The virus is the shadow over all of this, as it continues to pick up the pace in the united states, and we are starting to see the number of cases picking up in europe. We are going to talk about that virus story a little later on, with a great guest lined up. Getting more insight on the pandemic and why cases are starting to climb again in europe. Cleghorn is going to join us and give us some insight as to what is happening here. We have seen this big move in gold and we are watching closely what is happening with the negative rates story, what signals are we taking away from that . Joining us now to give us some perspective on all of this, alix is james athey. Help set up the conversation as well, Vice President ayden will give an economic speech later and some of the headlines were getting out of that speech, first off he says the fed should add diversity to the board as well as regional banks. He does back a realtime Payment System for fast cash access. I think all of these, when we read the tea leaves is going to be how far to the left is joe biden moving . That is what the market is going to care about. Guy i am fascinated to see who would be treasury secretary under biden. Senior investment manager, joining us now to give us his take on all of this. Weve got this cocktail of the policy,washington, d. C. To factor into our thinking right now. How big a shock would it be, if we see a problem with the deal getting done in washington in terms of stimulus . At the moment we have negative real yield in the united states. That signals we are heading for a dire Economic Situation and if it does get fiscal stimulus, it gets even more dire. James good morning and good afternoon. I would not necessarily look immediately to the treasury market for the impact of a disappointment on the fiscal side, and certainly the risky markets have taken it worse. Itries have exhibited is necessary to get breakevens moving higher in this risk on period, as much as anything. This is telling us the fed is engaged in financial repression and will continue to be engaged as far as the eye can see. We have a fiscal cliff, coming. There are some big programs coming that are due to expire in the nottoodistant future, particularly the paycheck part the paycheck protection program. Or bet were to disappear a smaller number, then the definite scope for negative shock to the economy. Alix what is meaningful shock to the economy and what does that look like in the market . James it is difficult to say. The savings rate has gone through the roof. A lot of money has gone to people who didnt need to spend it. Discretionary spending has been relatively minimal, and there will be some people at the lower end of the distribution who would have been saved by that money and found it very difficult to even engage in the necessary spending, just to keep themselves fed with a roof over their head. It is quite complicated to work out, what the impact would be. But the average and the aggregates do not tell us as much. Markets would not be able to work the shortterm. We would see a negative reaction. Say thery difficult to equities will have a massive plunge, because my interpretation, my view would be that equity markets not all the way up here because of growth expectations, because of recovery expectations. They are here because there is stimulus from Central Banks to keeping them up here and what we have seen has suggested exactly that. The fed has extended a series of programs out through the end of the year. What is the fed worried about, that has to do that . Should we consider that we get a much more dovish fed then the market is anticipating . Today i struggle with considering we have a meeting this week. They felt the need to announce the extension today, maybe that was just to save time and allow them to communicate more specifically on economic matters in relation to the economy. Isinterpretation is the fed very concerned about the Economic Outlook. I think we have gone through this mechanical period where we go from shut to open and we get ande huge bounces in data, underneath all of that, there are some concerning statistics which suggest we are already muchg damage which will be more longlasting, and will have a feedback loop on the economy. The fed is now moving from the keeping markets functional phase into the how can we provide stimulus phase. Rates are at zero, and nothing they are going to do is going to have impact directly on the real economy. The communications this week will be around that idea, that they want to move toward see me leaving the economy, rather than stimulus toward stimulating the economy, rather than stimulating markets. You have companies that cannot fund themselves, and so the programs we have seen extended today, i think help to buy them some time to concentrate on the real economy. I think it is a marginal disappointment they only extended them to the end of the year. If it comes to december and things are not way better, im sure they will do so again. Alix there has been a narrative in the market, that europe has done better at dealing with the virus in the u. S. And their unappointed programs and support programs for businesses have been better, therefore money is flowing into the euro