Biggest spike in cases in nearly four months. Good morning and welcome to bloomberg surveillance. I am Francine Lacqua in london. This is what the markets are doing , european stocks moving to the downside gorsuch any trading sideways, despite record highs on wall street. This is what we are also looking at when it comes to gold, always look at gold because it gives you a good sense of where there is appetite, slipping back below 2000 on ounce. We saw declines in utilities outweighing gains in travel shares, of the stoxx 600 actually gained. Up, the chief executive of the Hong Kong Exchanges and clearing joins us for an interview after the Company Posted a record firsthalf profit. That is in a couple. Of minutes lets get straight to the bloomberg first word news. We start with joe biden, it is official. He has become the democraticc nominee for president. The second night saw a slate of speakers, from former president bill clinton to representative alexandria ocasio cortez. Biden himself will close out the event on thursday night. President donald trump said he called off last weekends trade talks with china. China is making many structural changes in promised as part of the phase one agreement, but its purchases of u. S. Goods is well below where they need to be to meet the target. Television president Alexander Lukashenko has put the army on alert, deploying it to the countrys borders with the European Union, as he makes his mass protests in the challenge to his 26 your role. It comes as the european bloc holds a special summit. European leaders may decide sanctions are needed. The political crisis in monday has escalated. The president has resigned after being detained by the military. On television, he says he thought he had no choice but to comply. It comes after weeks of protests that an edge corruption and nepotism that allege corruption and nepotism in the government. That is the first word news. Global news, 24 hours a day, on air and quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Now lets get to the interview of the day. On hong kong with a series of highprofile chinese stock listings, and a pickup in trading at the Hong Kong Exchanges and clearing posting a profit. More, bloombergs yvonne man joins us from the hong kong stock exchange. Yvonne, over to you. Yvonne francine, thank you. I am pleased to be joined by charles li to talk about these record profits for the first half. Thanks so much for joining us. Charles great. This is a really happy day for us, we Just Announced record harvey half year earnings. Yvonne e had other than the last year, and now you are preparing for the likes of n financial to come to hong kong. Charles that part of our life just continues. You have one big deal, another down, another down and you just keep on going. Yvonne do you get a sense that this is more than just a 2019 story, that this will go on for many years . Charles the pipeline of companies coming to china from the world are all over the place in the years to come but obviously in terms of Large Companies already listed in the United States to the extent of the other wanted to come back and have another listing, that is a limited number. Still, even there we are talking about hundreds of companies with a market cap over hundreds of billions of dollars. Still a lot of great opportunities particularly for those very Successful Companies listed in the u. S. But here the record earning is much more about trading come strong and drastic participation in the market connected with a particular strong both northbound and southbound, 36 up is really a big deal. , becausee happier given what is going on around it, you cant ask for more. On,ne given what is going you have been talking about the u. S. China trade tensions, which are seeing multiple fronts right now. Overnight we heard the u. S. Warning tha universities to divest of chinese stocks in the u. S. , you have companies being iny stead in the listed the stock exchange. How are you viewing the stock market revelry now . Charles we are experiencing things are have never done before and would have never seen before. Everybody is trying to make sense out of it. I dont think any vindication about exactly how it is going to go, everybody will have their own opinions, but in the end i am granted by fundamentally the wisdom of the market. The market is the place. The market is always the smartest, the place that can really do just and possibly make cann really do just really do just and make the decision. Yvonne how do you welcome ipos that have been listed in the u. S. Coming back home, while also safeguarding yourself from u. S. . S from the charles anybody running a market, you just make sure that anybody who wants to participate in the market, you take the barriers down and make sure you are the most sufficientlyrun market, you allow everybody to in the endand markets always have to do with political upheavals and political tensions. This is not the time that we are short about. But that also creates opportunities and volatilities, and people actually wanted to trade because in the end, everybody wants us to succeed. Because if the market succeeds, everybody else benefits. Everybody else will win. But sometimes we just have to keep our eyes open. Sometimes the storm comes. To the extent you are able to make any changes to steer away from it, you try. But other times you just have to embrace it. Yvonne President Trump said this week