The survey number was 95. Present situation, 94. 2. That is better than last time. In terms of expectations, though, 91. 5. The Manufacturing Index has come through better than the survey. Last time, it was flat with expectations at five. We came through at 10. The consumer is getting jittery. Alix especially as the sunbelt is hit. We had an announcement from the fed earlier. Michael mckee is with us. Walk us through the numbers and to talk about the fed meeting tomorrow. Mike the numbers are connected to the meeting, with Consumer Confidence following and the outlook for the next six months dropping dramatically as it did, the economy is looking like it will go back into some sort of contraction, based on the new covid19 cases we are seeing. The fed sees as something they do not like, because moments ago they announced they are extending seven of the nine lending programs they put into place in march, through the end of the year. They were going to expire on september 30. The only ones not being extended are two that were already going to run longer, the Municipal Liquidity facility, that was going to go to the end of the year. And the commercial paper Lending Facility was set to expire on march 17. The fed says the extension will facilitate planning by potential facility participants and provide certainty that facilities will continue to be available to help the economy recover from covid19. The problem is the fed sees something that we are guessing at as well. They see something they do not like in the economy. They thought by the end of september things would be normalized. But now they are beginning to think that things will not be getting back to normal soon, we will still be struggling and the markets will still need it these programs going into the next year. Alix it is left up to the government now as well. We appreciate it. Here to help us break it down is amy wu silverman, a strategists from rbc. The stimulus,ut earnings and at the fed. And the fed. Amy as he said, those are the three major things coming up. One thing that has surprised me is i found the Options Market to be fairly complacent in the shortterm. When you look at s p option prices, they have declined in the shortterm and i always joke anytime you require the republicans and democrats to come to a resolution, i would expect to see some volatility. I am surprised by the lack of movement right now. Looking at the signals we are getting from the market more broadly, what about the negative real yield right now . Is that a signal that policymakers, the fed and in d. C. Will be listening to, because the signal seems to be, we do not think the stimulus will be enough, we do not think monetary stimulus will be enough. We have seen the fed starting to react. Do you think the fiscal side of that will be positive, or negative . That could be a bad signal coming out. Amy i think that it is something that they are definitely paying attention to. To be honest, i think it is even more shortterm than that. I think everybody looking at the fiscal stimulus is actually also paying attention to their own election cycle coming up, and they are paying attention to what that perception will be. One thing that strikes me is what we have seen in the Options Market is people who have been placing bets around what is going to happen with the fiscal stimulus, and doing it more longerterm. That is something that we spoke heyut, you know, people te are not trying to make bets now on what will happen in the next month, they are saying i want to be protected out six months. Not only for the election cycle, but what happens after. That speaks to a longerterm uncertainty about just exactly what this covid19 is going to do. Alix is that the general market, or a sector specific . The market has been moving more positively as joe biden has gained ground in the polls. I wonder if we are seeing that same phenomenon in health care, or is it different . Amy it is interesting. Our equity strategist has been looking at that coupling, which is something that has not been true. The markets in the past have been more correlated to a trump victory. That has changed. One thing that is happening is the sectors, particularly tech, are becoming heavily concentrated to just a couple of names. That has been true also in health care, because everything on the vaccine that has been happening in tech, because of what is related to faang. In terms of what that is doing, i think that what people are actually starting to become more concerned about on an index level is actually more what will happen to the qs, what will happen to the nasdaq versus Something Like iwm, because again it is becoming, what will be the fate of six or seven stocks rather than what will be happening to an entire sector. I will go back to real yields. They are signaling that they are heading for an inflationary world. Will the tech names do well there . World, whattionary would do better and our people ready for that . Amy to some degree they have already positioned for that if you look at it on a basis. If you think about tech, and this ultimately is not all of tech, it is about six or seven tech names, that has driven the momentum factor. We have known what the fed is doing and most likely will continue to do. I thought that yesterdays move in the Precious Metals space was interesting to watch, because three weeks ago, when you looked at gop, looking at the demand for downside, that was actually picking up. And we saw a complete and radical inversion of that yesterday. One thing that tells me, that i think is a little out