. This is bloomberg surveillance. From new york and london, Francine Lacqua and tom keene. Interesting conversations i guess on china. A really interesting side story is your united kingdom. It is not just the u. S. And beijing, washington and beijing, it is also find minister johnson in beijing. What is his view . Francine there are a couple of things going on in the u. K. Mike pompeo has just