hong kong will never be a successful stock anymore. Hong kong will never succeed under china and the market will go to hell. Charles i dont know if that is what he said. Yvonne yes, he did. [laughter] charles i think everybody will benefit if we do well. I dont know why anybody would wish us not to do well. When my friend is doing well in , i call her and congratulate her. Is doing well in , i call him and congratulate him, and they all bought the wish me well because when the market wins everybody wins. We are a global market. U. S. Fund managers, investors and companies are here, and i dont know why anybody would wish us to fail. Yvonne obviously locally we are dealing with political turmoil with the National Security legislation that has come into now. T for two months you have said your views about how longterm it is not going to be negative for the Financial Hub of hong kong. What if there is a conflict between this law and your . Isting rules how and can the Hong Kong Exchange hold the line and the preserve the credibility of the financial here . Charles we deal with conflict all the time, between or roles and chinese rules, between or rules, the orsse roles and american rules. It is just a fact of life, we deal with it. In the end you have national law and you have local law, and you have your own regulatory rules and you have our listing rules. Our listing rules among all the laws and regulations are in that order. In the end, most of all, marketdriven rules do not really get into conflict with big national laws, generally speaking. We are a very narrowly focused market that deals with market behavior, with conduct and how to run an efficient and fair and open market, and those rules are really in conflict with any of the big Political Considerations that people typically somehow imagine a conflict of. Yvonne a mention about the National Security law, in terms of impact on the financial markets, what do you see is the biggest impact domestically and internationally . Charles everybody has a National Security law. Everyone is talking about the National Security law. All the discussions about tictoc , wechat and that, they are all under the umbrella of the law. Nal security i dont think the National Security law here is in any way fundamentally different from no one the u. S. Government is talking about the National Security law when it comes to the Capital Market and all these Big Technology companies. So it is a fact of life, something we all have to deal with. When you are operating a market, you up for it within the constraints of that jurisdiction. All the big ones will have a significant National Security law because the world is developing to the stage where that is just a fact of life. Yvonne your plans for msci, china ashares and futures contracts, that has been pending approval for more than a year now, why the holdup . Why do you think beijing has been reluctant to approve this . Charles there is a lot of desire and willingness to really develop offshore hedging tools for International Investors going to the north. They also wanted to make sure that that effort and the domestic market appropriately aligned and coordinated. I personally think it will get resolved, but sometimes you also want to make sure that the instrument that you are able to do, that you are able to launch is going to be reflective of what you really wanted to do as a representative of the market. Discuss. Tinue to not only is it the weather, but it is also the products we are able to come up with that is the best, useful and effective tools for investors to hedge risk. Ofnne of course, a lot questions about your next step after you leave the Hong Kong Exchange next year. There have been a lot of questions. Would you be interested in politics, maybe even run for chief executive . Charles right now my term is not ending until next october, or earlier, if we have any successor that is being recruited and will be able to take over. So until then, i am still running the exchange, still 100 responsible and active in that job. Yvonne the stock hit more than 300, you said you would start coming up with a plan. What do you think . Charles i take guidance from the mighty forces of. [laughter] yvonne we will leave there, but thank you, charles li, ceo of the hong kong stock exchange. Fran. , over to you francine thank you. We have much more with charles li speaking to our very own yvonne man. Coming up, it is tech again, many Global Markets remain way below their peaks, but the s p is boosted by technology shares. We will discuss that next. This is bloomberg. Francine economics, finance and politics. This is bloomberg surveillance. I am Francine Lacquain london. U. S. Stocks hit a record propelled by tech companies. The fresh high comes also as House Speaker nancy pelosi indicates democrats could cut their stimulus proposal to see the deal with republicans. Investors also shrugged off trade tensions after President Trump confirms he called off last weeks talks with china, which raises questions about the future of a trade deal with china. We are glad to be joined by peter garnry, head of equity strategy at saxo bank. What are the markets pricing in and what are the markets not pricing in, with a look frothy or do you think they can go higher . Peter i think with the forward i dont 4 on the , think it gives an incentive august opportunity set by selling bonds. We may be at an alltime high, but historically