and european equities as well. We are taking a pause on that, today. Is that the right narrative to have when we see a legit second wave in europe . James i struggled with that narrative, anyway. It is so complicated, just the size of the Fiscal Program in the u. S. Is way bigger than what we see in europe. Much weaker lower potential growth and realized growth in europe and a huge amount of structural problems because of the nature of the region. I have not seen anything that suggests to me that europes Economic Outlook is in any way better than the u. S. It is actually much worse, because the virus has been respreading in the u. S. In a more aggressive fashion, it has led to this narrative that the Growth Outlook is equally better in europe. I dont agree with that, and you rightly point out, we are seeing some numbers, very early stages but we are seeing some numbers in terms of virus spreading in certain regions which we which could be concerning. One of if not the highest in the g10. That is a real problem at this time of year, because youre already seeing responses from other countries which will be a huge negative hit for the Tourism Sector sector. Past thaten in the carrying the burden of a stronger currency is not easy. Alix staying with us, james athey of aberdeen. Banks to, the ecb asks keep dividends and buybacks on hold at least until the end of the year. We will break down what that means for banks. From oined this is bloomberg. John indon, i am am guy johnson along with alix steel in new york. Lets turn our attention to what is happening with the ecb extending its defective ban on stock dividends and buybacks, to keep payouts on pause until at least january. Joining us now for more is filippo alloatti, federated Hermes International senior credit analyst. Thank you for your time today. Why has the ecb done this . Gone for a onesizefitsall decision on Bank Dividends . Some banks say they have more than enough capital to cover the costs coming down the road. Good morning. [indiscernible] protecting the weaker banks, weaker and capital. Are some openings between the lines. Are lowering 2019 catch up in terms of dividend. [indiscernible] alix is it a good thing in that a lot of the banks are writing off less loanloss reserves than the u. S. Banks due to the ecb saying dont worry about it in these extraordinary circumstances . Do they need to do that . Filippo you are correct in the sense that in comparison to the u. S. Banks, europe had a fromsion also coming the message, we see the mother the moratorium tryingxtended to 2021, to push the problem into next year, hoping by that time the economy will be almost even and recovered and the banks will be able to absorb more loanloss, as opposed to american banks who are doing a good job in frontloading. Talk me through what the ecb is worried about. Arly it understands that looking at Economic Data and the virus data and i suspect autumn is going to be very difficult. In terms of the most extreme scenarios that the ecb is looking at, how close do you think we can get to some of those . Announcedoday they the results of a stress test in the covid19 environment. It is a worstcase scenario 570 points of capital go down. That doesnt take into account the fiscal stimulus we put on the table by the different governments. If you look at the fiscal packages, they are quite significant. That a lot of money that is quite a lot of money. [indiscernible] they want to be sure that everything euro is potentially using to extend credit to the economy. I think the Worst Nightmare for sector of thebank european economy not able to add credit [indiscernible] is in a European Bank invest is any European Bank investable . Filippo if you look at the disclosures of the banks, some of the banks are clearly projecting capital rates. Even some conservatives say are [al ratio is indiscernible] alix filippo, thank you very much. Filippo alloatti, federated Hermes International, thanks so much. James athey of aberdeen standard is still with us. What are your thoughts on European Banks kicking off their earnings season this week . James i wouldnt touch the equity with a barge pole. Profitability of banking in general when you have low yield, flat curves, huge economic disruption, it is difficult to come by in europe. You still have bad loan problems that have never been cleared up. It occurs to me that the response is to do more of what hasnt worked and that has been a problem in previous episodes, which is not concerned with the quality of assets. You are concerned more with the optics. All of this liquidity the ecb provides, can keep banks going but it is not necessarily finding its way into economic productivity. It is finding its way back into Financial Markets and keeping things they are afloat, without any concern for how it impacts the economy. There are better banks and worse banks, and debt is from only ok in some cases to invest in, and the European Banking sector, but the good banks should be able to pay the bills. I wouldnt touch it with a barge full. Barge pole. Guy the recent deals done in brussel basically reduces the risk. Banks who peripheral are huge holders should be big beneficiaries of that. Seencp market has significant spread compression. That