of scope, is that momentum can pick up in those a sectors, as well as when retail picks up on them. Been to go anything long momentum. Alix on an individual basis, if instead of that template and you move into earnings season, what are you noticing . What will the skew look like and where is the dislocation . Amy there is a huge dislocation in amazon right now. I would point to that as the most important one to watch. Obviously, all of these big tech names will do their testimony, i believe tomorrow, then earnings on thursday. The next couple days will be interesting. ,ight now, amazon you know the price of its calls is much higher. Its showing you that the Options Market is very bullish on the name. And i would be curious what happens after the testimony tomorrow. Guy it is interesting. Mark zuckerberg has done this before, jeff hasnt. Is that a concern, that he has never had to face this kind of grilling before . What could we see around this . Amy i do not know jeff bezos, set every time you have the kind of like ours long testimonies, the market gets nervous because i dont think it is about the implications of itshappens day one it, about down the line. How i talked about six plus months. Look, at some point, depending on who gets into the white house, big tech will be a big focus. Whether or not they reach monopoly status, what we would do about that, what that matters to the consumer. So it surprises me again, and i have said this for many weeks, that the level of call exuberance we have seen, particularly with amazon, especially going into things that we think could be headwinds for the name. This has been a flight to safety trade. The new covid utilities are related are things like amazon when you are working from home during the pandemic. That will be a pushpull. Alix if we do not getting stimulus or it is pushed out, what are the mediumterm effects . You mentioned a sixmonth volatility timeline, but does that mean less people trading . What do you see . Amy there are three things to watch out for. The first, we have no there has been a big retail component to a lot of the momentum driven trades. Tech has been on the robinhood track since day one. If thes is like a stimulus runs out of money to give people and they do not put it back, i think a lot of these wouldption occurrences change. The second thing to watch is n if whether or not eve something passes between the republicans and democrats, there will be a lag time before it is implemented. If you were getting an extra 600 a week and now you are not, to me that seems like a very important problem that could generate a lot of volatility. I think the shortterm options will pick up. Third, i would be watching for that pickup in the shortterm of the Options Market, which is not been the case now. Especially since congress will go on recess and we will be facing all of this in september. Guy do think the market is underpricing the fed . Everybody is calm about what will be delivered. Amy look, i think that the market is saying that the fed is going to pretty much say what they have always been saying. The way i would characterize the answer to that question is if they know anything they go anything against the dovish tone they have had, there is a huge k for that tail ris because it has not been priced in. Alix ok, thank you. It is always good to catch up with you. That was amy wu silverman. Breaking news, twitter is limiting donald juniors account for covid information. They say they did not suspend it, but it will be limited. That is for covid19 misinformation. I wonder how Something Like this will play out tomorrow on capitol hill. Guy yeah. Misinformation . Um, i guess that tells you everything you need to know. And we do have the hearings tomorrow. And the election will be a huge factor. And this kind of stuff is going to play into that in a significant way. Coming up next, argentina has had a huge batter where the covid19. We have an exclusive interview coming up with the economy minister. You do not want to miss this. Martin guzman will join us shortly. This is meusburger. This is bloomberg. Guy welcome back. You are watching bloomberg markets. Lets talk about what is happening in argentina. The country is in a battle with its creditors. They are facing another deadline. That deal must be done, in theory, by august for. A google bondholders say they represent a group of bondholders say they represent a majority of the countrys debt. They have devoted nine times, the last time being in may. Joining us is argentinas economy minister, martin guzman. Thank you for your time. We appreciate you talking to us. At the moment, argentina is saying it will settle with this group of creditors at 53. 5 cents on the dollar. The creditors are at 56. 5 cents on the dollar. It seems that there is an obviously indian in between the two groups, to create a deal that could get done quickly. Why are you saying you will go this far but no further . Mr. Guzman good morning. Thank you very much for the interview. Well, we have made a massive effort from the point where we started. The numbers here may be misleading in the sense we are on talking about no the principle of debt that we have put on the table. An average of 7 to 3. 1 . Started negotiations a few months ago and we put in an offer. In the context of covid19, thats been a bad consequence for the economy, we improved the offer and we have reached the maximum effort argentina can make. We cannot compromise at the social goals we are trying to achieve. Alix the response as the creditors came down from . 70 to . 