speaking, it is not a reason to sell. A veryld is pricing in low Interest Rate environment for the coming years potentially we may get some clues about yield curve control coming that will come in the next eight days. If we get a yield curve control and we settle into this very low Interest Rate environment, i think the trade that will be strengthening even further, and which has taken place since the pandemic started, is what we call a Long Duration assets, real estate, Technology Stocks, gold, longterm bombs. Basically longterm bonds. Basically is synchronized risk. It increases the risk to inflation and a rates jump, so i would basically argue that this incredible rally we have seen since the financial crisis in 2008 and early 2009, i think that will come to an end when we get inflation. That is also the main target of the central bank, is to engineer inflation, but also the recognition that it is only a monetary phenomena. I think that is probably why we will see yield curve control in the u. S. In the coming years. Francine are we going to see a runaway inflation . Gazilliondollar question everybody wants to know. If we see dollar inflation, where will we see it first . Peter it is a good question. I dont pretend to be a next what on inflation, i think it is one of the biggest of modern economics. We dont really understand what causes inflation. It is very difficult to forecast especially longerterm. Not exactlytill clear why it happened in the 1970s. If we get massive fiscal driven by Monetary Policy, have a recipe. But how it will impact the economy and where, i think that is a good question, but i think the current policy will be in play until inflation arrives. It is also much easier to deal with it otherwise. Is one risk for equities. Another longterm risk is the whole question about globalization and u. S. China tensions and to what extent it provides a reconfiguration of the supply chain. In the 1980s, we had a very long upward trend in spending profit margins, driven by lower costs with companies outsourcing to asia their production. That is also a key risk for equities. We have seen very tentative signs in both europe and the u. S. That Inflationary Pressure is somewhat in line. We may be turning a corner. The uk also showed that this morning. I will say, though, it is very important to understand that when we talk about equation, always look at an aggregate price , but it affects every single group in society. Some parts of the economy that are very highly placed, i would actually argue the millennial is experiencing a very high inflation rate right now. Francine thank you so much. Peter garnry stays with us. We will talk about goldman. Will todays fed minutes yield nuggets for gold bowls . We discuss gold and its phenomenal rise, next. This is bloomberg. His is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets that to your market perspective. Investors await the release of u. S. Fed minutes today. U. S. Stocks have benefited from riskon sentiment. Lets get back to peter garnry from saxo bank. I know that you mentioned gold. How much of an upside do we have from here . Peter the upside could be considerable if we get yield curve control. Goldman play a fundamental role going forward. Central banks are changing their inflation longerterm. Latest movett th by allocating half a percent of to geico, is evidence of very informed investors around the world rotating to gold. It is very interesting. We are also having exposure to miners. Gold equities,what about european do they contain create more of an opportunity than u. S. Funds . Did her fish european relative to u. S. Equities. The big problem with europe thehat last half of all companies on the stoxx 600 index have very bad earnings relative to the u. S. , and they have lower share of Technology Stocks and a very high share of financial companies. But is a reason why in the current environment, Foreign Investors will be preferring u. S. Equities over european equities, but there is definitely a case to be made for european equities. In europe, you should be very selective between industries and sectors. Francine thank you so much for joining us today, peter garnry head of equity, strategy at saxo bank. Coming up democrats confirmed joe biden as the president ial nominee. Everything you need to know as the u. S. Election season moves a gear up. That is coming up shortly. This is bloomberg. S is bloomberg. Experience the ultimate sports hub. Where you can find games, news and highlights. All in one place, right on your tv. The xfinity sports zone. Use your voice to search every stat and score. Follow the teams you love. And, even get notifications with breaking news alerts and more. With the xfinity sports zone everybody wins. Now thats simple, easy, awesome. Say xfinity sports zone into your voice remote today. Francine economics, finance and politics. This is bloomberg surveillance. I am Francine Lacqua in london. Lot to talk about, so lets start with the bloomberg first word news. We start with the u. S. House Speaker Nancy Pelosi says the democrats may be willing to make cuts to the rescue package, republicans,l with but she then wanted to come back after the november election with more items on the agenda. A senior official tells us the white house these the possibility of a pared down billion. F about 500 the u. S. Is suspending service. O the postal democrats have accused president ballots, andailin the