should flow through into the banking sector. I appreciate it is shortterm but is there an argument to be made around it . James absolutely, there is an argument. Many what share your analysis, that this is a meaningful positive, with respect to potential redenomination risk. Much more powerful impact on Financial Markets in that respect. I think if you were to look it is a bit nice, but if you btb look at where the seetrade what you will is that there is still a perception of credit risk spread between those two numbers, which tells you that actually this is a flow argument, this is distortion of the btp market. Just ait is still shortterm salve. You are building up a bigger problem for the future. There is no denying the fed can be positive in the shortterm but if you look further into the future, you see an even bigger even bigger problem. One of the big italian banks is the third biggest holder of btps, and that is an incredible situation to be in, when that is an institution that should be lending to the italian economy, not just lending to the italian government, to earn the relatively small spread between the cost from themselves with artificially liquidity and where they can lend to the italian government. It just means the system is fragile. They can keep going positive, but it cant withstand any kind of shock. Alix and therein seems to lie the issue. The doom loop is predicated on the being removed. If we learned anything, they are not removing support, they are throwing more at it. Why did we get to that . James that is a good point. I completely agree. This is kind of a stop versus slow argument. It seems to be quite difficult to get into a negative shock, absent the kind of tightening of the Balance Sheet. Not quite the same in europe because the ecb has never gotten to tighten the Balance Sheet and when the Balance Sheet stopped expanding, we found btp was more susceptible to negativity and there is plenty of negativity to be found if you scratch beneath the surface. For now, the ecb is piling money into the Financial Markets. That is going to act to keep things in check for a period of time. I think it is fair to say that the Investor Base has got itself incredibly long of btps. Everyone is on one side of the boat. It doesnt take much of a wave to tip things over. James, always appreciate your time. James athey of aberdeen standard. Thank you very much. This is bloomberg. Alix one of my favorite stories of the day. It was supposed to be the return of a somewhat normal summer for the hamptons but new York Health Authorities are probing a Charity Concert that was opened by the Goldman Sachs chief executive officer. Does it to relax but the problem is that there were hundreds of people there, without masks and Governor Cuomo not happy about it. You are meantwas, to stay in your car or around your car, in your zone. That didnt happen. I guess people are frustrated, there is fatigue about what is happening. They were meant to stay in their zones, and they didnt. It is one of those things organizers are going to have to figure out, regardless of how much you pay for a ticket. How do you ensure that people play by the rules and stick to the rules and if they dont . Then you will have a bit of a problem. Alix the problem is cuomo. He was mad. No tolerance for illegal and Reckless Endangerment of public health. This came out over the weekend. It has come up in the Lower East Side of manhattan when it comes to bars and reopenings. Dont mess with cuomo. He is not going to like that. Given the people who were there, i guess he is trying to make an example which will resonate with everyone else. The rich cant get away with it. The winklevoss twins were there. He went into this with his eyes open. Given he is the ceo of a really large bank, he may have taken a different view of it. Next, we are heading toward the european close. We will have the data. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Wrapping things up in europe. 30 seconds to go until the end of trading. Lets take a look at how the session has developed. We started off strongly and then faded strongly but have subsequently bounced back. The data is fairly mixed. As far as programs and extending them, you can read into than what you will but i would say the fed are nervous that they are not seeing the economic recovery they would have hoped for when they put the programs and initially. Nevertheless programs in place initially. Nevertheless, a bounceback. Seeing the damage early in the session but we have come back. In aggregate, up by half of a percent. The main ones look like this. Ftse 100 up by 0. 5 . , some ofs higher today the pharmaceutical stocks going back. The miners under pressure. Gold glover on the session but even that has come back a little bit. Lower on the session but even that has come back a little bit. Lets show you some of the individual sectors. The function under bloomberg breaks down the stoxx 600. Real estate doing relatively well today. The more defensive story will come back today. Here posting good numbers. Maybe a little more mixed. We get back more into the defensive swing of things. Utilities doing well today. Health care doing well today. Europe has some technology but not as much as the state. The book of sectors have been in positive territory today. Individual single stocks. A big earnings day tomorrow. Even bigger for europe. We have been tracking these numbers carefully. The story overnight disappointing with lvmh. Down 3. 