56. You came up from . 53. Both starting points kind of extreme. Why cant you meet in the middle . They have to take a deal back that will say, i hate the deal but i will take it. Why is it not worth a couple of cents . Mr. Guzman we are not just talking about numbers on spreadsheets, we are talking about the lives of people. We are talking about families. And about conditions at that the private and Public Sector in argentina will face. To is makenot want commitments we will not be able to fulfill. We want to make promises we can fulfill. It would be unrealistic to continue increasing the promise of what we can pay to creditors. Thats something that has been done in the past, it was not responsible behavior on either side of of the problem and now we are trying to do things right. Ok, nevertheless, you have to wonder minister why your debt is sustainable and . 53 on the dollar, and not at . 56 on the dollar. The margin seems a small. I appreciate you have a duty to protect the argentinian people. The creditors have a duty to protect the people that put money to work in your country. The gap is a small. Why is your debt sustainable and . 53 and not at . 56 . Mr. Guzman sustainability is always a problem a stick a problem is stick a problemistic concept. We started the process based on finances, one performed by argentina, and we went far. We are at a point at which clearly we have attention, but going beyond would mean promising something that we are not confident that we will be able to fulfill. Alix creditors really want more legal changes, to give them more protection. You said you are open to that if it gets support from the imf, would you be open to it before august 4, the next deadline . Mr. Guzman yes, we are a member and we willnd imf, follow with the International Community considers their guidelines. In 2016, argentina adopted the language proposed by the International Market association. And if there are new innovations the Community Things will be good for the workings of the markets, argentina will adopt those. But we do not want to move unilaterally. It would not benefit argentina to decide what is good for the International Community, it is something bigger than us. Steps isster, what argentina taking fiscally to become more disciplined . His is a longterm process this is a shortterm deal that needs to be done, but normally a country would say, we will become more fiscally disciplined. What steps will argentina be taking . So that at some point you can reaccess the market. Mr. Guzman absolutely, we are fully committed to local of fiscal discipline, but it must occur at a pace that allows the economy to recover and sustain that recovery. Over the previous four years, primary public spending to gdp fell by 5. 4 percentage points. Despite that, there was no shot. K. Ck. The country entered a freefall. And when we took office a few months ago, we wanted to stop the contraction, but at the same time we wanted to lay out conditions for consolidation. So we have tax measures that would allow us to stop the contractions, while not increasing the fiscal. We were then hit by covid19. It has hit everywhere in the world. And it had mass consequences. It led to increasing tax revenues, spending and a fall in economic activity, so it will take us longer than what was laid out for the optimal timing, but we remain committed to that. And we are working on tax reform. Harmonization, that tries to make the fiscal sector more robust. Alix lets tie them together, because to get out of covid19 the government must spend. You had a lockdown when new york locked down. You will have to spend to get out of it, so how do you do that without tapping the bond market, which you cannot do until you prove you have a sustainable path forward. Mr. Guzman we do not expect to tap the International Bond markets for quite some time. This is something that there must be prudence in the use of credit, in particular the foreignexchange credit. Years, argentina lost access. But we have been working hard on peso, our own current, and the denominated public debt market. That is helping us. We are facing constraints, which makes participation more difficult, but foreignexchange is necessary to restructure the debt. And there are big efforts that the government has done to achieve that goal. Francine guy for the second part of the process, you talk about the fact that Fiscal Consolidation will take longer than expected. The imf and argentina will have to come up with a new program. When do you see that happening, and what terms do you see it happening upon, given what you said about Fiscal Consolidation, how it will take longer than anticipated . Mr. Guzman after the reconstruction process with the creditors, we expect to request a new program that will replace the previous one that didnt work. So this will happen regardless of what happens with the creditors, regardless of what the outcome is. We have been having very constructive engagement with the imf, discussing what would be the sensible premises for the workings of argentinas economy, so we are hopeful we can reach an understanding and have a plan that works. Alix we would love to get you back and talk to you more as talks progress. Economy argentinas minister, martin guzman. Will beead, mike vranos joining us from ellenton management. We will break down what happened in march, the selloff, and the opportunity that he saw that nobody else did. In the markets, we are around session. Of the the nasdaq is down by 3 10 of 1 , along with the dow. Taking abreakdown break today, but Goldman Sachs