u. S. Postmaster general says he is shelving the changes to avoid the appearance of an impact on the election. Canada has named a new finance minister. It gives Prime Minister trudeaus top aide the job of overseeing economic recovery. She has been involved in issues like negotiating the north American Free trade pact. She is the first woman to hold the post. That is your bloomberg first word news. Joe biden is officially the democratic nominee, taking on President Trump this november. It was confirmed at the partys Virtual Convention overnight. Traditional rollcall was restyled in the times of covid19 as a video tour across the u. S. A president who defines the jobs as spending hours a day watching tv and people on social media is your man. If you are trying to entertain. But in a real crisis, it collapses like a house of cards. Donald trump inherited a growing economy and a more peaceful world, and like Everything Else he inherited, he bankrupted it. When this president goes overseas, it isnt a goodwill mission, it is a blooper reel. He breaks up with our love lives and writes love letters to dictators. America deserves a president who is looked up to, not left at. Joe biden will be a president are all proud to salute. With joe biden in the white house, never doubt that he will stand with our friends and stand up to our adversaries, never the around. Y francine joining us to discuss this is bloombergs kathleen hunter. Seems like the democrats and joe biden want to make this more about a referendum of President Trump rather than about them. Kathleen that is absolutely true. Elections where the incumbent is on the ballot to some extent, there is always a referendum on the sitting president but even more true this year, because trump is so polarizing, and also because the covid19 crisis has really put the questions about his presidency into stark relief for a lot of people, so i think it will be even more true this year than it reall usually is. Francine how has President Trump and his team been working to counter the democrats message . Kathleen in several ways. We saw the president in arizona, yesterday at the southern border talking about joe biden and criticizing what he her sees joe bidens immigration policy to be. Tough on immigration has been an issue trump campaigned on very hard going back to 2016, when he talked about the border wall that mexico was going to pay for. I think going back to that playbook this year and hoping that that that energizes his base and get them to the polls on election day, especially in key states like arizona was could end up being decisive when it comes to the overall win. Francine kathleen, can we expect a stimulus deal anytime soon . Kathleen it has been really hard for them to make congress, but there has been to make progress, but there has been some signs in the past couple of days. Nessie pelosi is calling back the congress. There are indications that they could begin to get things moving. Republicans are talking about is named down version of their original a slimmed down version of their proposal. Francine thank you so much. Bloombergs kathleen hunter, who follows u. S. Politics. Coming up, should investors prepare for higher volatility . That is the warning from fiona frick. We will speak to her next. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets get to the markets and see what we could be expecting from volatility. We talk a lot about volatility in u. S. Stocks. They closed at a record, driven but unexpected housing data. Our next guest ones that investors should prepare for volatility, and says she is cutting her positive tilt toward assets. Fiona, good morning. How do you see this panning out . Fiona the last four months have had a very strong momentum, and we think a pause would be helpful. We believe the sentiment among bit,tors is turning a valuations are becoming quite expensive on the shortterm in comparison to historical data. While it remains still quite interesting compared to bond yields. So we have a positive view on equity in the longterm, but we think we will have a pause in the next month, taking into account absurdities around covid, about the pact between the china and the u. S. So more volatility to come. Francine how much more volatility . How do you protect yourself against volatility . Do you just by vix or do you do Something Else with the portfolio . Fiona we tried to consult a portfolio meaning that we have try to consult a portfolio which has more diversity. Ellison or an error is still positive for equity in the longterm, so if the market goes down 5 or 10 , which could happen very easily, we would profit to buy again some equity. In the meantime, we have protection with options. Francine where do you see the biggest upside . When you look at equities, are you positive on european equities compared to u. S. Ones, or is it more complicated than that . Differencee is a between european and u. S. Index in terms of sector allocations. For the u. S. It is much more catered toward technology, and in europe, it is catered toward old sectors such as banks. Beatwouldnt necessarily against the u. S. In terms of europe. What i found interesting is that the growth of the market in these last four months has been very concentrated on a few names. If you look at the performance of the s p, except the five names, we are still at something while today the s p is in more positive territory thanks to those five names. So there