5 today. China coming back a little bit. The ecb talking today about the fact that it is going to further delay the return of dividends and buybacks for European Banks. Some people anticipated this. I think most people anticipated this. Bnp paribas has been pushing for this not to happen. Down by 0. 4 . Psa up by 3. 12 . Seeing a more positive picture than you would have anticipated months back. The virus will dominate all of this. The single noise ratio improving a little bit in terms of this reporting season versus the last reporting season. But nevertheless, we are still try to figure out the direction of travel with the virus. That ultimately is what is happening here. Lets get a sense of what is going on. Look at the latest on what is going on with the virus. Expertjoined now by an epidemiologist in terms of what is happening here, Infectious Disease expert. Thank you very much for your time. Look. What i am try to figure out here is, what defines a second wave . Is that what we are starting to see here in europe . Thanks. A second wave is if you actually managed to control the first wave. I think there are many countries that qualify for that. Maybe in asia. Example, we for absolutely cannot claim to be in a second wave situation unless you are in new york. Alix what about over in europe as we are seeing issues crop up . We have a read on if that is a second wave and if they are handling it well . Yes. In many countries, there are second waves in europe. I would not characterize the u. K. As one of them. For example, germany i would say clearly. Sweden. There are many countries. If you look at the epidemiological situation and see the curve down alix it looks like we have lost reception and we may be dealing with some issues. We will try to get him back in a moment. The question is the recovery in europe that we have seen, how much is it at risk if they cannot contain this second wave . It is very much moving quite quickly. That could be a big benefit. I just dont know how soon we know that. Guy i think it is going to be interesting as well to see how surgical the europeans can be in terms of how they approach this. Whether or not we ultimately return to big National Lockdowns or whether we see regional lockdowns. At the moment, it looks more like we are going to see the latter, this being a surgical process, which will have less of an economic impact. But we do not know yet. We are still trying to figure it out. Things are moving very fast. You saw what happened over the weekend with the u. K. Decision on returning travelers from spain would have to be quarantined. Other countries are considering that as well. Very flexible, difficult to read situation at the moment. Alix you guys are this close. Guy yes. But i think that is a genuine point. A lot of people were just on the verge of booking holidays and now will not be able to do so. Or at least will be much more circumspect in their ability to do it. That is what has caught them by surprise. They were expecting bookings to continue to pick up. That is not happening. Lets check in on the other news we need to know about. The u. S. Top Infectious Disease expert says he is cautiously optimistic the world will have answers about the Coronavirus Vaccine by late fall. Dr. Fauci also told abcs america that he agrees that hydroxychloroquine is not effective against the virus. Overnight, President Trump retweeted a series of tweets advocating for the drug. China is buying american imports but not enough to hit the terms of the two nations trade deal. According to the Chinese Customs Agency data. China has bought about 23 of the total purchase target for 2020. New yorks state Health Officials will investigate a hamptons Charity Concert that was opened by the Goldman Sachs ceo. Governor cuomo says he was appalled by what he called egregious social distancing violations seen by video. We wanted to clarify a previous comment about the event. Spot that came with the rv was sold, not auctioned. Buybacksll hold off on or dividends until january, a blow to lenders who want to return to business as usual. The ecb wants to show moderation when it comes time to hand out. 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 thanks so much. We reconnected with the Infectious Disease expert and global head of health at the International Advisory group. Sorry we lost you there. We had some news, and that was that new york is adding washington, d. C. , to the quarantine travel advisory. That comes with illinois, kentucky, minnesota, and puerto rico. Is that possible . If you are in the u. S. , can new york quarantine itself from the rest of the country . Dr. Cleghorn it certainly is possible. The question is, how far will new york go to enforce this . As you know, state orders in the u. S. State borders in the u. S. Are not actual borders. It is unclear how that will be enforced. It is enforced voluntarily. To new yorkarrive from washington, d. C. , and you voluntarily submit to the measures, such as the 10 day