warning that dollar dominance could be in peril. Xau is flat at 1943. This is bloomberg. Alix i am alix steel. This is bloomberg markets. Investors are looking for yield control, others are looking for what else can be bought. One area ignored in the last round of buying are. Investors had to meet margins in march, and residential leaves were recommended first. Some are still trading a substantial discount, providing opportunities for investors willing to take on the risk. Mikeegendary investor is vranos, ceo and founder of Ellington Management group. They have operated in the mortgagebacked securities through highs and lows in the us now for he joins an exclusive conversation. From argento now, what have you been doing . Mike thank you for having me, alix. Like you said, in march, on the 26 of march, on that sunday they and nonagency things, things devolved into a cash grab pretty quickly. Was a lot of there indiscriminate selling, but unlike 2008 mortgages were not the cause of the problem, nor would them be a solution. This was a case of the baby being thrown out with the bathwater. We have put 3 billion to work in nonagency and other Mortgage Securities since that third week of march. There is a lot of dispersion of value in the market camesa you need alternative data sources market, so you need alternative data sources and things like that. The fed has been aggressively buying. And so if you look even previous two other quantitative easings, they have increased Mortgage Holdings by over 500 billion net of paydown since that time. The fed owns about 30 now of the 6. 7 trillion agency mbs market. So you see tremendous support to this market, even compared to other times you have seen this a buying from zero on march 11 to now over 22 trillion in assets in a short amount of time. Alix what did you buy into cell . March was a really and sell . March was a scary time and nobody knew that the fed was going to step in like they did. You took a risk, so now what are you doing . Mike basically, you have to have dry powder for these kinds of events. This was the third or fourth one we have seen, including my time on wall street. , will not say it was a yawner but not as bad as other ones. If you have some cash, and you you raise money. We put money to work as opposed to selling. Most of what we got were nonagency mortgages. And we have bought reeds. I could talk about each of those investments. Those in particular took a real beating in march, like you mentioned. Since the beginning of 2019, if you look at the ishares mortgage realtor ref, that had dropped about 40 in price. This is a composite of agency and hybrid reit. As interesting is the pricetobook of the nonagency reits, the constituents in the have dropped from 20 to 90 or 70. That means not only are the prices down, but they discount to the underlying value of the mortgage portfolios is also down. So we see tremendous value there. We have dropped about 20 , pricetobook, for example. Alix talk about the nonagency part, because at is the risky part. Agency, you get the backing from fannie and freddie, so it is palatable to take that risk. How did you find the value there . If we do not get a good round of stimulus, a solid extension of Unemployment Benefits, do you change on these guys . Mike it does not change a lot. You are right. So there is no implicit or explicit backing to legacy nonagency Mortgage Securities. However, please keep in mind that these loans have been outstanding on average for about 15 years, and homeowners have paid through 2008. They want to hold onto their homes. We feel there is little downside in lisa securities, because of the loan to value in those loans that back these securities. Legacy residential mortgagebacked securities have Housing Price appreciation of about 50 . That means for atypical borrower, the loan outstanding is only half of the homes value. So investors are most likely going to get their money back if they purchase securities backed by these loans. It has been over a decade, or more, they have paydown these loans. I can give you more data if you are interested. For example, precovid we saw 2 to 3 delinquency in this product, that has gone up to about 19 in june. However, like i said, you have got incredible protection to the downside if the house prices drop. We do not see that happening. Therehiller came out and has been an increase in house prices yearoveryear, and early indications suggest that will be true, that number in mid4 will to junejune 2019 2020. Alix something that covid did, in theory, was move people out of cities, into country homes. Into connecticut from new york city, for example. Do you have to look at that . Mike that is true. The demographics of housing are fragmented. There is no doubt about that. Keep in mind, there is a lot of diversification built into the securities. They are oftentimes backed byy hundreds if not thousands of loans from various areas of the country. That said, there is anecdotally at least, in southern connecticut you see the new york license plates. In for fulton county, it has crippled county, it has gone up about 12 in housing. Nonetheless, i believe that there is plenty of cushion in any of these securities are that we are buying, to get some what happened, i believe, is we looked at one security that we got recently that was 150 basis points over the curve, at 20 delinquency. If you double the delinquency, you are still 200 basis points above the curve, and we do not see that happening because of price growth. Alix do you see us going back to where we were precovid in