is stress in equity to go up in perhaps a more d deconcentrated where. Francine is there a danger that Central Banks turn hawkish in the mediumterm and take the market by surprise . Fiona we dont think so. The fed meeting in july showed that in fact the intent to stay there for long. In return, then use was very dovish. We believe in return, then rules was very dovish. In the past it was about reacting to the market, now they are impacting the market. I think they will be happier if theres a bit of inflation. Francine when you look at the main risks of their, main at least weere, dont have inflation getting out of control because that would reprice all asset classes. Is that your biggest worry, or is it trade concerns, or is it politics in the u. S. . If you look at your two biggest concerns, what are they . My two biggest concerns, one is the micro economic environment. We see it as a vshape, but if it is not managed, it could change. The second is the rhetoric of the central bank, that the market has been very car related to what Central Banks and the government is doing. If the stimulus package does not go out as expected, this could have an impact on the market, because the sentiment of the markets is becoming more volatile. Before it was Something Like a newscaster, which tried to take out the sentiment of the press about what investors are saying of the market. We have seen in the last two or three days, the sentiment is becoming more negative. Francine negative on infections . Even if we have a resurgence of infections before we get a vaccine, how do you model that and what impact does it have on . Quities fiona we believe that for the moment, if you look at economic data, it is on the upside the tradeg market, different news that came out today that is still positive. I think 80 of the s p 500 earnings beat estimates. That is quite good. Saying is more how investors are talking about the markets, how do they see equity markets to be acting in the future . Because there is more uncertainty of a second wave, you can imagine very easily investors taking profit. So we view Market Sentiment as less positive rather than the Macro Economic scenario which we believe at the moment is very good and we believe in a vshaped recovery. Francine a vshaped recovery for the whole world or are there parts of the world that will deal with it better and is there a direct relation with how they handled covid19 and opportunities in the market . Fiona obviously, how we handled covid19 is quite important, but what is more important than that thatthe covid19 is could have an impact on the recession if the central bank act. He government dont it is the first time we see fiscal and Monetary Policy moving together in most of the countries. See is sort of European Union agreeing to have, ancommon debt. If you look at Central Banks and what they have put on the table, it is twice what they put on the table in 2008. So i would say there is quite a synchronized effort compared to 2008 around the world, whether it be asia, europe, or the u. S. Time we is the first see fiscal and Monetary Policy in the main developed countries going together, which is also a positive season. We believe that central bank and fiscal policy will be there to question what the impact of covid can have on the shortterm. Francine when you look at the equity highs that we saw in u. S. Markets especially Technology Stocks is that a trend that was meant to take four or five years the move to more technology or working from home and all of these virtual conferences and that just accelerated . Does that support a conviction in some of the tech stocks or are you worried about valuation . Fiona we are word from some of the valuation. If you look at the valuation of the s p 500, i think it is about 22 x. If you look at the valuation of the five stocks, i think it is pe. Oints higher, 30x if you look at the valuation of , we are aboutocks gdp. Depending on where you look at the markets, some can look expensive and some less expensive. Ift we hope for is that Global Growth continues to be seen in the numbers, there will be a rotation a bit out of these expenses stocks, although they have great feature perspective , they far expensive. We would expect a rotation from these stocks to other parts of the market which have been lagging since the beginning of the year. Francine fiona, final question on gold. Gold . O you do on fiona gold has become a substitute for bonds and it is a perfect asset that plays to roles. Plays two before, it was not interesting, you would rather prefer to have the korean won. But today in the u. S. , korean won has negative yields. Gold is a defensive asset which can protect in the downturn. An asset that can protect against inflation. We tend to believe it is interesting to have gold in the portfolio. Francine thank you so much, fiona frick chief executive officer of unigestion. Coming up, a full roundup of what we also heard from the german chancellor, Angela Merkel. And the country records its biggest spike in coronavirus in four months. This is bloomberg. Francine economics, finance and politics. This is bloomberg surveillance. I am Francine Lacqua here in london. Lets get to the Bloomberg Business flash. Lets start with the u. S. State department asking colleges and universities to divest from chinese holdings it is warning them that. Tighter regulation could come. According to bloomberg investigations, College Endowments represent billions of dollars in investments in china. New shipping rules means sellers will have to one and twoday delivery pledges. Ismany utility giant rwe planning to raise up to 2. 