isolation period. It is not clear. We have to depend on the good graces of the citizens of the country. Guy is it possible to tell as you look at the virus, say i have traveled from spain to the u. K. And i test positive for that virus, is it possible to tell i got the virus in spain or that i got the virus in the u. K. . Dr. Cleghorn no. Not in any standard way. You cannot do that. There are studies that can look at lineage effects in the virus by actually looking at the viral sequence and looking at the spread of certain viral , you can track those. But you cannot on an individual basis tell if someone became infected after they landed in the u. K. From spain. That would just take a huge amount of effort. You would need the source infection in order to match the virus. Alix andrew cuomo, the governor of new york, is giving his daily briefing. He says it is a possible criminal liability over the weekend with that concert in the hamptons. What is an acceptable level of risk we should be prepared to take . If you reopen, people travel, the disease and virus will increase. Dr. Cleghorn yes. Alix we need to think about something acceptable because you cannot corner off new york state from the rest of the country. What is acceptable . Dr. Cleghorn sure. It is a. Since of security it is a false sense of security. Masking, avoiding carpet spaces, and limiting your interactions avoidingt home crowded spaces, and limiting your interactions by staying at home. The fact is the damage that is being caused by the pandemic is 20 death and disability and about 80 economic death. There is a huge incentive for governors, the administration, countries to reopen the economy. In order to reopen the economy, they have to look at how to implement these mitigation measures while at the same time allowing for some economic activity. The numbers are staggering. 4is estimated about trillion to 5 trillion so far economically. 15 billion a day in the u. S. Alone. Ok. We will leave it there. Thank you for your patience. Thanks for coming back and talking to us. The global head of health at palladium. Quick look at where we are finishing up in europe. We wrapped up the session. Market, lets take a look at the final numbers. Lvmh delivering some disappointing numbers. China is ok. At what isk happening in the sector later. About what isore happening with the european economy on the show at the top of the hour. Jon ferro in new york, i will be joining him in london. This is bloomberg. Guy from london, i am guy johnson. This is the european close on bloomberg markets. Lets talk about what is happening in the auto sector. Got aench automaker psa profit in the first half of the year. The ceo spoke exclusively with bloomberg and explains why he is optimistic about the second half of 2020. Confident is us the fact that over the last six years, we have worked extremely hard to reduce the breakeven point of our company. It is now around 50 of our revenues. We have become a very resilient company, very agile, and the numbers for the first half of 2020 just demonstrate this resilience. Ance the fact that we have very strong conviction that we will respect this guidance. That is an average over three years, 2019 2020, and 2021. And 2021. 2020, we will stick to it and show the resilience of the psa groupe. You also talk about the fact you are determined to achieve a solid rebound in the second half. How do you plan to do that if demand remains suppressed . Carlos during the lockdown, we had a very rigorous management of our inventories. As you can see through the numbers, we had a significant reduction of our inventory by 24 , which means we are entering a low level of inventory. The new rebound of our manufacturing system is very smooth, very efficient. We see the plans are coming back in a way which is very satisfactory from a cost perspective, of course from a quality perspective. In terms of manufacturing and supply chain, the rebound has been very smooth so far. The level of inventories are very low. A numberect to invoice of significant cars. Of course, we would like the overall economy to be as stable as possible but we see the condition is quite promising. Right. At the same time, you are dependent on the european market, which is recovering very slowly and in large part due to incentive schemes in big markets like france and germany. Are you in favor now of these incentives . Carlos no. We are not in favor of incentive schemes. We are not in favor of any initiative that would distort the market conditions. We would like to make our customers happy directly with no distortion. But we of course enjoy like our competitors from those schemes. Our book is extremely good right now. H1, we were 15 up against last year. The book is stellar given the attractiveness and appeal of our new products. Experience. Warding the book is very good. The inventories are very low. Conditions seem to be reasonably stable. This is something that we of course can enjoy thanks to our supply chain that is now rebounding in a very effective way. Alix interesting take there. So Luxury Retail brands reporting this week. Today, we have a french luxury brand that owns gucci and ysl. Those sales are down in the quarter. The estimate was 47 . Stacy. Us now