terms of how these things are trading . Or will there always be a discount now . Mike it depends. The marginal dollar has actually slipped away a little bit. A number of hedge funds that were holding these securities had to sell. That said, in general i believe most of these securities will be held by Money Managers, and they offer tremendous value, you know, compared to what else you are seeing, especially because it is hard to get direct housing exposure for Money Managers. And if Money Managers are getting sour on commercials or corporate debt, this is the safest haven for them. I do feel like there is upside in the securities, certainly in the reits that hold them. Alix i appreciate your time. I learned a lot about the nonmortgage back to securities, the Mortgage Securities, so i appreciate that. Guy . Guy every day is a school day. We are learning more about what is happening in washington. Republicans are rolling out there stimulus plan. The Top Democrats are not impressed. Chuck schumer saying it is too little, too late. Have Sarah Bianchi. This is bloomberg. Ritika lets look at the bloomberg first word news. Aircraft a replica carrier in the strait of hormuz. An exercise is the latest move in grading in tensions between washington and iran. They say they are not seeking conflict. America says they are ready for any threat. Anebook may be able to build antitrust case. Halt to turnt a over data in the eu. The European Union has been exploring how they used data from absalom summer. An unusual restriction, joe biden staff has been forbidden from trading individual stocks without approval from the campaigns general counsel, according to an email. The policy is designed to prevent trading on nonpublic information. And Mitch Mcconnell has to be more than democrats on the proposal. Theblicans are opposed to 12 million measure that calls for reducing Unemployment Benefits and sending 1200 checks to most americans. There is another key provision for Mitch Mcconnell, Liability Protections for companies and organizations. Let me make it clear that there will not be a bill that passes through the senate that does not have this and it. In it. There have already been 3500 lawsuits filed. The country cannot stand an epidemic of losses on the field of the pandemic. Ritika 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. Im ritika gupta. This is bloomberg. Alix Speaker Nancy Pelosi called with the deal but that it. Thebig fight ahead is that gops push for protection against Coronavirus Infection lawsuits and businesses. Joining us with a breakdown in. Is Sarah Bianchi what are the chances we get a deal by the end of next week . Sarah i think that we are heading into next week. Since we saw the republicans coming back with a little bit of disparate news amongst themselves, that took a wild to sort out, but now we have while to sort out, but now we have something to negotiate off of. Liability will be a sticking point. State aid, for sure. And Unemployment Benefits. But at least there is something on the table to start the discussion. So i the that that is at least movement, but these are complicated bills and the process is moving slowly. We very much think we are not looking at anything by the end of this week, but rather next week. I deal with the republican plan, more details. How complicated it is the proposal to link wages to precovid levels . It strikes me that that is something that will be hard to get down on a statebystate basis, and might leave people out of pocket and finding life very difficult. Can you work through how complex this is and whether or not it is deliverable . Sarah i think it is very complex. Its not a bad idea for a longterm solution. But the reason that we started with the 600 extra a week was because it was clear that states would not be able to manage trying to do wage replacement. It took time for them even to process, for many people, the 600, just because they are so overwhelmed and it this is so much more than they are accustomed to. That was the impetus for the 600. I do not think anybody would say it is a perfect policy in an ideal world, but we were trying to do something fast. Given what states are up against now, in general, as you said local relief is a bigticket item for this because states are down in revenues, up in service needs. Asking them to put on this proposal at this time is going to take a lot of time and energy that they probably do not have. So, again, i do not object to it as a longterm thesis, but i think its something that will be a little bit more than two months to get underway. Alix are the democrats interested in Something Like that . Sarah i think that ultimately the democrats are interested in trying to do longerterm reforms for unemployment. Anybody,think, if again, were drawing the ideal approach that this would be it, the extra 600, but at the same time Unemployment Benefits in general are very much too low. The extension process is cumbersome. And many people, such as independent contractors, often are not eligible. I think the democrats would be interested in a conversation that try to employ to improve unemployment over time and makes structural changes. You can only fly an airplane so much while you build it. The risk is trying to make it too complicated and hurting the economy, and people, so i think that they will be for simplicity, at least for the near term. Doneeven if we get a deal between the leadership, does Mitch Mcconnell have the 51 votes he needs . Sarah the way we have seen negotiating today, it is painful to get there we thought this would