1 billion euros in a share sale. Shares are falling this morning, as the pricing came in at nearly 5 discount to yesterdays close. The company is hoping to use the money to expand its Renewable Energies operations. Goldman sachs has signed a deal of malaysia to finalize the 1mdb settlement. The u. S. Bank announced an agreement in principle in july but it is now confirmed. It does not resolve a probe by the u. S. Justice department. Finally, merrick has raised its fullyear outlook. The Worlds Largest container have aays 2020 will profit of between 67,000,000,000 dollars. It says that does not include the possibility of a second phase of lockdowns. The company was able to stay open for business through the crisis but once uncertainty still remains. That is your business flash. Now on to other things it here in europe and the number of cases rising in germany. Anthony fauci, the top u. S. Infectious disease specialist, says even if a vaccine becomes widely available, it will take time to get back to normal. He says of the u. S. Should not abandon Public Health measures immediately. Dr. Fauci it will take a while to build up a cumulative amount of immunity even reduced by the vaccine, or by natural infection to get to the point where you really have a veil of protection or a number of the of protection over the community. That is not going to happen in the first couple of months of availability of a vaccine. So we will not be able i hope we dont, we should not abandon Public Health measures even when we do get a vaccine. Francine that was Anthony Fauci speaking with bloomberg could take. Lets get more with dani burger. What was his assessment of the current state of the outbreak in the u. S. . Deni he says there was a worrying baseline rate of the Community Spread of the virus, and pointed to a curve whose projection is still upward. What he prescribed to bring this down is what he says the u. S. Eeds, a uniform approach consistency in things like maskwearing as well as social distancing. He says it is too disjointed at the moment to make sure virus down. Ounts come fauci is a man who is acutely aware of the Political Climate in the u. S. He has been thrust into it, so he didnt go as far to say as there should be a federal mandate on things like wearing a mask. He specifically did say it would make sense, but he says getting a federal mandate passed on Something Like that would be impossible, so for that reason it. S not recommending interestingly, though, his main point is that you have to have these uniform approaches, because it could prevent lockdowns. For example, the case arises in south, you would not have to shutdown those economies if you had things like hygiene and social distancing. It is not mutually exclusive between restrictions and normal life, you can have both. In fact, the measures allow this. He did weigh in on the current voting moments that we have been hearing about the post office. He did not want to wade into politics, but he said people should be able to vote inperson and by mail, francine. Francine european leaders also voiced concern on a recent uptick of fire sconce what did Angela Merkel of virus counts. What did Angela Merkel say about that . I she says we should not be expecting in the easing of restrictions in germany, that we should expect to get it under control. She says the virus seems to be brought under control, germany was already requiring people traveling from certain areas to be quarantined when they get back. She said fines may need to be levied that people who are flouting the social distancing rules. Germany really needs to be vigilant. That the virus is still here even if it is not visible. Much,ne thank you very our dani burger with the latest on the virus after that brilliant interview on quick stick with dr. Anthony fauci. At 10 00 this morning london time, will get the final cpi reading for the euro area. At 9 00 a. M. Comment leaders will meet via videoconference to and also atrus, 3 00 p. M. To review strategies for compliance when it comes to oil supplies. And the focus shifts to the u. S. For conversation with the richmond fed president on the economic outlook. In the meantime, european stocks are higher. Futures also. Investors signaling continuous optimism in the postoutbreak rally. Below 2000g back an ounce. Bloomberg surveillance continues in the next hour. Tom keene joins me from new york. This is bloomberg. This is bloomberg. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. The s p and nasdaq powered to a record close. On capitol hill, nancy pelosi hints that the democrats could compromise to see the deal on stimulus. Joe biden becomes the official democratic nominee for president. President trump says he called off trade talks with beijing. Rules out merkel further loosening of virus measures after germany records its biggest spike in cases in nearly four months. Good morning everyone and welcome to. Bloomberg surveillance. I am Francine Lacqua here in london. Still working from home, tom keene in new york. It is an interesting day. I think there are figures out of the eurozone coming up shortly. Tom also the markets are talking as well, you have got 500 back to the record highs of valentines day. It was a different time and place