is are we in the world of things are not that bad anymore . Have they hit that bottom . So the cfo described it perfectly. He said it is the negative alignment of all plans against us. That is kind of where we are at at the moment. Mostood news is that luxury people are talking about china being flat or slightly up and the trajectory is promising considering 35 of the Luxury Consumer is the chinese consumer. That is a huge chunk of it coming back at this point, which is good news. Obviously, a lot of the consumer travels into europe which is not doing so well, so that is the bad news. Cost cutting is a big factor for these companies right now. You look at lvmh, organic only a 29 n 38 , but decline in operating costs. Can we reverse those numbers . Is there room to counter the companies that does not do longterm damage to the brand . Stacey this is part of the problem. It is a high expense business. It is very difficult. The variable costs to cut our limited. Also, you do not want to cut too deep because when things do rebound, you do not want to be the guy that is not innovated or has not serviced your customer. How are they serving the customer . When you go into a ledge we store right now, you are almost assigned a salesperson. They walk the store with you. That costs dollars. You need enough salespeople to be able to accommodate people coming to your stores. It is limited what you can cut. Alix in terms of ecommerce, how much are the luxury guys able to sell online . Stacey what has been surprising is luxury in general has been pretty behind investing and getting up to speed selling direct online. What they have been really successful doing is going on malls and joining the luxury pavilion, which has been a game changer for so many of them. Right now, in Luxury Brands are having that moment where we have to catch up because our business is going at a trajectory where we will lose out if we cannot serve the consumer. Ritual appointments virtual appointments is where it is at right now. Guy does that replace what has traditionally been a big driver of sales for luxury, which is people traveling . People are not traveling. People are not traveling long haul right now, which has been a huge driver in the past. Does online sort of deal with that problem . Or do you think given the fact that we are likely to stay at home for a long time that that will be a problem that will be a big headache for this sector for some time to come . Stacey travel is a huge important part of business, tourism. The chinese tend to spend more when they travel on luxury than they would at home when they repatriate dollars home. The other thing is france, italy, and the u. K. Are preferred destinations for the chinese. No surprise the european trends are pretty bad in luxury. Because you are just not seeing that tourism coming. Does online make up for that . No, it doesnt. It will not anytime soon. You thick about the selective retailing, which is the dutyfree part of lvmh. It is a quarter of their business. More than half of that is going to be related to tourism. It is a huge hit. They took a major loss in that category versus a big profit this time last year. So we need tourism to start moving again. Alix who is not going to make it . They will basically bide their time. Stacey i think this is where being a big powerful, multibrand powerhouse comes in. They all have the staying power to make it through if we do get the second wave or whatever you want to call it. Some of the smaller brands will have a tougher time. If you think about a brand like even a hugo boss that has very or ralphposure to asia lauren has a small exposure to china, those are the brands that may take longer for them to recover. Thank you very much for your time today. Guy big day tomorrow. Of course we have the fed. Looking forward to seeing exactly what jay powell has to say. Look for low losses theyre pretty granularity out of deutsche. You have all kinds of things in the pharma sector as well. Keep your eye on what is happening. Really big earnings day coming up. Alix i am taking a look at tech because we have the tech hearings tomorrow. A political analyst whose notes we read every day, higher taxes pose a bigger risk than any regulatory issues. That is totally front and center tomorrow. That wraps it up. , balance oft power with david westin. This is bloomberg. From bloomberg World Headquarters in new york to our tv and radio audiences worldwide, welcome to balance of power. I am david westin. We start with Abigail Doolittle and a report on the markets. Looks like nobody wants to go anyplace anytime fast. Abigail i would agree with you on that. Relatively small declines for the major averages after the gains we had yesterday. Right there, a lot of uncertainty and waffling after last week. Maybe a bearish tilt to all of this. What investors are waiting for, so many different factors. Of course tomorrow we have the big tech hearings. We also have the fed. Earnings over today, tomorrow, and thursday, each day, 10 of the s p 500 companies reporting. On thursday, it is apple, amazon, alphabet, and facebook. About 40 of the nasdaq 100 in weighting. Investors want to know what is happening
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