be the most painful one, because we are close to the election and we are on round four, so it is getting harder. The way that these normally have been negotiated, then they get a high vote. I assume that will happen here. Its possible that some conservatives are not up for another 1 trillion vote, but you can let some of them go provided that they negotiate enough with the democrats. They will have to do that anyway, or it will not pass the house. So by the time they find if they can find in agreement that nancy pelosi and Mitch Mcconnell and the white house can agree on, it will have plenty of votes. Alix what about the internal workings of the white house versus the senate . I was writing articles at that talked about how some are not happy with Steve Mnuchin, because he gave away too much in the last round. Some are not happy with mark meadows, they feel like he says one thing, does something else. This seems different from the last time we negotiated. What can you tell me about it . Sarah i think that meadows has gotten his bearings. Deal. New for the first Steve Mnuchin has a good working relationship with both nancy pelosi and chuck schumer, and Mitch Mcconnell as well, so i am sure that there are some in the white house that do not like it. Thats not the deal that they would strike. For sure that is the case. If i were president trump, i would try to get all those differences aside as quickly as i can. The reason nancy pelosi has a strong hand is the president is trailing in the election polls. Economic downturn or a lack of confidence on that front here is not in his interest. So, hopefully the past week was go,ot us where we needed to but if not, this will take longer. As you know, we have seen this in other examples around tarp, sometimes the market has to get involved, and that could be the case here. They are looking to go home and have their recess, so sometimes that kind of deadline is enough to get them over the finish line, but sometimes it takes more. I agree that we are closer, and because of the election people are on edge. This will be the hardest one, but we think it will get across the finish line. It is not clear exactly what it will take to get there. Guy guy it guy it has been great to have you on the show. Thank you for taking the time to brief us, Sarah Bianchi. Ritika it is time for a look at the biggest business stories right now. Havekeup at intel, they ousted their chief Engineering Officer less then a week after they said they fell behind in technology. Question thets to feature of its manufacturing organization. The Trump Administration stepping up defenses against Online Companies that are accused of centering conservatives. That willlaw protect for legal liability. Withr beginning a trial the coronavirus vaccine, hoping to submit it for Regulatory Approval as soon as october. That would be one of the most ambitious timelines so far. It places the Company Alongside other front liners, like madonna, which has started its moderna, which i started its final phase a trial. Alix with pfizer also reporting earnings this morning. They did wind up raising its a full revenue forecast, adjusted earnings forecast as well. They see a better forecast ahead further bio unit. They see people doing stuff again, meeting with doctors, elective surgeries, doing vaccinations for other stuff, so but will all help them as they grow closer to a vaccine. Guy yes, it is fascinating. Theres a huge political overlay. We spoke with the ceo of modernity yesterday. Pfizer is net and nick with them. Neck with them. It will we see emergency approval for one of the vaccines before the election . Will have a meaningful impact on the election . Alix good question. I think it would depend on who they got to take it. If they are looking for approval in october, that seems tight, but i im not a politician. I they the question is also, how much will it cost and how do investors respond to that at the end of the day . Moderna once a prophet, but they did not say what they would sell the vaccine for. Pfizer did not take government money. Ill bere with w some stuff going on there. Guy absolutely. It gives a pfizer more latitude in terms of how they can push the process through. Likely the way they will price it, that will give them more leeway than moderna. They did not answer the question on pricing. They talked about a twostage pricing, basically saying that we are likely to price a cheap during the virus, then subsequent to that it is likely to get more expensive. So i think pricing is going to be fascinating. Maybe pfizer has a cleaner line on the whole process. Alix overall, the Vaccine Program does have a slight edge over moderna, but still questioning that october target. Pfizer,we are watching uptodate. Up today. Coming up, we will talk with james athey to take on gold, real yields, and the fed. This is bloomberg. Alix live from new york, i am alix steel with guy johnson in london. We are counting you down to the european close on bloomberg markets. A little bit of movement treasuries but i am not seeing a lot of conviction right now. Guy things have moved pretty fast the last couple of days. We have seen huge moves in gold. It is not being backed up by some of the other state papers. Swiss franc down there at the bottom, gaining a little traction against the u. S. Dollar. Gold is flat. European stocks are actually big. The spanish market is catching a bit as well. The s p down by 1 10 of 1 . A huge day tomorrow, the fed coming up. You have the tech story on the hill, plus all the tech earnings we are going to be